“Harvesting” is a typical business strategy for contestants in declining markets. When executives believe there is no real opportunity to reverse a product slide into the declining side of its product life cycle, it makes sense to harvest cash, but not to invest too much to “save” the business, or turn it around, as the judgment simply is that the business is mature and inevitably will decline.
It does make sense to invest only enough to slow the rate of decline.
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The other strategy common in saturated markets that might not be declining, but are at or very near a peak, is to take share from other providers.
Long distance calling and legacy voice are examples of “harvesting.” Organizing strategy around taking sharse is more characteristic of the video subscription business. At the moment, telcos arguably are poised to profit most from the “take share strategy.”
The number of U.S. telco video subscribers will rise from 8.8 million in 2011 to 18.6 million in 2017, according to Parks Associates (News - Alert) forecasts. That gain by telcos will come from share presently held by cable TV customers and satellite providers.
Satellite's share of the subscription video market will drop to 30 percent by 2017, while cable's share will fall to 52 percent, while telco IPTV (News - Alert) share will rise to 18 percent.
Cable video subscribers will decline from 60.7 million in 2011 to 56.1 million in 2017.
But forecasts of market share shift potential vary, and at least part of the reason is differing views about the impact of cord cutting.
A new ABI Research (News - Alert) study suggests that nearly 20 percent of online video consumers consider online video as a replacement for entertainment video subscriptions. That obviously represents “significant risk” to the traditional video entertainment business.ABI Research suggests the magnitude of potential revenue loss could range as high as $16.8 billion in the U.S. market, for example. Telcos won’t face those issues, as they are predicted by virtually every study to continue taking market share, as cable TV operators and satellite providers continue to lose market share over time.
But at least one analysis has satellite providers overtaking cable TV providers in revenue in 2017.
So the near term trends might not be “linear,” as some forecasters still project cable TV operator and satellite provider video revenue growing for a period, Digital TV Research forecasts.
But a change that shaves as much as $17 billion from U.S. providers would seem to be a longer-term danger, as ABI Research also suggests U.S. video entertainment penetration is dropping at a rate of about 0.5 percent per year through 2017.
That arguably is an optimistic scenario for cable TV providers. Ignoring changes of market share between the contestants, a loss of perhaps half a percent a year of subscribers won’t make a large dent in a revenue stream that collectively represents more than $90 billion in annual revenue.
If the number of subscribers were directly related to the amount of revenue, then a half percent a year decline would represent perhaps $450 million in lost revenue each year. At such rates, it would take decades before service providers lost $17 billion.
Whatever share shift one expects, the game now for video service providers is to “take or protect” market share.
Edited by Brooke Neuman