The Real Story Behind Cord Cutting Numbers
The litany of posts and pontifications about cord cutting continues unabated, yet few people take the time to actually look at what’s really going on. The Washington Post’s Rob Pegoraro recently touted the benefits of ditching cable, but in the same breath admitted that it works best for people who a) don’t watch much TV, b) live in an area with great OTA reception, c) don’t watch live sports much, and d) don’t mind relying on DVD rentals to catch first-run movies.
Like most who extol the virtues of cord cutting, Pegoraro also cited cord cutters as the reason for the loss of cable subscribers in two quarters of 2010. As I have previously noted, the real story was somewhat different.
This isn’t to say that the cable industry doesn’t face challenges from online video. It’s just that the challenge is somewhat different from what’s being reported. Occasionally, in all the cord-cutting froth, you have someone actually takes time to think it through and get it right. Such is the case with Nielsen’s Howard Shimmel. He cites two things that are clearly going on, and when added together, paint a picture of the real challenge cable faces.
First, Shimmel notes, there is a lot of “cord swapping” taking place. That is people will drop one MVPD and switch to another to get a better deal. That results in headlines that show cable declines, but gains by other providers, those usually add up to a net gain in subs.
Second, Shimmel notes the role that age plays in many of these numbers. Shimmel cites figures that show consumers age 25-34 are often choosing online video as their media of choice. Shimmel says these people are choosing to skip cable because of economics and lifestyle choices.
This is what I referred to in the post last September (linked above) as the lifecycle dynamic that affects cable. Most of the subscriber shift in cable comes at the opposite ends of the age spectrum. As older subs die, they are replaced by younger subs connecting for the first time.
However, many potential subs in the lower age bracket weren’t becoming cable customers even before OTT options came along. The lifestyle Shimmel refers to keeps them out of the active audience because they are often not home to watch TV. They fit into Pegoraro’s model of cord-cutters, but rather than cutting the cord, they were never attaching the cord. Now, they’re attaching a different cord.
In a more traditional model, those same young consumers may have had no pay TV service at all since it didn’t make sense to pay for TV you didn’t watch. As those younger consumers age, get married, spend more time at home, and have kids, they would normally become your traditional cable household.
That disconnect in media viewing habits is apparent when you consider the average viewer consumes 279 minutes of online video per month (roughly 4 ½ hours) but consumes nearly 160 hours of television. Those numbers are different by age group but include viewers like me who don’t replace TV with online video, but complement it instead.
So the real question, based on the lifecycle dynamic and the availability of new over the top services, is what happens when those people begin to age. Will they eventually look to cable for more viewing options than are afforded them by OTT services? Or will they be content with what they have? That is a much more difficult question to answer given the nascent state of the OTT market.
It may be years before we see the actual effect of OTT plays on cable. However, given multichannel video is probably close to 100% of the market it will ever reach, it’s likely that there will be sub loss as older consumers leave the market and younger viewers don’t convert.
Another variable that will have significant impact is the differing capabilities of the platforms that are developed to compete and how well they complement the business models of the content producers.
As an example, I own an Apple TV and a Roku box. The content available on the two is dramatically different. I have been much happier with the Apple TV than the Roku. I could make the case for sticking with Apple over the long term, but the ROKU could never support my family’s viewing habits. We simply don’t watch that much cricket.
That said, the content on Roku is much cheaper than the true a la carte pricing of Apple. For that reason, content owners will likely prefer the Apple model over time.
With regard to the younger consumers, my personal expectation is these people, having had access to good content via OTT services, will actually be more inclined to look for more programming, and more entertainment options as they age. Just as someone who had broadcast or basic cable would move to cable or premium channels as they got older, today’s OTT customers may easily become tomorrow’s cable customers as they look for larger packages of content at a bundled price.
The challenge for cable will be to a) focus on premium content, b) protect that content, and c) differentiate its product from whatever else is out there.
