The cable TV industry may be slow to admit it, but the greatest competitive threat to its future isn’t satellite dishes or telcos or the Internet.
The problem isn’t exactly a new one, but the pirating of cable by consumers armed with illegal “black boxes” is now exacting a staggering toll in lost business on cable ops, with the topic surfacing at a number of sessions at the recent Western Cable Show in Anaheim.
According to one estimate, some 15 million homes — or between 18% and 20% of households passed by cable in the U.S. — steal some form of their cable service.
That comes to some $5 billion to $7 billion in forfeited cable revenue at the retail level, believes Jeff Wade, executive VP of sales and affiliate marketing for Showtime Networks.
“And that’s conservative,” Wade adds. “The number is just huge.”Again, cable piracy has been around as long as has the business itself. Yet what has become increasingly apparent is the fact that cable has little chance of expanding its market penetration beyond 70% if it fails to convert some of those pirates to paying customers.
So over the past year, the industry has finally acknowledged that the problem isn’t likely to go away by itself, and has begun banding together in the hope of recovering some of that mountain of lost assets.
Crack down on thievery
In April 1996, it formed a Pay-Per-View Anti-Theft Task Force designed to crack down on thievery of PPV events. Then last month, the industry broadened the mandate and rechristened itself the Anti-Theft Cable Task Force, with some 50 companies participating, including most of the top 10 MSOs.Wade, whose company has taken aim at black box advertisers and distributors independently throughout 1997, contends that the idea here isn’t to toss cable freeloaders behind bars.
“We look at it as a revenue opportunity rather than a prosecution opportunity,” Wade says. “If the industry views this as a way to increase cash flow, it’s much more likely to try to do something about it. I have to believe that if we can convert illegals to pays, we’re talking about adding 4, 5, 6 percentage points of cable penetration.”
Yet as Hugh Panero, prexy and CEO of pay-per-view distributor Request TV and chairman of the Anti-Theft Cable Task Force, maintains, there has to be prosecution, too.And shame. “We have to take the glamour out of stealing cable in order to really turn things around,” Panero says. “We have to give it the same social stigma as smoking.”
For the moment, the campaign is aimed not at consumers, but at the folks who manufacture and distribute the illicit boxes as well as the national publications that publish the ads.
In both anti-theft ads and personal phone calls, the task force has gone after publications carrying ads for the black box and pressured them to stop accepting those ads. So far, the Chicago Sun-Times, the Family Handyman, Penthouse, Premiere, Sport and Men’s Journal have agreed to discontinue the ads. However, others, including Golf Digest, Road and Track, and Outdoor Life, still carry them.
“We keep the pressure on,” Panero says, “until the publishers realize they’re doing something wrong. If we keep pushing, we feel we’ll get results.”
The manufacturers of the boxes, however, will usually find a way to ply their trade, Panero says. “It’s kind of like prostitution. If you move the hookers off of Eighth Avenue in New York, they’ll start working 11th Avenue. If you shove the black box people out of magazines, they show up on the Internet.”
While the industry has begun to make inroads against theft, Panero believes that real progress won’t be possible until consumers realize “there could be a serious financial penalty if they use these boxes.”
However, Wade maintains that the effort requires “honey rather than vinegar. Converting people works better than busting them.”
And how to convert them?
“Convincing them that people will think they’re criminals,” Panero believes. “It’s not like the old days, where you had rising rates and poor services and people figured that stealing was one way to get back at their cable company. It’s not the case anymore.”
A taller order still might be convincing people getting big-money pay-per-view boxing events for free to come clean. Wade recalls that Showtime Event TV conducted a sting during the June 28 Mike Tyson-Evander Holyfield fight by holding a phony win-a-T-shirt contest before the event.
“We found by checking authorization codes that for every person buying, at least one was stealing the fight,” Wade says. “That’s a lot of stealing.”
The secret to cutting that down, figures Wade, is vigilance at the local operator level.
“In the past, cable companies have looked at piracy as something they couldn’t do anything about because there wasn’t anything in it for them,” Wade says. “But when we convince them that this is a revenue-generating opportunity, they start to come around. That’s the way we need to approach this to have a chance.”