Cord Cutting – The Threat May Be Larger Than You Think
Michael Greeson, Founding Partner, Research
January 20,2010
Some 120,000 of our fellow gadget enthusiasts just finished a long week in Las Vegas, having attended the annual circus known as CES. Among the hottest topics at this year’s conference was Over-the-Top video delivery and the concept of “cord cutting,” with particular emphasis on (a) how best to exploit OTT technologies to steal subscriber revenue from incumbent PayTV operators, and conversely (b) how incumbents can best fend off this threat.
While the concept of “cord cutting” was discussed widely at CES, operators continue to see little evidence in support of this phenomenon, thus leading many observers to doubt the validity of the concept altogether. This, however, would be a very dangerous mistake.
The PayTV industry is being impacted incrementally by a number of forces, all of which collectivity point to a “perfect storm” in support of cord cutting. These forces include:
Now imagine yourself as an “average” PayTV subscriber faced with the loss of your favorite content due to failed retrans negotiations (e.g., Scripps pulling The Food Network from Cablevision’s lineup); increasing monthly TV costs during tight economic times; incumbents that cannot deliver your favorite content to your favorite devices; and the growing availability of less-expensive video options from a multitude of sources... You get the picture?
It is in this context that the threat of cord cutting becomes very real, a legitimate threat to dominance of cable, satellite, and other PayTV operators.
According to new research TDG fielded in late December 2009, among today’s adult broadband users:
- 5.1% do not own a TV set;
- 2.2% own a TV set but do not watch regular TV;
- 13.2% do not subscribe to a PayTV service;
- 18.4% of PayTV subscribers are likely to downgrade their level of service sometime in the next six months; and
- 8.4% of PayTV subscribers are likely to cancel their service altogether at some time in the next six months (yes, and go without PayTV altogether).
I, for one, am ready to do the latter, and will soon install a digital antenna which, when combined with my (broadband-enabled) Vudu VoD service, will furnish a sufficient assortment of quality content for my very basic needs. As most of you know, I am neither an early adopter nor a reactionary, but just an “average” consumer growing tired of paying $100+ each month for a service over which I have little control.
For incumbents who still deny this emerging threat, it is time to either wake up or walk away. Assuming “waking up” is preferable to throwing in the towel, incumbents will play a dual role in the multi-source, multi-screen world:
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As a pipe owner, it is in your interest to provide truly open, unfettered access to all sorts of content and services across as many devices as possible. Yes, this may seem contrary to your short-term motives (the need to charge consumers based on usage). However, your long-term interests will be better served by accepting the inevitability of multi-screen video and enabling a wide range of other companies to deliver such an experience.
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As a PayTV operator, in addition to building, owning, and managing the pipe that makes all this happen, you also have the TV-specific knowledge and connections to build a one-of-a-kind service with which alternative providers will have a hard time competing.
In the U.S., most PayTV operators own both the TV and broadband infrastructure in their territories, a unique position that should be considered a privilege, not a right. If incumbents cannot handle this privilege responsibly and end up becoming anticompetitive or stifle innovation, either the government will suspend it or (more likely) a competitor will pry it from your arms.
So do you get the message?
For more information about TDG’s latest digital media research, please contact Greg Stockard at 469-287-8040
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