Michael Greeson, Founding Partner
December 10, 2010
The proverbial pile-on against cord cutting continues, this time with ESPN using Nielsen data to conclude it is a "very minor" phenomenon. According to ESPN's Glenn Enoch, VP for integrated media research, "We got a little worn out reading headline after headline saying, 'Cord-cutting, it's a disaster; young people are abandoning TV.' For our strategic purposes, we needed to know what was really going on."
Yes, Mr. Enoch, you do need to know what is really going on. And we can help, but you have to promise to listen this time.
First, no credible research source is arguing that cord cutting is today anything but a minor phenomenon. True, several reputable firms have attempted to quantify its dilutive impact on PayTV, but none makes the argument that OTT has magically altered the dynamics of PayTV—not now and not in the next few months. Even we at TDG, the leaders in over-the-top (OTT) research, do not argue that cord cutting is anywhere close to seriously challenging PayTV services as a replacement. We simple note that the threat is becoming more real as each day passes and it would be wise for incumbents to consider both short-term effects (Netflix eating away at supplementary VoD revenue) and long-term ramifications (outright replacement of PayTV services by online sources). For us, the use of OTT video as a replacement for PayTV services is a long-term trend that will play out incrementally, a few hundred thousand subscribers at a time (the tipping point of which we may very well have been seen in the last two quarters).
Second, incumbents like ESPN continue to use the cord cutting discussion as a red herring of sorts to divert attention away from the real threat: U.S. PayTV subscriptions have reached saturation and are now declining, and at exactly the same time the number of conduits and platforms by which consumers can access TV content are exploding.
Third, Enoch and others fail to acknowledge the difference between cord cutting in general and OTT-as-replacement in particular. Even The New York Times can’t get it right: the same article that quoted Mr. Enoch defines “cord-cutting” as the act of “dropping costly cable subscription and watching TV on the Internet instead.” Wrong—cord cutting is simply the act of cancelling one’s PayTV subscription and not subscribing to another, with no specific motive attributed. “You mean the reason for cord cutting is not ‘cord cutting’?" That’s precisely what we mean.
In terms of the primary reason for cord cutting, TDG’s recent research reveals that—among adult broadband users to varying degrees likely to altogether cancel their PayTV in the next six months, close to half say that “it’s too expensive and offers a poor value.”
The manifest meaning of this data is that cord cutting is more likely to be the consequence of household belt-tightening, though the latent meaning is undoubtedly more interesting. Yes, current economic conditions are forcing many households to cut back on their expenses, but historically PayTV has not taken the brunt of the ax. The fact that a growing number of consumers view PayTV services as expendable is the real story here, not that online TV is somehow replacing them (a rationale selected by only one-in-five likely cord cutters).
Should TV executives be worried about cord cutting? Absolutely. Is it going to undermine their business in the next few months? Absolutely not. For TDG’s clients—who by the way are both upstarts and PayTV incumbents—knowing more about this phenomenon and the way it will unfold (notice the use of term “will” versus “if”) could mean the difference between winning and losing in this emerging quantum media universe.
It would be wise for incumbents like ESPN to quit wasting their time and energy denying cord cutting and figure out how to minimize it when the time comes. Mr. Enoch, I’ll be waiting on your call....
Related reading:
The New York Times
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