Big cable has sunk more than $70 billion into digital upgrades for US cable systems, but consumers have yet to be persuaded that the cost of this digital service is worthwhile. Each month nearly 5 percent of digital subscribers either downgrade from it or cancel altogether—twice the churn rate of basic cable.
Most of the defectors switch either to satellite TV or to TiVo-type services that enable them, for the upfront cost of a $200 to $400 digital video recorder (DVR), not only to watch what they want when they want it but also to skip pesky commercial interruptions. No wonder the penetration rate of digital cable has leveled off—its offer doesn’t measure up to the competition.1
Yet Big Cable might still have a shot at redeeming its multibillion-dollar investment. Regional trials show that video on demand (VOD)—the old dream of delivering movies or programs to viewers when they actually want to watch—has tested encouragingly well with cable subscribers. In these tests, viewers have watched television more and deserted their cable companies less; they are even willing to pay an extra $10 to $14 a month for the privilege.
The one hitch is that television networks and studios—which...