Posts Tagged ‘Pay TV’

Cord-Cutting: A Slow And Steady Drip, Drip, Drip

An interesting study was just conducted by consulting firm cg42 and it claims that pay TV service providers stand to lose as much as $1 billion in revenue over the next 12 months. The reason? Cg42 says that as many as 800,000 customers are likely to ‘cut the cord’ in an attempt to save money on pay TV packages and bundles.

Cg42 surveyed 1,119 customers online this past summer and calculated that pay TV companies could lose as much as $1,248 per lost subscriber on an annual basis. In their survey, they found that the average pay TV subscriber spends about $187 per month for cable TV, phone, Internet access, and video streaming subscriptions.

In contrast, ‘cord nevers’ – people who have never subscribed to pay TV services – spend about $71 per month on broadband access and video streaming subscriptions. The streaming part of that amounts to as little as $15 per month.

Cg42’s survey revealed that both cord-cutters and cord-nevers don’t care much for traditional TV programming, and 83% of cord-cutters said they can access most or all of the content they want to watch without a pay TV subscription. (87% of cord-nevers said the same thing.)

Perhaps more ominous for companies like Comcast and Time Warner, the satisfaction of watching TV without paying for cable or satellite services increases the longer these viewers remain away from pay TV subscriptions.

The most popular streaming service is still Netflix, which 94% of respondents subscribe to.  And number 2? YouTube’s free video channels, which offer selected clips from late night talk shows and musical performances.

Surprisingly, many respondents get their sports fix by going to bars or restaurants to watch games. The survey didn’t mention how many people also watch sports on free over-the-air TV, which of course includes NFL games, selected baseball games and the World Series, the NHL playoffs, and the NBA playoffs, plus the Olympics, golf, tennis, and NASCAR/Indy Car racing.

Surveys like these aren’t anything new. We’ve seen analysts forecasting the end of traditional pay TV packages for several years now. However, there is a real concern about the cost of these monthly services, and whether they’re worth the price.

I’ve advised numerous folks on how to get free over-the-air television and supplement it with streaming services to save money – and in fact, later today, I’ll be visiting someone nearby to do an RF site survey and see how well he can receive the local Philadelphia stations at home (upward of 50 minor channels).

Couple that with broadband service and there’s no real reason to stay with pay TV, especially now that you can subscribe to HBO and Showtime online without a pay TV service.  You can also do without landline phone service if you have a mobile phone, further reducing your monthly expenditures.

I said this a few years ago in several columns: The future of cable TV is providing broadband service. Just like mobile phone companies charge you only for data (phone calls and messaging are basically free now), so will cable and satellite companies. They will look more like the electric company, charging you for however many gigabytes you used that month.

And how you use the data will be up to you: sending and receiving photos, streaming video, emails, and voice-over-IP. That’s the real future of Comcast, Time Warner, Charter, Bright House, and other MSOs. The question is, have they accepted it yet?

Trends: Ignore Them At Your Peril

On August 15, Leichtman Research Group of Durham, NH released its quarterly revenue and subscription numbers for U.S. cable TV providers. And there was a surprise to be found in the calculations.

For the first time ever, the number of broadband service subscribers for major cable TV service providers exceeded (barely) the number of cable TV channel subscribers. This happened during the 2nd quarter of 2014 and represents a milestone for pay TV services. (And yours truly predicted it would happen a year earlier, in a DD posted a few years back. Oh well, close enough for government work…)

The actual differential favoring broadband subscriptions was small, amounting to about 5,000 more broadband customers. The actual totals for cable TV systems (not including Wide Open West, an overbuilder) were 49,915,000 for broadband, and 49,910,000 for cable channel service. What’s more interesting is that thirteen largest pay TV providers in the US (about 95% of the market) lost about 300,000 net video subscribers in 2Q 2014, compared to a loss of about 350,000 video subscribers in 2Q 2013.

