Has cord cutting finally run its course among U.S. operators who have, over the past five years, watched millions of subscribers walk away from traditional pay-TV delivery? Are Millennials – and their following generation, Gen Edge – ready to join Gen X and Baby Boomers in tying themselves to arcane and expensive contracts that deliver bloated tiers of content that they have little interest in watching, let alone paying for?
A pair of new reports shows that the cord-cutting phenomenon – as well as the cord never trend – continues apace with minimal relief, meaning content owners, broadcasters and operators will need to accelerate their investments in delivering directly to the consumer, or risk playing an iffy game of catch up.
And, although Europe has by and large escaped the worst of what North American operators have experienced, there’s increasing evidence that the region will soon be facing the same challenge: How to hold onto broadband customers as they discover the ease of use and accessibility of OTT services.
US by the numbers
A report from Leichtman Research Group (LRG) estimates the pay-TV segment lost more than 1.64 million subscribers last year, 660,000 more than the 980,000 it lost in 2015.
The good news? The segment added about 845,000 subscribers via skinny bundles delivered over-the-top, services like Sling TV and DirecTV Now.
The top six cable operators lost about 280,000 subscribers, which is the smallest loss since 2006, when AT&T kicked off its U-verse IPTV service and Verizon debuted FiOS-TV.
Telcos continued to see massive losses, more than 1.55 million subscribers bailed out, almost 13x the 120,000 subs telcos lost in 2015. As a point of reference, telcos added more than 1.06 million subs in 2014.
Satellite marked a small addition of 190,00 subs, after a loss of 450,000 in 2015.
AT&T was the biggest loser and the biggest gainer. Its U-verse TV service saw 1.359 million subscribers cut and run, while its DirecTV satellite service added 190,000. AT&T has been steadily looking to move customers to its higher-margin satellite service while allowing U-verse to die a slow death.
Not at all surprising were the still-modest gains made by operator-backed OTT services.
Dish Network’s Sling TV and AT&T’s DirecTV Now added about 845,000 subscribers last year, up from 535,000 new subs in 2015, with Sling TV seeing the bulk of the adds – about 645,000 – to DirecTV Now’s add of 200,000 after its late-year launch. Sling TV – at 1.18 million subscribers – now has more subscribers than Tier 2 traditional pay-TV operators Frontier (1.125 million), Mediacom (828,000) and Cable One (320,246).
Broadband HH without pay TV have grown 288%
A second report, from The Diffusion Group, notes that among broadband households the numbers of HHs not subscribing to pay-TV has nearly tripled since 2011, from 9% of the 85 million broadband HH in 2011, to 22% of the estimated 100 million broadband HH in 2016, an increase of 14.35 million cord nevers.
We’ve spent a lot of time pointing out in Videomind that even as household formation has been accelerating in the U.S. over the past five years, pay-TV penetration has been dropping.
Many of those new households are being formed by younger consumers – Millennials, mostly – the consumers that pay-TV executives always assumed would “return to the pay-TV fold” once they were out on their own.
Newspapers used to have a similar theory about younger consumers and the Internet 20 years ago, and we all know how that’s worked out.
OTT skinny bundles haven’t stopped the slide for legacy providers
DirecTV Now and Sling TV – with those 825,000 new subscribers – helped mitigate the losses the industry suffered overall, and their inclusion in year-end numbers shows that they have become an important and legitimate part of the core industry.
But consumers are a long way from embracing them as a substitute for the legacy pay-TV services they’ve grown weary (wary?) of over the past decade.
That shouldn’t be too surprising.
Skinny bundles have a fatal flaw when it comes to many consumers: the fact that the content is bundled. For all of the arguments about the pain of content aggregation, Netflix – and services like it – continues to have one thing legacy pay-TV doesn’t: Growth.
Consumers are willing to pay for content, they just want to decide what it is they’re buying.
Three years ago, the industry as it looks today was considered impossible by most mainstream analysts.
Yet, here we are. The “great experiment” has grown legs and is moving forward on its own in the United States.
eMarketer predicts that 20% of U.S. consumers will opt out of pay-TV by 2018, a number unheard of just three years ago.
How to win in a TV world turning upside down
There really isn’t any mystery around what’s happening in the digital TV industry, it’s just dealing with change. Consumers have discovered that they do, in fact, have a hand on the tiller of their video entertainment journey and they’re starting to exert more of that control.
The direction is obvious: More content over the top, an increased willingness by consumers to spend on the content they want to watch.
While a recent analyst report posited that the U.S. market was beginning to saturate – 60% of U.S. broadband HH currently take at least one SVOD services – spend on streaming content still grew $1.19 billion last year, about 22% over 2015. And, as the market nears 85% of broadband HHs with streaming services, it’s still expected to see annual revenue growth near 8% by 2021. That slow down in revenue growth may simply be an indication that the market wants more that isn’t yet available.
Reports indicate that 40% of HH subscribe to more than one video service, and that’s a trend that will become the norm rather than the exceptions over the next five years as more content flows into the market from more sources.
urOoyala’s Strategic Media Consulting service recently published a white paper with suggestions for succeeding in this very competitive – and potentially rewarding – space.
You can download it here.