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Cord-Cutters & Cord-Nevers Quickly Changing The Pay-TV Paradigm

Discussion in 'Internet Streaming Services' started by Athlon646464, Aug 20, 2013.

  1. Athlon646464

    Athlon646464 Gold Members DBSTalk Gold Club

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    Uxbridge, MA
    Cord-Cutters & Cord-Nevers Quickly Changing The Pay-TV Paradigm

    Here's a sampling of recent headlines with story excerpts (links take you to the original articles):

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    IPTV defies drop in US pay-TV market - Gains subscribers in 2Q13

    The main culprit for the pay-TV market's decline was the cable segment's loss of 588,000 subscribers. While that was slightly better than the 598,000 customers that cable shed during the same time last year, the decrease still represented a major plunge for the embattled business. Meanwhile, satellite's decline widened to 162,000 subscribers, up sharply from 62,000 a year ago.

    "Of the three segments in the US pay-TV market, the IPTV sector is enjoying growth, especially in urban areas where it is luring subscribers away from satellite," said Erik Brannon, analyst for US television at IHS. "In particular, satellite's lack of a true high-speed Internet service or a triple-play bundling option puts it at a disadvantage when competing against IPTV and cable. Cable, meanwhile, has its own problems, including disagreements between operators and content providers over rising programming costs that squeeze customers in the middle."

    More significantly, 2013 is set to mark the first year ever that there will be an annual decline in total US pay-TV subscriptions, IHS projects. Subscribers are set to decline to 100.77 million, down from 100.89 million last year.

    The market's decline can be traced in part to the growing number of so-called cord-nevers - those who object to ever having a pay-TV subscription, and instead get their TV programming exclusively via over-the-top services like Netflix or through other sources. Equally as important, the price of a typical pay-TV subscription remains high, staying well out of reach for a number of consumers. Confronted with economic choices, IHS believes that consumers are likely to opt to keep their cellular and high-speed data service over a pay-TV subscription.

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    ESPN AND OTHER CABLE NETWORKS ARE STARTING TO LEAK SUBSCRIBERS

    According to data published yesterday by IHS, roughly 352,000 homes canceled their pay TV subscriptions in the second quarter of 2013. Cable companies lost 588,000 TV customers, while DirecTV and Dish Network lost a combined 162,000 customers. Only IPTV services posted gains last quarter, as AT&T and Verizon added 398,000 TV customers. Combined with Leichtman Research Group’s numbers from April 2012 to March 2013, the pay TV market has shed more than 432,000 customers in the last 15 months.

    The overall numbers for ESPN, however, are even worse than that. According to Sports Business Daily, ESPN’s flagship channel lost 918,000 subscribers between July 2012 and July 2013, while ESPN2 lost 871,100 homes. SBD estimates that ESPN is now in 97,985,000 homes and ESPN2 in 97,935,000 homes, their lowest levels since October of 2008.

    The trends for all those channels, though, might be downward. While some might chalk up the shrinking pay TV base to the struggling economy, others will suggest that cord cutting is very much on the rise, and the growing realization of how expensive ESPN is just might be playing a role in that. There’s more talk than ever about the rising costs of sports cable networks, and non-sports fans might be discovering that they don’t want to subsidize those channels anymore. The fact that streaming services like Netflix, Hulu Plus, and Amazon Prime are more robust than ever will only accelerate some people’s decision to dump pay TV.

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    DirecTV vs. Pac-12: Satellite Carrier Fights To Keep Customers

    DirecTV is giving all sorts of free giveaways to try and hold onto their market share, particularly with NFL Sunday Ticket.

    With the Pac-12 Network / DirecTV impasse now entering its second year, DirecTV is working very hard to retain customers, giving away surprisingly large one-year discounts on service, as well as offering up a $200 gift card, free year of Sunday Ticket, free ESPN Gameplan, a free HD GenieGO receiver and sometimes all of the above for their longest-running, highest-end subscribers.

    Translation: DirecTV is banking on a majority of their customers sticking with the service with a multitude of free incentives because customers continue to leave or threaten to leave. The primary incentive is NFL Sunday Ticket. Sunday Ticket has long been DirecTV's trump card over any of their competitors who have offered compelling sports packages with all the bells and whistles. Only DirecTV can offer football diehards the chance to watch their teams.

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    Cord-Cutters

    Consumers are not likely to return to paying for TV even after the recovery. In the case of land-line telephones, people had believed the young would eventually get them, but now a large number of subscribers only have mobile phones. The same will be true for pay TV and lower-priced packages with fewer channels will become necessary to reverse the trend.

    Cord-Nevers

    On November 28, 2011, a report by Credit Suisse media analyst Stefan Anninger said that young people who grew up accustomed to watching shows online would be less likely to subscribe to pay-TV services. He used the term "cord-nevers" for these people. Anninger predicted that by the end of 2012 the industry's subscribers would drop by 200,000 to 100.5 million.

    Also using the term "cord-nevers" was Richard Schneider, whose company Antennas Direct was selling antennas through the Internet. After a decade in business, the company was selling 600,000 antennas a year. However, Schneider said some people only knew of the Internet and services such as Netflix and were not even aware over-the-air TV even existed.

