Candy-counter economics

During the Great Depression, people went to the movies to take their minds off plunging stock prices, useless retirement plans, job insecurity and home evictions. It's unclear whether they bought popcorn, candy and soda, or whether they decided to forgo the junk food and just enjoy the flicks.

While today's economy hardly compares with those dreary days, the current state of the market does make this a good time to check the validity of the cable sector's claims of being “recession-proof.”

Cable is often compared to Depression-era movie houses, not only because cable installers leave chewing gum stuck under living room chairs but also because cable supposedly delivers cheap entertainment. I wonder, though, if cable subscribers will succumb to the electronic versions of popcorn, candy and soda — digital and high-speed data and pay-per-view — or skip the junk food and stick to the basics.

Early indications are that incremental services are not recession-proof. The most jolting evidence comes from Scientific-Atlanta, a company that was flying so high earlier this year that its executives were landing frequent flier miles without leaving their desks. S-A was believed to be breaking the recession mold suffocating the rest of the industry.

When that bubble burst in the faces of S-A execs, they scrambled to explain that business was not as good as they thought. Cable operators, they said, didn't want digital boxes.

S-A's woes relate directly back to a cable platform that may be built on sand — and I don't mean silicon. Cable's digital come-ons — the words “free trial” are usually bonded to the words “digital cable” — make long-distance providers look like pikers.

That kind of huckstering is fine if service providers deliver something worth buying, but remember that we're talking about cable. When the free trials end, the subscribers give back the boxes. When people return set-tops, operators put them into inventory. When operators have inventory, they don't buy new boxes — therefore, Scientific-Atlanta and its ilk have no market.

Despite generally superior technology, the cable industry continues to lag in customer service and perceived value. Right or wrong, people consider satellite a better deal. And when it comes to picture quality, renting a DVD from Blockbuster beats cable's bandwidth-jammed pay-per-view offerings any Saturday night.

When the public has money, it might belly up to cable's digital candy counter to buy “Six Feet Under” on multiple digital channels of HBO. When money is scarce, it's just as easy to brown bag entertainment from the local video store.

As for the other cable accoutrements — high-speed data, telephony, video-on-demand — they're all too new and too niche to have predictable futures (kind of like vendor earnings).

The cable sector might be recession-proof, but does that include those new services on which the industry is basing its future livelihood? That's what has analysts scratching their heads and vendors scratching their profit predictions.

Perhaps there's nothing that can duplicate the draw of Depression-era movies. It's certainly part of a bygone era when values were different. After all, back then moviegoers usually got a couple feature films and a newsreel for the price of admission. Cable subscribers get cable — and maybe some chewing gum under the La-Z-Boy.
Contact Jim Barthold at jbarthold@primediabusiness.com