A formula for all: Starbucks, cable TV network operators, and cable systems must learn to deal with a changed consumer environment.
The recent turmoil at Starbucks, the U.S. coffee chain that has had four CEOs in three years, could serve as an example to TV executives the world over, but especially to top brass in the U.S.
Starbucks was born in the U.S. in 1971 as a way to offer Americans the experience of Italian coffee, which is typically found in coffee shops in Italy that are called “bars.” (In the U.S. “bars” refer to establishments that serve alcoholic beverages.)
Starbucks quickly became successful for its simplicity, fast service, and low prices.
When the chain (now 35,700 stores in 80 countries) started to diversify its offerings, reaching its current 170,000 different ways to customize a Starbucks drink (as reported by The Wall Street Journal), the service slowed down. The wait for a cup of coffee these days can reach up to 20 minutes. Prices also zoomed up. A cinnamon dolce latte is now a whopping $7.10, plus tip.
In trying to attract finicky customers by offering iced green-tea lattes without ice and skim milk with half twist of lime and 12 Stevias, Starbucks slowed down the service, increased prices, and lost a good number of traditional customers without being assured the loyalty of finicky customers.
So, what is Starbucks’ lesson for legacy media? It was recently reported that Channing Dungey will soon replace the retiring Kathleen Finch as CEO of Warner Bros. Discovery Cable TV networks. This is not surprising. In its second quarter, Warner Bros. Discovery took a $9.1 billion write-down of the value of its cable TV networks.
Similarly, Paramount Global reduced the worth of its own cable TV networks by $6 billion, and Disney’s ESPN and Disney Channel are not faring well either. But all, following FOX’s stay-on declaration, remain committed to cable TV.
Now, the question is: How to make Starbucks products — I mean cable TV networks — appealing again? Answer: Reduce prices. In the case of Starbucks, take the (annoying and despised) tips off of the bills and charge them to the store. This way the employees will not lose income while striving to serve more clients, and the company will be lowering prices without looking silly with, for example, a 25-cent price reduction and a $3 tip.
However, the solution for cable TV should be more drastic: Make the cable channels available to more viewers by eliminating carriage fees. The results will inevitably be a surge of cable subscribers and an increase of TVHH reached. The idea is not new. In the U.K. Sky agreed to stop paying carriage fees to the BBC in 2014 in exchange for not dropping it.
Currently, carriage fees in the U.S. generate an estimated $8 billion a year for cable TV network operators. If they would keep the sports channels as premium services (which would thus require a carriage fee), on a-la-carte offerings, and make all other channels carriage fee-free, the cable providers will allow for lower subscription prices while increasing the number of channels offered. With the savings, some consumers will even invest in premium sport channels, while generic cable network operators will be making money with advertising, which will benefit from an expected increased linear TV consumption.
This new world economic environment no longer permits finicky consumers demanding iced green-tea lattes without ice and skim milk with half twist of lime and 12 Stevias. Nor does it allow for TV viewers to pay exorbitant fees for cable subscriptions and streaming services.
(By Dom Serafini)
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