“Netflix to Kill PayTV Revenues” – Really?
Michael Greeson, Founding Partner, Research
June 17, 2011
For those of you that keep up with PayTV- and OTT-related news (which is all of you, or you wouldn’t be reading this rag), this was an incredible week, fueled in large part by NCTA but in no small way by a press release TDG issued on Monday. The topic: the growing proclivity of Netflix Streamers to downgrade their PayTV service.
The release was picked up by AllThingsD at WSJ, The New York Times, and Time magazine, among others. Great coverage, to be sure. Too bad most of them misinterpreted the data.
For those who haven’t yet seen the release, it can be found here. For those that have read the release, allow me recap.
According to TDG’s latest research, the percent of Netflix Streamers likely to downgrade their PayTV service in the next six months (that is, “move from a higher service tier to a lower one, or cancel a premium service of some kind”) has doubled in a little more than a year, from 16% to 32%. The reason? Among moderate to heavy Netflix Streamers (those that stream more than five hours of Netflix video each week), 61% cite growing use of online video as the primary reason for likely downgrade (two-thirds of which cite Netflix use in particular). Only 24% of moderate and heavy Netflix Streamers cite economic concerns as their primary motivation for downgrade. Among Netflix Streamers in general, these reasons are reversed in order, with only 34% citing online video viewing as the primary rationale for their motivation.
Unsurprisingly, this data attracted a great deal of attention. To my disappointment, however, many reporters simply repeating the misinterpretations they read from other sources, a cycle that culminated with one online journal headlined, “Netflix to Kill PayTV Revenues”. Funny that the hyperlink to this article was written “Netflix bad news for pay TV” but the editors saw fit to amp up the headline by using the phrase “kill pay TV” instead.
They weren’t alone in their mistakes. Both All Things Digital and Time reported that 36% of Netflix “users” were likely to downgrade or cancel service. First, this has nothing to do with Netlix users in general, just those that use the Netflix streaming service. Big difference. Second, the data spoke to downgrade proclivities as defined above, not cancellation, which was surveyed as a separate behavior altogether. True, I did mention that the “Netflix effect” is now becoming manifest and in its ultimate expression will mean both more downgrades and cancellation, but as TDG has long stated, in the short term this is about service downgrades; cancellations will begin much later in this cycle, when full-fledge PayTV replacement services are available that are capable of competing with more robust PayTV offerings.
This is not to suggest that Netflix Streamers are no more likely to cancel their service this year than last, only that no such data was presented in the release, and certainly no data suggesting Netflix would “kill” PayTV revenue—that’s a misnomer.
All of this could have been avoided if the reporters writing these stories had referred to the original press release instead of regurgitating what other reporters had (erroneously) said about it. But I’m just a hack analyst that studies and writes about this stuff—who am I to try and make Internet reporting more accurate?
If you would like to read a good review of the release within the larger context of OTT vs. PayTV from folks who know what’s going on, check out Jim O’Neil’s piece at Fierce Online Video. Jim has a keen understanding of this market space and the difference between Netflix chipping away at, say, HBO subscriptions versus inspiring mass PayTV cancellations.
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