Michael Greeson, Founding Partner, Research
November 19, 2010
This week saw the arrival of the latest study to discuss the loss of subscribers among incumbent PayTV operators. SNL Kagan estimates that during Q3, some 119,000 PayTV subscribers actually cancelled their service altogether (not downgrading and not switch providers, but actually cancelling service). Q2 was the first time in the history of PayTV that the industry experienced a net decline in paid subs (losing 216,000), meaning this is the second consecutive quarter that such losses have been reported. According to Kagan, in the past two quarters combined, the segment has declined by 2.3%.
Is this “turning of the tide” all it’s being made out? Perhaps.
For the record, the numbers themselves are a drop in bucket for incumbents. Then again, the real debate isn’t about the numbers but about the trending and timing.
1. This is the first time in the history of U.S. PayTV that this has ever happened. In other words, it’s a big deal.
2. It’s happened two quarters in a row, meaning now it’s an even bigger deal.
3. It’s happening at a time when economic recovery is taking longer than expected and consumers remain cautious about spending money. It seems, in fact, that when push comes to shove, many are choosing to downgrade or cancel their service.
4. It’s happening at a time when new technologies enable consumers to access a wide variety of video through a new conduit—the broadband-enabled Internet.
5. The number of low-cost net-enabled platforms and services offered by big-name players (Google, Apple, Wal-mart, Amazon) continues to accelerate, a sure sign that the age of Internet-enabled TV—as both a business and consumer proposition—is upon us.
So the stage is pretty well set for net-enabled TV to blow up big time, and at the time TDG first predicted so many years ago. No one denies that. What is in question, however, is what role does the availability of Internet video via the TV and other devices play when it comes to PayTV subscriptions? Well, it depends on whom you ask. Kagan suggests that, though the bad economy, a poor housing market, and consequent belt tightening may be the primary culprit, there is now evidence that OTT-driven cord cutting is real. According to a senior Kagan analyst, it is becoming “increasingly difficult” to dismiss the impact of OTT substitution.
Side note—It’s funny how incumbents characterize these losses, as “pushing subscriber gains into negative territory.” On the other hand, the critics are no better at it. Are operators really “bleeding” subscribers? Regardless of which spin you prefer, you lost subs, bub, and that’s the rub. And, according to Kagan, some of this is due to OTT substitution.
Another recent study—this one by Harris—found that one in five adult Americans (22% of all survey respondents) had downgraded or cancelled their PayTV service in the last six months. Yes, the data released is a bit ambiguous (did they downgrade or cancel?), but the very fact that 22% of U.S. adults have reduced or eliminated their PayTV service fees is a bit of wake-up call. Then again, a CTAM-sponsored Nielsen study found that 84% of qualified respondents (in this case, those ages 18-49 who watch at least five hours of TV per week and had watched full-length TV shows or movies from the Internet on the TV set at least once in the prior month) report watching the same amount of TV now as they did before they started streaming or downloading content from the Internet to their TV. As well, only 3% of this very specific segment are to any degree likely to cancel their PayTV subscription altogether.
Sorry, CTAM and Nielsen, but you focused on the wrong group of consumers. The fact respondents were required to have watched full-length Internet TV shows or movies on their TV is far too restrictive to represent accurately the nature of the OTT-as-replacement market (the “cord cutters”). TDG research from 2009 found that many of those interested in an OTT-as-replacement service are highly unlikely to have ever viewed Internet video on their TV. Yes, they have viewed online video, but not on their TV—that is a relatively advanced usage model characteristic of only 11% of the entire population (Nielsen’s estimate, not mine); early adopters of web-to-TV technology and digital entertainment enthusiasts who will use any source available to them (a hybrid segment identified in prior TDG reports). Although these early adopters make up part of the “cord cutting” segment, they are hardly the majority. Instead, there is a sizeable segment of mainstream consumers interested in any TV service that gets them the content they want at a price that makes more sense to them. Today, that may just happen to be an OTT TV service.
Again, the shift from regular broadcast or “cable” TV to Internet-delivered TV will take place slowly, not all at once, driven to some degree by early adopters and tech enthusiasts, but to a larger part by consumers looking to save money by reducing their monthly TV expenses.
Related reading:
CED (discussion of Kagan findings and links to other studies)
CED (separate analysis of Q3 PayTV operator losses)
The Hollywood Reporter (discussion of Nielsen findings)
Multichannel News (discussion of Harris findings)
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