Commentary

The Steep Price Of Cord Cutting

Cord cutting has a price -- and pay TV companies are feeling the pain. But will those business dynamics change — will others getting pinched?

If you bought an average pay TV package in 2000, you probably spent $59 a month. Now, in 2018, you are spending just over $100 a month, according to S&P’s Kagan service.

The cumulative U.S. inflation rate during that time? 44.9%.

So are pay TV providers a little greedy? Many would say pay TV services (cable, satellite, and telco) are a bargain. Users can get, on average, more than 200 channels for just over $100 a month.

The long-term failed belief is that TV and entertainment customers, with an insatiable appetite for all things entertainment, will continue to keep paying.

But starting a few years ago, all that stopped -- when total traditional U.S. pay TV subscribers started declining, even with new TV household creations. Pay TV providers and others immediately shifted -- offering many low-cost TV packages, thanks to digital media.

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It might not be enough.

Todd Juenger, senior research analyst of Bernstein Research, says total cash flow for big TV-media  companies is estimated to drop by 41% to $22 billion by the year 2025.  

There are many reasons for this drop -- including smaller advertising revenues. But additionally, one needs to be cognizant of where retransmission fees are -- which TV companies see as a positive for the business.

When will the direction of those revenues change -- vis-a-vis the pursuit of lower virtual pay TV consumer bills?

Many believe small-to-midsize cable networks will get hurt with new virtual pay TV providers of live, linear networks. But who is to say that broadcast networks also won’t get dinged, too?

Even if it’s just a little bit -- fractionalization, perhaps the democratization -- of media continues to evolve. Young TV viewers are still in flux, even of they do watch a lot of traditional TV networks.

And there is more troubling news ahead: Cord-cutters will grow 22% this year, according to eMarketer.

2 comments about "The Steep Price Of Cord Cutting".
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  1. Paula Lynn from Who Else Unlimited, April 30, 2018 at 3:59 p.m.

    Internet, VOIP, TV with cable= $200+/mo.

  2. James Smith from J. R. Smith Group, May 1, 2018 at 8:15 a.m.

    Wayne, don't you think the nets have gotten hooked on revenue from sub fees? Which is in part the cause of price hikes at the system operator end.  That like the magazine biz, some long-tail nets would find a better-fit home on digital?  Rather appropriately Darwinian.

    As a sidebar, look at the OTT budget bucks pouring into Hollywood-competition for sports rights-these digital ventures have built ecosystems.  The nets had the opportunity to get in early...they didn't take the leap.

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