Are U.S. multichannel subscribers cutting the cord in such numbers that programmers and producers should be concerned for the long term?
Analysts of our sector were recently whipped into a bit of a frenzy by the release of two studies:
- SNL Kagan reported that the U.S. industry lost 119,000 subscribers in the 3rd quarter 2010, versus a gain of 346,000 in 3Q 2009
- Cable operators lost 741,000 basic video customers, “the single largest quarterly dip for cable since SNL Kagan began compiling data for the segment in 1980”!!
- Satellite and Telco gains partially offset these defections
- Kagan estimates that since April 2010, the sector has lost 2.3% of its subscriber base.
- An ESPN study confirmed that 121,000 multichannel households cut the cord in 3Q 2010
There are approximately 100 million multichannel U.S. homes. So what’s the big deal about losing 230,000 subscribers?
- The concern is that the multichannel video industry has peaked after decades of quarter-by-quarter growth
- Many fear that the sector has raced past its ‘mature’ phase and is speeding into the ‘sunset’ stage that characterizes the newspaper or CD-based music industries
It’s Painful Being Mature
Characteristics of mature industries include:
- Fierce competition for a zero growth customer base
- Reduced opportunities to distinguish the product and create a competitive advantage
- A constant search for cost efficiencies
- ‘Overhead-phobia,’ leading to rolling layoffs like the recent wave at Discovery Networks U.S.
- Even tougher deals with suppliers
- Vendor concentration – meaning that fewer suppliers get a bigger slice of the pie
- Check out our August 2010 post Preferred Vendors: Multiple Commissions / Multiple Networks. Why?
These trends have become painfully familiar to participants in the U.S. cable/satellite industry.
True Believers … and Skeptics
But is the industry heading off into the sunset?
Time Warner CEO Jeff Bewkes is the leading industry proponent of the view that American Pay TV consumers will stick with ‘Gold Standard’ packages that offer a comprehensive choice of channels, including premium programming
- For a helpful statement of Bewkes’ case and a forceful pushback, read Will Richmond in his highly recommended VideoNuze newsletter
- Richmond predicts that more and more Americans will settle for ‘good enough’ packages offered by lower cost delivery platforms like Netflix
- The ‘good enough’ consumers will drain revenues from cable and satellite operators, thereby eroding the funding for producers
But There’s Plenty of Good News
Factual-based channels enjoy a far lower cost structure than channels offering premium entertainment, including movies, scripted TV programs and Premium Sports
- Wall to Wall’s Alex Graham made the case on our panel at Sheffield that substitution of Factual for Scripted programs creates valuable opportunities for established producers
- Networks that are far from fully-distributed still have the potential to expand their audiences
- Examples are ID: Investigation Discovery, Style, Bio, Smithsonian Channel and Nat Geo Channel
- Check out our recent posts:
Outside the U.S., Canada and a handful of other mature markets, there is significant room for growth in the Pay TV market
- Factual channels in expanding markets are reaching the scale where they can afford to commission original programs
- China’s optimistic delegation at this month’s WCSFP Conference reminded us of a recent Paley Center panel where U.S. publishers were agonizing over the global death of print-based media. India’s delegate countered that more than 40 million Indians come into literacy each year, and that India’s newspaper industry is booming.
And Don’t Forget that Other Revenue Stream: Advertising
Surprisingly, television advertising is leading the recovery in media spending for 2012 and beyond:
- TV continues to gain market share from print media
- Many analysts no longer fear cannibalization of the TV audience by mobile and other digital platforms
- As reported earlier this week in The New York Times, Steve King, CEO of ZenithOptimedia says: “Consumers’ embrace of technologies like digital TV, HDTV and DVRs helps keep them watching, which helps keep marketers buying commercial time.”
- Cord-cutting data and its analysis are unsettled
- However, fully-distributed channels have passed into the ‘mature’ phase, and they will experience more of the cost-cutting and vendor concentration behaviors that we outlined
- For now, there is no killer application – the equivalent of Craig’s List and newspaper classified advertising — that will drive multichannel television into the sunset
- Watch this space for more discussion of cord-cutting and its implications for channels and producers
I think this is more of a sign that SOME kind of ala carte options should be rolled out in tiers (e.g. leaving room to maintain control of programming) to pro long the sunset period.
Not everyone is an Animal Planet or SciFi viewer; and why do we need 5 HBO channels (2 of them being different time zones and the other showing ‘classic’ movies ala TCM and AMC type programming)?
Another good article Peter! 🙂
I think the problem is that many cable channels are not doing a very good job at keeping up with today’s fast changing technology. And are not utilizing the web and their websites to the max. Here in Canada some of the networks like CBC and CTV are doing a pretty good job at utilizing the web. What they are doing is posting all the shows on their websites the next day after they have aired on the channel, and are still showing commercials during the shows to generate advertising profits.
I think that cable service providers are partially to blame for this as well. Here in Canada major cable companies are charging consumers around $5-15 per month for each specialty channel on top of the monthly cable fee, which I think is ridicules. Why would a consumer pay the cable company $5-15 a month for each specialty channel when for $7.99 per month they can get a Netflix account and watch all the shows and movies they want commercial free.
Companies like Netflix have really changed the game, and many of the networks and cable companies really need to wake up before they become the next Blockbuster Video.
I have been cable-less for a couple of years and I don’t miss it for the most part, though I would be happy to come back if there was a fairer pricing structure, or a la carte. What I’ve been considering lately is having a patchwork of content from online sources and run through something like Roku or Apple TV or just Netflix via Wii. I have a netbook with an HDMI output, too, so streaming from the web directly to TV is possible. I wonder if the cable companies are prepared to consider a pricing structure to compete with that because the reason so many subscribers are leaving is because they DO now have these types of options and the hatred of that industry is manifesting itself via such big losses of subscribers.
A very good analysis of the issue.
In addition to the other factors, the increasing purchase and use of Smart TVs may be a major factor going forward. Here is some info from a Samsung press release, some of which may be accurate.
“Samsung Electronics Co, Ltd. today announced the 1 millionth TV application downloaded globally from Samsung Apps, the world’s first HDTV-based application store, where users can purchase and download applications from an expanding range of content and service providers, directly from their TV. Some of the most frequently downloaded applications are Hulu Plus, ESPN Next Level, CinemaNow and Texas Holdem, showcasing global demand for Samsung Smart TV entertainment experiences across key consumer hobby areas – sports, movies and gaming.
In the U.S. alone, Samsung expects the market for Smart TVs to reach 6.5 million units by the end of this year, and anticipates demand will grow to 20 million units by 2012.”
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