US Cable and Pay TV Lose Another Half Million Customers in Q2, 2011 - Cord Cutting Continues

written by: Richard Kastelein

Share this Article

According to Bloomberg, the six largest publicly traded U.S. cable and Pay TV providers are to lose 580,000 customers in the second quarter of 2011 - which is the biggest such decline in history.

Craig Moffett, an analyst at Sanford C. Bernstein in New York, told Bloomberg:

"... the economy is forcing the industry to face the reality of cord-cutting — pay-TV customers canceling their subscriptions in favor of online options such as Netflix Inc. (NFLX) and Hulu LLC. While cable executives dismiss the idea that subscribers are switching to “over the top” Internet competitors, the reason isn’t as important as the decision to stop paying for TV.

“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,” Moffett said. “For younger demographics, where in many cohorts unemployment is north of 30 percent, and especially for those with limited or no interest in sports, the pay-TV equation is almost inarguably getting less attractive.”

Telephone companies (carriers) such as AT&T and Verizon Communications, are tapping into the value chain and pulling market share... and they added a combined 386,000 video customers in the same quarter.

Of the six largest publicly traded U.S. cable and satellite providers, only DirecTV added customers in the second quarter. Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC), Charter Communications Inc. (CHTR) and Cablevision lost a total of 471,000 video customers in the quarter. Dish Network Corp. (DISH) lost 135,000 after adding 58,000 in the previous period.

The Washington Post thinks that if IP delivered video is indeed having an impact, rather than just the economy, studios are going to crack down:

 

But it’s also possible that people are canceling cable in favor of inexpensive Internet video. That’s a threat that has been hanging over the industry. And if that’s happening, viewers can expect more restrictions on online video as TV companies and Hollywood studios try to make sure they get paid for what they produce.

Anecdotal evidence suggests that young, educated people who aren’t interested in live programs such as sports are finding it easier to go without cable. Video-streaming sites like Netflix.com and Hulu.com are helping them drop cable because the sites run many popular TV shows for free, sometimes the day after they air on television.

In June, the Nielsen Co. said it found that Americans who watch the most video online tend to watch less TV. The ratings agency said it started noticing last fall that a segment of consumers were starting to make a trade-off between online video and regular TV. The activity was more pronounced among people ages 18-34.

Hlair commented at the Post:

Cable TV has always been able to raise subscriber rates with impunity (analyst Craig Moffett term). For that reason they have adopted a flawed revenue model that has reached the tipping point. Not only is the poverty level a problem at 40 per cent , there are over 60 per cent of the Gen Y's at risk .To quote Pogo, we have met the enemy and he is us. Netflix has more subscribers than Comcast; and satellite has 30 per cent of the market, for a reason.

Subscribers are creating a de facto ala carte - Amazon, Google, Apple,etc.. Unfortunately as long as cable owns the content and sells it, as well, there appears no way to circumvent the continued rate increases to their suicidal final demise. But there are some ways for cable to survive. Cable has to eliminate its “Field of Dreams” mentality. Cable can become a positive influencer by changing their revenue model.

Internet has proven there are targeted ad models that work. Cable must incorporate a targeted ad strategy along with reducing subscription rates to absorb future content increases. The hybrid model would be based on social media interests and preferences, starting with direct ads on all time shifted programming. Groupon like infomercials, with word of mouth on steroids, group buying, and urgency to buy. Amazon like preferences and alerts. Cable is currently using data from demographics and set-top boxes, a flawed strategy, with privacy issues. They could be using analytics from behavioral marketing data. Maybe we are at a time when they are more interested in constructive suggestions with all that is at stake?

And from the Wall Street Journal:

"Cablevision is getting killed by FiOS in NYC suburbs," wrote analyst Todd Mitchell of Brean Murray Carret & Co. in a research note. The analyst said Cablevision's 44% jump in second-quarter profits to $87.8 million was helped by its recent acquisition of Bresnan Communications, a Western U.S.-focused cable operator. "They're not getting any growth in their home market. A resurrection of the cord-cutting thesis seems almost inevitable here, notwithstanding all the evidence that it is the tremendous stress on consumers, particularly at the low end of the market, that is the root cause for the weakness."

"For younger demographics, where in many cohorts unemployment is north of 30%," Mr. Moffett said, "the pay-TV equation is almost inarguably getting less attractive."

And a wrap from Ryan Lawler at Gigom:

It’s not enough to blame the weak economy when things get rough and folks stop paying for cable; there’s also a structural problem with the way the industry views its subscribers. In the quest for higher margins and customer retention, those companies are generally willing to sacrifice subscribers at the low end if it means they can get more out of their so-called higher-value customers.

The question is how long the industry can keep pushing ARPU up before it starts to shed some of its better customers — those that aren’t necessarily poor, but don’t have $150 or more a month to spend on entertainment. There’s the old belief that TV is recession-proof, as consumers hunker down and spend more time at home rather than going out when their disposable income gets low. But at some point, the value proposition has to break down — especially when there are other ways to get low-cost video entertainment from services like Netflix or Hulu.

About the Author

Richard Kastelein
Founder of The Hackfest, publisher of TV App Market and global expert on Media & TV innovation, Kastelein is an award winning publisher and futurist. He has guest lectured at MIT Media Lab, University of Cologne, sat on media convergence panel at 2nd EU Digital Assembly in Brussels, and worked with broadcasters such as the BBC, NPO, RTL (DE and NL), Eurosport, NBCU, C4, ITV, Seven Network and others on media convergence strategy - Social TV, OTT, DLNA and 2nd Screen etc.

He is a Fellow of the UK Royal Society of Arts (RSA) and UK Royal Television Society (RTS) member.

Kastelein has spoken (& speaking) on the future of media & TV in Amsterdam, Belfast, Berlin, Brussels, Brighton, Copenhagen, Cannes, Cologne, Curacao, Frankfurt, Hollywood, Hilversum, Geneva, Groningen (TEDx), Kuala Lumpur, London, Las Vegas, Leipzig, Madrid, Melbourne, NYC, Rio, Sheffield, San Francisco, San Jose, Sydney, Tallinn, Vienna, Zurich...

He's been on advisory boards of TEDx Istanbul, SMWF UK, Apps World, and judged & AIB awards, Social TV Awards Hollywood, TV Connect & IPTV Awards.

A versatilist & autodidact, his leadership ability, divergent and synthetic thinking skills evolved from sailing the world 24000 miles+ offshore in his 20′s on sailboats under 12m.

He spent 10 years in the Caribbean media & boating industry as a professional sailor before returning to Europe, to Holland.

A Creative Technologist and Canadian (Dutch/Irish/English/Metis) his career began in the Canadian Native Press and is now a columnist for The Association for International Broadcasting and writes for Wired, The Guardian & Virgin. His writings have been translated into Polish, German and French. 

One of Kastelein's TV formats was optioned by Sony Pictures Television in 2012. 

Currently involved in a number of startups including publishing TV App Market online, The Hackfest and Tripsearch TV. As CSO for Worldticketshop he helped build a $100m company.

Other Sites

Social Media

News

About Us

TV Hackfest London 2013
TV Hackfest San Francisco 2014
M2M Hackfest 2013

Hackfest Twitter
TV App Market Facebook
TV App Market Linkedin
TV App Market Google+

Developer News
Enterprise Apps News

Digital Marketing News
Telecoms News
Cloud Computing News

This email address is being protected from spambots. You need JavaScript enabled to view it.
About us
Advertise
Write for TV App Market