For the last year I’ve been trying to track cord cutting and it can drive you crazy. Within the last month I have seen articles that say that cord cutting is growing rapidly and other articles denying that it’s a real phenomenon. Part of the reason for this is that the industry statistics are confusing. It seems like every quarter there are different companies gaining or losing cable customers. It’s impossible to predict the winners and losers from quarter to quarter or to predict the overall trend.
To some extent this makes sense because the industry tracks net customer gains or losses and there are a whole lot of things happening underneath that net number. Consider Comcast. For the latest quarter they only lost 4,000 customers, their best number in years. But that number is the net of a whole lot of different things going on. Recently Comcast launched their new OTT product Xfinity Stream which bundles HBO and the major networks for $15 per month online. While they don’t report the number of customers for this OTT product, they have said that it is doing well, and so it’s likely that they have gained new customers for a web-only product that are included in their overall numbers.
Another factor that affects the numbers are new households. In 2016 it looks like there will be more than 1.5 new homes and apartments added in the country. With the average cable subscription rate of 70%, this means that means that there ought to be over one million net new cable customers added if the industry was just standing still. One would expect Comcast to be seeing at least 100,000 new homes per quarter, so when customer counts don’t grow, I see them as actually having lost 100,000 customers.
There was an article in FierceCable a few days ago that predicts that the second quarter of this year will be worse overall than the second quarter of last year that sent cable stock prices tumbling. Last year the estimates were that the industry lost 625,000 customers in the second quarter, and that doesn’t include accounting for new housing units, which I think makes the real loss nearly one million cable customers.
Not everyone has reported second quarter results, but pay TV companies already have reported a loss of 375,000 customers for the quarter. Additionally, Dish TV alone lost 281,000 customers for the second quarter, even including the gains made by Sling TV.
But I think the press and Wall Street are concentrating on cord cutting but missing the bigger picture. As I discussed in a recent blog, there seems to be a large amount of cord shaving – or customer downsizing going on. For instance, it was reported that ESPN lost over 1.5 million customers just between February and May of this year. That loss is significantly greater than the net customer loss for the whole industry, and the difference can only come from people downsizing to packages that don’t include ESPN.
The cable companies don’t report customers by the size of package they buy and so there is no way to see the downsizing numbers other than by looking at the subscribers for networks like ESPN that are included in most expanded basic packages (the first tier of 50 – 80 channels in most systems).
What looks to be happening is that a lot of customers are cutting back the cable package to the lowest tier and buying the least expensive cable product possible. This is due in part to the fact that people want to still get the major TV networks. But it’s also due to pricing policies that punish customers if they want to drop cable and still keep broadband. Customers are often better off keeping a minimal TV package instead of dropping TV altogether. As I’ve reported, Comcast has told me repeatedly that they won’t even sell me the 100 Mbps connection I have without some TV tier.
The bottom line of all of this is that cord cutting is real but it’s not yet significantly large. The cable companies can weather a few million lost customers per year for many years, and if cord cutting continues at the today’s pace there will still be 80 million cable customers a decade from now. The more important shift looks to be that customers are downsizing to smaller packages. They are probably doing this to be able to afford the OTT options like Netflix or Amazon Prime. But it’s obvious that fewer and fewer people are interested in the gigantic cable packages any more.
I disagree. The pay TV industry has enjoyed screwing the consumer for far too long.
If cord cutting isn’t a big deal, why are cable companies Comcast, Suddenlink, Charter and telecoms AT&T, TDS, CenturyLink imposing data caps across all of their fixed wireline internet services?
Why are broadcasters and television executives Disney, ESPN nervous? The wall street journal wrote up an article recently stating that Apple is arrogant in negotiating terms with Hollywood that is why any deal quickly fell apart. RIGHT.
Apple’s attitude towards broadcasters and Hollywood is well founded.
http://www.macobserver.com/columns-opinions/apples-attitude-towards-tv-industry-well-founded/
This says it best :
“The disruption of the TV industry has started, and it isn’t going stop. Apple’s Eddy Cue knows this, and that’s why he is reported to have told some media executives: “Time is on my side”. It really is.
Reading between the lines, the WSJ authors cast this remark as arrogance. But it really does reflect Apple’s approach. A related industry can move into the future along with Apple, whether engaging with iPhones, iPads, health management or music. Or Apple can figure out for itself how to navigate forward until the more backwards players finally see the handwriting on the wall. Eddy Cue’s patience has likely worn thin. Apple has tremendous prestige, influence, technical acumen and financial resources.
My money is on Apple to take us forward.”
Before we finally ditched cable TV on March of 2015, I was paying $150 a month / $1800 a year without the addition of internet or streaming services Netflix and Amazon Prime.
As a cord cutter, I welcome this long overdue change.
The issue now will be how we as consumers fight the data caps that wall street is trying to pressure all ISPs to impose. How do we get Netflix and other streaming services companies to either raise the data cap limits or outright eliminate them.
I don’t think anybody denies that cord cutting is real. But we are at the early stages of the phenomenon and perhaps as many as 2 million households cut the cord last year. But the industry as a whole just dipped under 100 million total customers and it would take a whole lot of years at 2 million dropped customers per year for the industry to really feel the pain.
You are right and they know the long term implications of this trend. And for now they are working every trick they can think of to keep customers engaged with at least some level of cable service.
The same thing happened with landline voice. When customers were allowed to leave, not many did at first. and a lot of them that left just migrated to a resold voice product off the RBOC networks, and the RBOCs still made money on those customers. It took cellphones to really kick landlines in the teeth. The thing we will have to see is if Netflix and OTT programming have as large of an affect on cable TV as cellphones did on landlines. While the two shifts are analogous, there is nothing to say that traditional cable will fall as quickly as landlines. There are a lot of folks with opinions and with their own crystal balls, but only time will say what the impact of cord cutting will be.