    In a speech on November 16, 2012, Time Warner CEO Jeff Bewkes said "cord nevers" did not see anything worth paying for.

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  2. Draconis

    Draconis DIRECTV A-Team

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    Nice article.
     
  3. Pepe Sylvia

    Pepe Sylvia Legend

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    I wonder how much of that is through illegal means.
     
  4. Stewart Vernon

    Stewart Vernon Leapin' Lizard Staff Member Super Moderator DBSTalk Club

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    IF we see a mass movement away from cable/satellite and onto IPTV it will mean two things:

    1. Cable/satellite costs too much.
    2. IPTV doesn't cost enough.

    A mass movement will result in... price rising for IPTV and price lowering for cable/satellite... the survivors of that price war will then begin the raising of prices again over time. lather, rinse, repeat.
     
  5. sregener

    sregener Godfather

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    IPTV costs plenty. And it will continue to cost plenty. What IPTV does is sever the delivery from the content. You pay your ISP for your data connection. You pay Amazon/Hulu/Netflix/Whoever for your video content. This creates more choices and increases competition. Maybe Amazon will raise prices, or Netflix, or whoever. But there's nothing to stop another company from springing up in their place and offering a low-cost option. Because it is content that costs them money, and there is more and more content available all the time. And for people who are content-neutral (I want to watch something, but I don't particularly care what) low-cost IPTV is a viable option.

    Cable and satellite don't cost too much. They aren't exactly high-profit industries. They have huge infrastructure costs in delivering their product to consumers. And acquiring content is expensive, because they must pay multiple channels from multiple companies and keep the most popular ones or lose customers.

    Yes, inflation is going to hit IPTV. You can't devalue a currency and expect all prices to remain constant. But I can think of no reason why a streaming bare-bones package price would need to rise significantly above inflation.
     
    1 person likes this.
  6. Athlon646464

    Athlon646464 Gold Members DBSTalk Gold Club

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    Thank you.
     
  7. SayWhat?

    SayWhat? Know Nothing

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    The thing I still don't see discussed is equal access and bandwidth caps.
     
  8. Athlon646464

    Athlon646464 Gold Members DBSTalk Gold Club

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    IMHO, bandwidth caps are part of the pricing discussion.

    As for equal access, legislation concerning technology usually lags a bit, but will catch up. I agree that is the really interesting piece where this is concerned, however.

    Given the latest news for Netflix (they're looking more and more like an 'HBO' every day), and other similar services, the question of equal access may be mute not too far down the road.
     
  9. wmb

    wmb Godfather

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    A few years back this was a big issue, but I haven't heard anything about it in a while. Since then, content costs have gone up and negotiations with providers have gotten more contention.

    The cable companies have a line to your house that can handle whatever bandwidth you want to pay for. I would doubt their cost difference between 5Mbs vs 50 Mbs service is significant, but they can charge superpremium prices for high bandwidth needed for IPTV. Heck, the price they get for just bandwidth can be much more than the price they charge for their television packages, with much less grief.

    The added benefit is that they don't have to pay a nickel to content providers for content for these high priced data only services. Imagine if the cable companies said to CBS "We aren't paying you for content. You want viewers, sign them up yourselves and set up the infrastructure you need for streaming. We aren't going to interfere." They can sit back and let their customers send them checks for just letting the bits flow. Let CBS figure out ho to get $0.75 per household like they do now.
     
  10. Gloria_Chavez

    Gloria_Chavez Godfather

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    Not necessarily.

    The market for music has been slashed by 50%, more in real (inflation-adjusted) terms, since 2001.

    EBITDA (cash flow) margins for DirecTv (27%) and ESPN (38%) are extraordinarily high today.

    They will decrease.
     
  11. Laxguy

    Laxguy Honi Soit Qui Mal Y Pense.

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    Winters,...
    The article mentions "Only IPTV services posted gains last quarter, as AT&T and Verizon added 398,000 TV customers."

    I thought they were both linear digital providers, only using fibre instead of coax...(?)
     
  12. Stewart Vernon

    Stewart Vernon Leapin' Lizard Staff Member Super Moderator DBSTalk Club

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    I'm not sure what you mean.

    When I see CDs for sale they are still $8-$20 depending on content, band, and how new the release is... and individual songs are $1-$3 per song... so if you want an entire CD you still pay about the same for a digital download as you would a CD.
     
  13. PrinceLH

    PrinceLH New Member

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    Putting it that way, about the CD's etc, I have to wonder why the price of Blu Ray movies haven't started to trend downwards. They cost about the same to manufacture as DVD's, but they have a higher price. Of course the movie studio's say it's a premium product. I say B*llshit! It's just called gouging, in my book.
     
  14. Stewart Vernon

    Stewart Vernon Leapin' Lizard Staff Member Super Moderator DBSTalk Club

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    I could be wrong... but I think DVDs still outsell Blu-rays. We know in DBS satellite world there are still more SD receivers in service than there are HD receivers... so if my gut is right, we will not reach a tipping point for cheaper Blu-rays on release day until more people buy Blu-rays than DVDs.

    That said... I see a LOT of Blu-rays pricing trending downwards. There are lots of movies to be had for $3-$10 on Blu-ray from Amazon and Best Buy and Target and Wal-Mart + other retailers.
     

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