Cable Cord Cutting: Is the Economy Really to Blame?
In the TIME Magazine article, “Gotta have cable: has the cord-cutting trend slowed down?”, Brad Tuttle discusses possible reasons
for why hundreds of thousands of cable subscribers have closed their accounts. The most prevalent reason, he finds, is that the current economic situation has left many people too poor to cover their monthly bills; thus, they have no choice but to cancel their account.
However, he also considers the implications that online television-viewing sites, such as Netflix and Hulu, have on the cable world. Perhaps people are canceling cable in favor of these websites, because they offer equal value at a lower price. Perhaps this relates to our class discussion about decision making in networks: people observe the actions of others and follow their decisions.
There are typically two reasons for following others—one, for the direct benefit and two, for the information benefit. The direct benefit in this case is clear: access to your favorite television shows for a fraction of the price and afraction of the commercials. The information benefit is also reasonable to assume: person A observes persons B,C, and D using Netflix, rather than traditional cable; it is now reasonable for
him to assume that they have researched the pros/cons of each and have access to private signals/information that
person A does not.
So, with these two benefits intact, it is possible for an information cascade to begin. Suppose person A begins using Netflix. He tells
person B how great it is, and person B adapts. This cycle will continue in this way, growing exponentially, so long as the majority of people’s private signals are positive and there is a public display of a positive payoff—perhaps positive blog posts and high scores on product-rating websites, for example. Eventually, people will stop performing their own private research and listening to their own private signals in favor of simply accepting the if so many people have adapted, the product must be good, and I should adapt as well. Thus, an information cascade has formed.
It is also important to point out the fragility of this information cascade. If breaking news becomes widely available regarding the benefits of cable compared to television websites—an event that is certainly possible—people will stop purchasing Netflix. It is so easy for these people
to abandon their Netflix support, because their only basis for adopting it in the first place is the general belief that everyone else uses it, so it must be good. Thus, if new factual information comes to light, these general beliefs will easily be abandoned and the information cascade will fall apart.
Article link: http://moneyland.time.com/2011/11/01/gotta-have-cable-has-the-cord-cutting-trend-slowed-down/