Commentary

Pay TV Losses: Cord-Cutting Or Economy?

  • by , Featured Contributor, November 18, 2010

The number of Americans subscribing to monthly pay TV provided by their cable, satellite and/or teleco service has dropped over the past two quarters, the first decline in decades. As reported by Variety this morning, media research firm SNL Kagan announced that providers of pay television services in the U.S. lost 335,000 subscribers over the past two quarters.

 

Is it the economy? Or are Americans starting to "cut the cord" on paid TV services and to view their television programming over the Internet? This is the topic of a growing debate in media circles. Many in our industry believe that linear pay TV services are the next dinosaurs beginning to slide down the slope of inevitable Internet-driven extinction, facing fates not unlike those plaguing publishers of newspapers, magazines and music.

Is this the case? Are the pay TV subscription declines the beginning of the end? Or, as others argue, are they just cyclical consequences of the U.S. economy mired in a slow recovery from a very deep recession? I believe the latter, and here is why:

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You can't ignore the economy. Unemployment is still very high. The number of new housing starts is still tiny. Mortgage foreclosures continue. Savings and retirement portfolios have still not made up the ground lost in the '08 sell off. Everyone has to do more with less, and most U.S. households today have far less discretionary income than they had a few years ago.

Not all pay TV services are declining. While cable operators lost 741,000 subscribers in the past quarter, satellite providers gained 145,000 subscribers and teleco TV gained 476,000. It can be argued that many of these gains can be attributed to more aggressive customer acquisition deals; it remains to be seen if these are really long-term new subscribers.

Broadband-only subscribers actually shrinking. Time Warner Cable executives (as reported by Variety) say they have seen no rises in their broadband-only subscribers, and have actually seen some declines. In cities with large college-age populations, where one would expect the heaviest cord-cutting, broadband-only subscriptions are flat, consistent with college enrollments. Here again, the telecos have been very aggressive in their introductory pricing for broadband services -- and many consumers aren't sure higher priced, higher throughput is really important to their lives.

Pay TV was probably overbought the past few years.  The analog-to-digital switch that the TV industry went through over the past several years caused many to buy pay TV services, not wanting to lose their shows when the analog signals went dark. And, not unlike what happened with new cars, homes and consumer electronics, the booming economy and cheap credit over the past decade probably artificially bumped up the number of homes with pay TV above what you would normally expect.

This is not to say that improved broadband service, especially to mobile platforms, isn't having an impact.  But unless someone organizes the Internet in a channel line-up format that makes accessing their favorite shows easier, and then puts them up on the big flat screen, I think most homes will continue to lean back and pay for high-definition entertainment. 

What do you think? Is it "cord-cutting"? Or the economy?

6 comments about "Pay TV Losses: Cord-Cutting Or Economy?".
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  1. Leonard Zachary from T___n__, November 18, 2010 at 4:43 p.m.

    Its easy math:
    1)spend most time on computer and mobile phone; 2)iMac home screen is size of TV screen; 3) plenty to choose off the web including live sports events and business channels for free; 4) younger generation just does not watch TV, they want a broadband connection 5) TWC here in NYC is just not a good value for the money and why am I giving them $1800 per year? Educated consumer adds 1+2+3+4=cable cutter.

  2. Paula Lynn from Who Else Unlimited, November 18, 2010 at 4:44 p.m.

    Cord cutting for the sake of cutting the cord does not make sense. Cord cutting to save $600 per year or more is more like it. The increase will be in the decrease of cords. If congress does not continue the 2 million people on unemployment this round, how many more cords will have to be cut? You can bet next year will be bleaker. This "fad" may have a slowing for smart phones, too, due to monthly costs plus any other non-necessary subscription costs. A new $7.99 Hulu plus could become the new $5.99.

  3. Leonard Zachary from T___n__, November 18, 2010 at 4:44 p.m.

    insert +5 above

  4. Robin Hafitz from open mind strategy, November 18, 2010 at 5:21 p.m.

    The reason why may be the economy, not some rejection of the cable offering, but will those consumers come back? With so many ways and screens to access content (and, yes, such aggressive pricing from other providers), they may be gone for good. More are likely to join them with the economy still gloomy. Young consumers who use other ways to connect to TV are developing habits that may last a lifetime. The catalyst may be economic, but the change may be permanent.

  5. Kevin Horne from Lairig Marketing, November 18, 2010 at 6:09 p.m.

    Analysis in five parts begins here:

    http://lairigmarketing.typepad.com/lairig_marketing/2010/11/the-fable-of-the-tv-cord-cutter-part-1-of-many.html

  6. Anne Peterson from Idaho Public Televsion, November 18, 2010 at 6:38 p.m.

    And, in some locations, viewers are discovering high-quality HD delivered over-the-air from transmitters -- and in the case of Idaho Public Television, the choice of four channels (3 SD and 1 HD).

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