To offset that decline, the 17 largest pay TV providers added about 385,000 broadband customers during the same time period. Cable TV companies control the lion’s share of broadband service revenue and have a 59% market share vs. AT&T’s U-Verse and Verizon’s FiOS services. The latter companies stayed essentially flat in new subscribers as an almost equal number of customers dropped DSL service (627,000) compared to those who signed up for faster broadband (636,000).

For all cable and telcos that Leichtman surveyed, the total number of broadband subscribers was about 85 million. Of that total, industry giant Comcast claimed 21.27 million and #2 service provider Time Warner Cable accounted for 11.97 million. Among cable TV companies, those numbers represent 42% and 23% market shares, respectively. (Keep that in mind as you ponder the consequences of a potential Comcast – Time Warner merger.)

Now for some additional perspective: Netflix recently broke the 50 million worldwide subscriber mark, with 36 million of those subscribers located in the United States. That’s larger than any cable TV or telco subscriber base. In fact, it’s more than Comcast and Time Warner combined, and is indicative of the meteoric growth Netflix has experienced since it commenced a streaming service in 2007.

Combined with the shift toward consumption of digital media online vs. renting or buying optical discs (as outlined in my last Display Daily), it’s clear that broadband is becoming the more desirable service for many households. I’d also venture an educated guess that customers who subscribe only to broadband services tend to skew much younger (Millennials) while traditional cable TV channel subscribers skew older (Baby Boomers).

While AT&T and Verizon have a smaller share of the pie, it’s still a large enough slice to motivate Comcast, Time warner et al to keep increasing their broadband speeds and not lose any competitive edge. I am a Comcast subscriber and while writing this article, checked my download speeds using CNET’s Internet Speed Test. The result? 20 Mb/s downstream at 5 PM, which is a considerable boost from what I had three years ago. Could the fact that Verizon ran optical fiber through my front yard a few years ago have anything to do with it?

What does all of this mean, long term? First off, the preference for faster broadband vs. a pile of pay TV channels that most people never watch will continue to re-shape the business model for cable TV companies. (The median number of channels watched in pay TV households currently stands at 17.) Continued price increases and increasing reliance on wireless (and not wired) phone service will prompt more customers to drop so-called “triple play” offerings and just go with broadband (and probably use services like Ooma for VoIP calling).

Secondly, the sheer size of Netflix and its expanding category of both rental movies and original series provide even more impetus for disgruntled pay TV subscribers to dump costly channel packages and stream everything from the Big Red Father. Both House of Cards and Orange Is The New Black are wildly popular – there’s no reason to assume Netflix won’t hit a few more home runs. (And their success is prompting HBO to finally discuss publicly a subscription streaming service independent of cable TV delivery.)

Finally; it may take more time than I prognosticated several years ago, but cable TV companies and telcos will slowly and inevitably morph into something that looks more like your local electric company, providing metered high-speed broadband connections and letting customers decide what they want to watch, and when. The DVR may even pay the ultimate price and fall by the wayside in favor of streaming from cloud servers as this comes to pass.

Even the biggest fires start with a tiny spark, and most people don’t even notice trends until they are well under way. Ignore them at your peril…

Time To Stop Whistling Past The Graveyard?

According to a new report from Moffett Research, pay TV services in the United States lost 316,000 subscribers between June of 2012 and June of this year. According to a story in Variety, Craig Moffett was quoted as saying, “Cord cutting used to be an urban myth.  It isn’t anymore. The numbers aren’t huge, but they are statistically significant.”

According to the story, Leichtman Research Group determined that subscribers rolls declined by 80,000 Y-Y through the first quarter of 2013. While “cord cutters” have been talked about for several years, they’ve never been statistically important – until now.

Cable TV system operators took the biggest hit, dropping 591,000 video subscriptions in Q2 ’13. AT&T’s U-Verse and Verizon’s FiOS services added 371,000 subs in the same time period, while DirecTV and Dish saw a total of 162,000 customers bail out.