HBO and Showtime have demonstrated that premium content delivered to smaller audiences is a viable business model. Shows like Sex and the City, Entourage, Dexter and Californication are only available to a subset of cable subscribers, but have a much larger place in the broader content landscape than those numbers would typically justify.
In other words, cable needs to return to its original business model – more exclusive, more engaging, and more valuable content than what is available for free elsewhere.
[...] This post was mentioned on Twitter by Michael Turk, Trapit: Future TV . Trapit: Future TV said: The Real Story Behind Cord Cutting Numbers http://chtr.it/wzBuUb #iptv [...]
Here’s the problem with your argument. Whether the change is a “lifecycle dynamic” or a real “Cord cutter” is moot. In fact the entire argument is actually better served with your argument than it is with the cord cutting argument.
In the cord cutter dynamic people are leaving for assumed financial reasons, cutting back, whatever you might like to call it. This could change with economic growth and new jobs.
In your “lifecycle dynamic” people from the age of 24-35 and below (since everyone below this age group follows the technology.) prefer online video or Internet television. Hence Cable will lose to a youth movement looking to have access to content on any platform, phone, tablet, tv and shoe phone at a ridiculously low price. Cable had a chance against Cord cutters, it doesn’t have a chance against youth in revolt.
One last thing, to Assume the argument that young people will get bored and move to cable is foolish. Your views are behind the times and outdated. For example your assumption of the youth’s need for more content options as they age that only cable can provide. Shows a complete lack of research and understanding on the topic. 85% of all broadcast content is online, missing only a few network selections like The Mentalist, NFL Sunday Ticket (Rumored this year online) and HBOgo (Also rumored to go ala carte this year). Once available, every major sport (and some minor) will have online access, all premium channels, Netflix and Amazon for movies and their are even rumors of a first run online movie theater for in home viewing. (In the next 18-24 months) THATS just Broadcast/Network/Cable content/Hollywood, what about the thousands of home grown internet television programs like Revision3 that produce HD user generated content. Online video trumps Cable 100 fold for content, cost and delivery.
Mr Turk your assumptions in this article show a very real disconnect from your topic and your experience. I was disappointed to read it and would greatly appreciate the time you wasted from my life returned. Good Day.
You seem to assume I’m arguing that cable is safe from a shift to online video. I’m not. More on that in a moment. For now, let’s take a look at your arguments.
Unfortunately, the numbers don’t quite bear that out. As GigaOm Video noted today, 8.5% of households with a 25 or under are cable free. While that number is admittedly larger than the national average, it’s still a small figure.
Overall, the national figures on cable free homes rose by less than 1% last year – from 3.6 to 4.4%. While that figure may well rise, it may not if the economy improves and more disposable income flows into the system. If it rose at twice that rate every year, it would take about two decades for cable providers to feel the pinch.
But let’s assume your thesis is correct about the “youth in revolt”. You have actually validated, not defeated my argument – it is only as those youth age that the effect will be felt, and it will be a long term process.
Your argument assumes that all cable programming will go online. Let’s assume that’s true.
Those programmers will give up a massive chunk of revenue that comes from a guaranteed revenue stream – per subscriber fees. Do you think they’ll keep giving away that content for free if they don’t have cable subs subsidizing the views anymore? Let’s look at the facts and see if that’s true.
For years, studies indicated that ESPN would cost $15-$20 per month if it was provided a la carte on cable. NHL’s Game Center is $20 per month, and that’s just for hockey. If you want the Sunday ticket, I’d be willing to bet you’ll be looking at $30 or more. To get just two sports, you’ll end up paying almost as much as your whole cable bill costs you know. Want to get programming from HBOGo? That may be a la carte, but it’s not going to be free.
The fact is television is compelling video is incredibly expensive and requires a model where costs are spread across all users. In broadcast that took the form of advertising to reach massive audiences. In cable it took the form of dual streams – subscriber fees and lower ad rates. In a world of online video, with even lower ad rates, those subscriber fees will rise dramatically.
If you can demonstrate a model where all that content doesn’t end add up costing more than your bundled package, I’d love to hear it.
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