The Big TV Debate

Has Cord-Cutting Reached Critical Mass?

Cord-cutting_lAs the number of US households slowly expands, the number of pay-TV subscriptions has slowly contracted. The pace of change has been in small chips rather than large chunks, but younger and more tech-savvy households are doing without broadcast access thanks to the improving availability and quality of streaming options. Such changes to the video business will affect broadcasters, content owners and hardware companies for years to come, and recent stats have confirmed that the changes are real: the industry lost more than half a million pay-TV subscribers in 2Q15.

Disney reported its second-quarter results last week, and investors sold off the company’s shares based on one troubling observation: cord-cutting was affecting business. Disney’s profitable ESPN channels have been slowly leaking subscribers, as consumers opt for thinner bundles or no bundles at all. Market research firm Nielsen reported that ESPN has lost about 2 percent of its paying subscribers so far in 2015 — the same pace of damage seen the previous year and in 2013. It’s a slow but consistent degradation.

Cablevision reported its results along with a direct acknowledgement of the effects of cord-cutting. However, the company’s CEO, James Dolan, said there’s no “landslide” but rather a slow leaking of subscribers. Cablevision lost 16,000 video subscribers in the quarter — an improvement from a loss of 28,000 a year ago, but a loss all the same.

Drops in subscriber numbers were a trend in results. Comcast lost 69,000 TV subscribers, DirecTV’s figure fell by 133,000, Dish reported a decline of 81,000 and Time Warner Cable announced a loss of 45,000.

Media companies aren’t blind to the shift, but there’s a continued latency in addressing the demands of households that have moved away from pay-TV services.

We could consider, for example, the early rounds of US presidential debates. The first discussions were held last week in Cleveland, Ohio between the Republican Party contenders, and were hosted, distributed and co-sponsored by pay-TV station Fox News and Facebook. However, the live video of the debates couldn’t be accessed without TV subscription authentication, targeted at classic pay-TV households.

The debates kicked off the same day this quarter’s cord-cutting panic hit Wall Street, highlighting a disconnection between content providers and their audiences. Households without access to the paid Fox News network were out of luck, meaning the candidates weren’t necessarily reaching younger generations.

For more than five years, CCS Insight has discussed the coming industry changes resulting from the availability of wider bandwidths and ubiquitous access. Internet companies like Amazon, Google and Netflix have made it easier and cheaper for users to skip traditional pay-TV services (see Daily Insight: Seven-Pound Scissors).

The threat to pay-TV isn’t new, but reports and investor reactions last week emphasized concerns about a continued loss of subscribers. Internet numbers provided optimism for some operators — Comcast, for example, reported that its broadband numbers exceeded those for video for the first time, a milestone for a business underpinned by cable TV. However, we believe that cable providers haven’t been quick enough to react to the threat posed by competition from the likes of Hulu, Netflix and mobile-based services.




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