There are many possible reasons, but personal experience makes a strong case that pay TV services are just too expensive. I signed up for Comcast’s Triple Play a few years back when I shut down my Verizon landline service. After asking about the monthly price without any promotional discounts, I was looking at about $140/month for two phone lines, Internet, and two digital TV channel tiers.

In a few years, that had crept up to nearly $185 per month. In the meantime, Verizon came through and “nuked” our neighborhood while pulling optical fiber, leaving a bad taste in everyone’s mouth. But they did pick up a couple of my neighbors, and several times each month, I get mailers advertising rock-bottom “triple play” FiOS deals in the neighborhood of $90 per month.

It was a useful negotiating chip to have when I called Comcast in June and complained about being raked over the coals. The result? An immediate $40 rebate for the month of July and a $30 drop in my monthly bills.

I always have the option of saying “No!” to Comcast and dumping the channel packages. True, I’d lose access to Top Gear, Copper, Homeland, The Amerikans, Dexter, Breaking Bad, Mad Men, and other cable-only shows. But I could keep my broadband package and supplement it with over-the-air TV (my rooftop antenna system reliably picks up stations from Philadelphia and New York City). And I could stream these popular programs later in their runs, or buy them as digital downloads.

Apparently, that’s what more subscribers appear to be doing – forgoing costly channel packages for day-after streaming and season-after downloads of popular shows. The concept of ‘water cooler talk’ about hit shows seems to becoming an anachronism, as more people telecommute. And of course, younger generations of viewers, many of whom are saddled with college and other debt, are always looking for ways to save money, such as Netflix and Amazon Prime streaming.

For several years now, we’ve heard from top pay TV executives that cord-cutting is a myth, or insignificant, and that younger viewers will return to traditional pay TV subscriptions when they form families and buy houses.

Well, it ain’t happening that way. Gen Ys are more comfortable streaming to tablets and computers, and value high-speed broadband more than “all you can eat” TV channel packages. The big pay TV providers have been whistling past the graveyard for some time now. Maybe they should start running…

Is Cord-cutting Hurting the Pay TV Market? — by Ken Werner

In a recent report, Strategy Analytics (www.strategyanalytics.com) tries hard to make the case that cord-cutting is not hurting the pay-TV market. The company directs its report, “North America Digital Television Forecast: 1H’12,” at the digital part of the market, and forecasts that digital subscriptions will increase from 114M in 2011 to 129M in 2016, for a five-year CAGR of 2.36%. SA defines the digital TV market as consisting of digital cable, digital satellite, and IPTV.

The cable part of the pay-TV market is declining, says SA, although digital cable subscribers are expected to grow from 49M in 2011 to almost 54M in 2016. We can assume that much of this growth is due to the mopping-up operations in which many of the remaining analog cable providers convert to digital. (Cablevision is doing this in parts of New Jersey now.) Since the overall number of cable subscribers is declining, it’s obvious that cable providers are failing to convert all of their remaining analog subscribers to digital. Where are they going?

SA predicts that subscribers to IPTV services will increase from 8M in 2011 to 20M in 2012. Lumping IPTV in with digital cable and digital satellite neatly obscures the fact that if you use IPTV you are sourcing your programming from the Internet and you are cutting the cord, in whole or in part, to a cable or satellite provider. Let’s subtract SA’s 2011 and 2016 numbers for IPTV subscribers from their numbers from total digital TV subscribers. Then (neglecting the possibility of overlap between IPTV and cable/satellite subscribers), the number of digital cable and satellite subscribers barely increases from 106M in 2011 to 109M in 2016.

Beyond that, SA bases its conclusion that cord-cutting is not affecting digital TV on their conclusion that the number of digital TV subscribers is still increasing, but seemingly does not try to evaluate the number of cord-cutters directly. Other analysts have dug deeper.  In a 2011 study of worldwide TV programming pipelines, “Pay-TV Subscriber Market Data,” ABI reported, “Cable TV still maintains the largest market share; however, its relative share of subscriptions dropped from 72% in 2009 to 69% in 2010. Cable TV operators in Western Europe and North America in particular faced subscriber losses in 2010 as new television services such as telco TV and online TV replaced traditional cable TV services.”

