Cord cutting in the cable television industry is described as subscribers canceling their cable subscriptions but keeping their broadband internet connection. Right now there is a perfect storm at work that is conspiring against cable operators and satellite providers. The economy is facing its worst struggle in over 70 years, and, people now have many options with which to view video content. In the words of the long ago musical The Music Man,this is trouble with a capital T.
In order to meet this problem head on, there seem to be coping strategies for MSO's with cord cutters:
- Reduce the price and # of channels for a "basic basic" package
- Sell high speed internet as a key service while abandoning the emphasis on video
These can be looked at as short term solutions to a much longer term problem.
There appears to be a little bit of good news mixed in with some pretty bad news. The pay-TV-subscriber roles actually increased 0.2% or 211,000 subscribers in 2010, but this is much worse than the 1% to 2% increases the industry has enjoyed over the past decade, not great but better than a decline in subs.
Quite a bit of research has been done in the past two years trying to predict what the future holds for cable and its subscribers. Knowledge Networks asked more than 1,500 people between the ages of 13 and 54 if they planned to cut back or eliminate cable, and 17% of the respondents who had downloaded or streamed TV on the web said they had already cut back or eliminated pay-TV service in 2010. That's up from 9% in 2009.
According to company and Bloomberg data, the six largest publicly traded U.S. cable and satellite-TV providers combined to lose about 580,000 customers in the second quarter of 2011, the biggest such decline in history. Yes, some of this can be blamed on a sour economy, but much of the "blame" belongs to increasing technology choices. Subscribers were canceling their subscriptions in favor of online options such as Netflix. Once they get their house in order, this trend may again continue.
But the larger trend is clearly one of video losses, said Jason Bazinet, an analyst at Citigroup, who noted that pay-TV subscribers have declined in three of the past five quarters.
"While second-quarter seasonality likely played a role, some households may have left the pay-TV universe entirely," he wrote in a note to clients.
According to Craig Moffett, an analyst at Sanford C. Bernstein, "Rising prices for pay TV, coupled with growing availability of lower-cost alternatives, add to a toxic mix at a time when disposable income isn't growing."
According to the latest Adweek/Harris Interactive poll, more than 50% of the respondents said they had some interest in cancelling their cable service. In drilling down into that data, among 18-24 year olds, less than a quarter said that they would not
make that move. With this age group representing the cable households of the future, this is chilling news if you are a cable operator.
So, now people can save hundreds of dollars a year, use a forward looking technology to watch their video content, and not have to deal with the endless headaches, and questionable customer service provided by their cable operator. This combination looks like it can all add up to more cord cutting for the rest of the year and beyond.
Steve Yanovsky is a senior partner at Brand Strategies, LLC and can be reached at syanovsky@brandstrategiesllc.com.
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