Posts Tagged ‘Time Warner’

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…

A La Carte TV: No Blue Plate Special?

As the winds of change push more and more consumers away from conventional pay TV packages and toward streaming, “over the top” video, an interesting report has just arrived from Needham and Co. analyst Laura Martin.

The report, detailed in the Los Angeles Times, says that moving to an “a la carte” model for delivery of TV programming would result in higher costs for consumers and possibly knock the foundation out from under media companies.

According to Martin, a la carte delivery of pay TV channels would cause at least 124 smaller channels to disappear altogether, taking with them 1.4 million jobs and at least $45B in advertising.

Martin has calculated that a typical entertainment cable channel costs about $280 million per year to operate and requires (with current retransmission and rights fees) about 165,000 viewers annually just to break even. As a result, only 50 or so channels would be likely to survive out of the nearly 200 channels of programming currently available across a multitude of pay TV outlets.

Martin also notes that the typical subscriber watches perhaps 20 channels at most out of an average selection of 180 channels. I think that number is high; anecdotal evidence from friends and colleagues suggest the number is much lower and close to 10 – 15 channels.

The Needham study states that, in addition to the economic cost of a move to a la carte pay TV – pegged at $80B to $113B of “U.S. consumer value” – the costs to subscribe to existing channels would also increase, as they would inevitably lose subscribers as well.

I’ve previously detailed the growing calls for moving sports channels to their own tier, given the additional cost burden they add to the average monthly cable bill (about 10% to 12%). Not surprisingly, companies like Disney (ABC, ESPN), Fox, Comcast (NBC), and CBS oppose a move like this.

But the fact is; consumers are increasingly voting to switch off pay TV services and instead rely on the likes of Comcast and Time Warner to deliver broadband connectivity, and nothing more. This “cutting the cord” trend finally gained the recognition it deserved earlier this year when it was revealed that pay TV subscriptions went into decline for the first year ever.

Aereo, the disruptive “remote antenna” service that is rolling out nationwide and faces continued court challenges, charges about $10 to stream over-the-air broadcasts through the Internet to connected TVs, tablets, and phones, and is another approach to OTT delivery. Yesterday, the company petitioned the 2nd Circuit of the U.S. Court of Appeals for a Writ of Certiorari – in essence, forcing the issue to the Supreme Court for review.

If Aereo wins here – and it could – then the floodgates will surely open for other, competing OTT services that could cherry-pick channels and deliver them to the home in an attempt to lower monthly subscription costs. And even the cable companies are paying attention: Comcast announced in October a limited entry-level pay TV channel bundle that also includes fast Internet and HBO Go for about $60 – $70/month.

Even so, Netflix is still the largest pay TV service in the world, closing in on 30 million subscribers. And all you need to watch it is a fast Internet connection (if it’s fast enough, you might even be able to watch Netflix’ 4K movie service that is scheduled to roll out next year). In many markets, all you really need as a Roku or Apple TV box plus an antenna to get a nice selection of free and premium programming.

Granted, you won’t get as many sporting events, but studies have shown that only about 4% of pay TV subscribers watch sports channels on a regular basis to begin with. And many big-ticket events like NFL games, major league baseball, college football and basketball, and (of course) the Olympics are still available on broadcast TV channels.

While Martin’s study is interesting, it discounts the “free market” effect of consumers voting to save money and find other ways to access TV programming.  There are always winners and losers in a free market system, and the fact is; pay TV subscriptions continue to rise annually at rates above inflation. Consequently, consumers are making necessary economic decisions about the price paid versus the value received, which is why interest in OTT video is slowly growing.

Starting next year, Canada will require pay TV services to “unbundle” TV channel packages as a way to rein in expensive monthly bills. So we have the perfect test lab north of the border to see just how a la carte pay TV will work, or won’t work. Stay tuned!

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…

Biting The Hand That Feeds You

If you haven’t tried the Mohu leaf antenna, it’s quite the handy gadget. Basically, it is a single-bay UHF TV collinear antenna made out of flexible conductors, and sealed in a waterproof thin plastic shell that resembles a placemat from a diner.

 

I’ve had the Leaf for a few months now and can say that it works very well for UHF TV reception – certainly no better or worse than any other collinear antenna system I’ve tried – and does a passable job on highband VHF DTV stations, if they are strong enough.  It’s reasonably priced at $45 and includes free shipping, so you really can’t go wrong with it.

Mohu's Leaf UHF antenna is super-thin and waterproof.

And here's a picture of the Leaf in action, mounted underneath a kitchen cabinet. (Not the way I would have done it, though!)

Now, here’s where things get hilarious. Apparently Mohu tried to run a thirty-second ad on Time Warner’s cable TV systems in Columbus, OH and Kansas City, MO; touting the benefits of free, over-the-air television. And TW said, “no!”

 

A resulting press release from Mohu reads, “The planned Leaf thirty second spot actually states that customers do not need “expensive cable service to watch HD programs” and that “most top-rated shows are broadcast free, over the air in full high definition.”

 

Hmmm. Think that had anything to do with Time Warner’s refusal to run the ad?

 

We may never know the whole story, but you can see the Mohu commercial here on YouTube – http://www.youtube.com/watch?v=RNtll-4fiis.