Early this year, the accounting firm Deloitte, in their sixth “State of the Media Democracy” report, said “A number of Americans have already cut, or are exploring cutting their pay TV connection entirely. Deloitte’s survey found that 9 percent of people have already cut the cord and 11 percent are considering doing so because they can watch almost all of their favorite shows online. An additional 15 percent of respondents said that they will most likely watch movies, television programs, and videos from online digital sources (via download or streamed over the Internet) in the near future.  Moreover, the number of people citing streaming delivery of a movie to their computer or television as their favorite way of watching a movie rose to 14 percent from 4 percent in 2009.”

So, is cord-cutting hurting the pay-TV market? Although Strategy Analytics disagrees, the answer is a clear “yes.”

 

Ken Werner is Principal of Nutmeg Consultants, specializing in the display industry, display manufacturing, and display technology.  You can reach him at kwerner@nutmegconsultants.com.

 

 

Nothing Lasts Forever

Earlier this week at an investor conference sponsored by UBS in New York City, the chief executive of Liberty Media decried the rising cost of sports programming on pay television. And he may have inadvertently lifted the cover on Pandora’s Box by doing so.

 

Greg Maffei was quoted in the Wall Street Journal as saying that the average $4.69 per household subscription fee for ESPN and all of its affiliated networks amounted to “a tax on every American household” and asked, “what happens to the bundle of cable if you keep pushing [the price] higher and higher?”

 

He’s not alone in wondering if Americans are reaching the breaking point with ever-escalating costs of pay television. There is no question that a small segment of the population is disconnecting from pay TV services and opting instead to keep broadband connections only. This movement is 100% driven by cost – the average tab for a digital TV package of channels, voice over IP, and broadband now exceeds $150 on many cable systems. That’s $1,800 a year!

 

To put things in perspective, the average subscription (retransmission) fee for cable networks is about what it costs you to park for an hour at a meter – 26 cents.

 

Viacom’s CEO Philippe Dauman also put the spotlight directly on ESPN for driving pay TV costs through the roof. He stated that ESPN by itself in many systems costs twice as much as of all their own networks combined.

 

The problem with rising costs for ESPN is that it usually comes as part of a bundle. Yet, many American viewers have little or no interest in sports programming, at least not to the extent that they need a 24/7 ‘fix’ of scores, talk shows, and specials.

 

Those rising charges are driven mostly by deals that ESPN has negotiated directly with major sports leagues. For example, the Bristol, CT-based network has also managed to get exclusive broadcast rights to the major college football bowl games (the Bowl Championship Series), taking them away from their traditional homes on free broadcast networks.

 

More than one pay TV system operator has speculated out loud that sports channels could soon migrate to premium tiers instead of being bundled with basic or extended digital channel packages. That would in turn allow pay TV MSOs to lower prices on TV channel packages, which are increasingly seen by futurists as ‘obsolete’ with the increased penetration of high-speed Internet access, the use of DVRs, and the growth in streaming services like Netflix.

 

Until the past year or so, cable and satellite TV executives were mum on the issue of ever-escalating monthly service charges. Now, one of the culprits has been called out, and it will be interesting to see if MSOs will make noise about moving ESPN and other costly sports networks like Fox to add-on tiers where HBO and Showtime currently reside.

 

In the meantime, you can still watch plenty of sports for free over the air, including (but not limited to) NFL games on CBS, Fox, and NBC, major league baseball on Fox and local stations, the NBA finals on ABC, college football on CBS, NBC, and ABC, golf and tennis on all the major channels, the NCAA basketball men’s and women’s tournaments and selected games on CBS and ABC, and of course next year’s Olympics on NBC.

 

Enjoy them while you still can…