Tag Archives: cord cutters

What if Nobody Wants to Sell Video?

television-sony-en-casa-de-mis-padresSome of the largest cable companies in the country have begun to de-emphasize cable TV as a product and it makes me wonder if smaller companies should consider the same strategy. It’s been clear to everybody in the industry that margins on cable have dropped, so the question that every cable provider should ask is how hard should you work to maintain cable customers or introduce any new innovations in your cable products?

The largest company that is downplaying cable TV is Cable ONE. Earlier this year Cable ONE’s CEO James Dolan told investors that cable had accounted for 64% of his profits in 2005, but by 2018 he expects that to drop to under 30 percent. Like many other cable companies, the lost margins on cable have been replaced by sales of broadband products.

Cable ONE has gone farther than most cable companies in de-emphasizing cable. For example, they and Suddenlink decided to drop the Viacom suite of cable networks when the programmer asked for a giant rate increase last year. This decision has cost these companies cable subscribers, and Cable One lost over 100,000 cable customers in the year after the decision, but the companies see this as a good long-term strategy.

If you are a small ISP and offer cable then your situation has to be a lot direr than Cable ONE’s. I have one small client who dropped their cable offering altogether earlier this year and they were surprised to find out how positively it affected them. They went from having a room full of busy customer service reps to having almost no inbound calls. It turns out that cable drove almost all of the inquiries and complaints to the company.

This tells me that it’s likely that offering cable is costing a small company a lot more than they realize. By the time you factor in the true amount of customer service time and truck rolls that are associated with the cable product it’s very likely that for small companies cable is completely under water.

The cable companies still have one major advantage that gives them a lot of flexibility. In the majority of the markets in the US the cable companies have no real competition with their data products and they have captured the lion’s share of the market. The latest statistics I’ve seen show that less than 10% of the homes in the country have access to fiber, and a lot of that is Verizon FiOS which is no longer expanding. In most markets the cable companies are still competing against DSL – a battle they have largely won.

For a while the telcos were rapidly expanding broadband products based upon paired-copper DSL, like AT&T U-verse, and were capturing a lot of data customers. But a lot of homes are starting to find that a data pipe that delivers around 40 Mbps of data, and which must be shared between cable and data products, is not fast enough for them. This might be the primary reason that AT&T bought DirecTV, to take pressure off their huge embedded base of U-verse customers by moving cable back to the satellites.

There is a lot of press about the growth in fiber-to-the-home. CenturyLink says they will pass 700,000 homes with fiber by the end of the year. AT&T is announcing new markets almost weekly for their new fiber product. And Google is steadily but slowly building fiber to new cities. But even if all of this fiber activity raises the national fiber passings to 20% of homes the cable companies will still be in the driver’s seat in most markets.

The larger cable companies are being proactive in order to preserve their large market broadband penetration rates. They have almost all announced that they are embracing DOCSIS 3.1 and will be significantly increasing data speeds in markets ahead of any fiber builds. Until now fiber roll-outs have had great success when entering markets where they are selling gigabit fiber against a 15 – 30 Mbps cable product. But fiber’s success is not going to be so automatic if cable companies can counter gigabit fiber with a lower-priced 250 Mbps or faster data product.

To come back around to my original point, it’s clear that data is becoming everything for cable companies. Analysts have been wondering for a few years how the large cable packages might eventually unravel. There has been a lot of speculation that cord-cutters and OTT programming will chip away at the business. But the death of the traditional cable packages might instead come when the cable companies all stop caring about cable TV. At that point they will have regained the balance of power against the programmers.

Who is Dropping Cable?

RCA_CT100-hdFierce Cable reports that the average revenues per customer are rising at many cable companies as they lose customers. This seems to indicate that a lot of people that are dropping cable were buying the lower-priced packages.

Here are some of the numbers they reported from the second quarter of 2015:

  • DirecTV lost 133,000 customers but saw the average revenue per customer rise 6.4% to $109.93.
  • Dish lost 81,000 customers but average revenue per customer rose 4.4% to $87.91.
  • Charter dropped 33,000 customers and saw average revenue jump 4.5% to $92.88.
  • Overall the largest cable providers combined saw average revenue per customer in the quarter rise by 6.7%.

Now to be fair about those numbers, a lot of these companies raise rates in the first quarter each year, making the second quarter the first period that sees the full impact of rate increases.

But the numbers do hint at the underlying cause of cord-cutting. I will admit that I’ve always figured cord cutters were coming from the tech savvy and from those who have decided that that they can live with the many alternatives for entertainment available on the web. My perspective has probably been influenced by the cord cutters I know, and it’s always a dangerous thing to take personal experience and extrapolate it to a national trend.

But if it’s true that cord-cutting is more driven by economics then we have a different phenomenon. People are being driven off cable because they are getting priced out of the market. I’ve been predicting for years that this day would come because cable rates have been rising far faster than inflation for a long time. And that eventually has to have an effect.

Just look at the above numbers. I am a bit astounded by the DirecTV numbers. If $109.93 is the average revenue per customer then there are a lot of people spending a lot more than that to offset the low special prices the company offers to new customers.

It’s easy to forget how fast rates can get out of control. But an $80 cable package will cost $105 in five years with a 5.5% annual rate increase or $112 with 7% rate increases. Looking at all of the big companies, one has to wonder how they are going to sell the value of their product 5 and 10 years from now.

I can see how cable rates are becoming unaffordable for lower-income families, but it’s not going to be that long until this starts being out of the range of a whole lot more families. Even without the pressure from OTT programming, the industry is headed down a path of real trouble.

And you have to feel sorry for cable companies. The cost of programming has been skyrocketing. I have a few clients who have seen 15% rate increases over the past two years. They grimace every time they have to raise rates and they are all seeing customers falling off their systems.

Big companies like Comcast are probably going to find a competitive option for the big cable packages. They are already looking at their own version of OTT programming. But unless the FCC can break the monopoly of the programmers the smaller cable companies are going to have very few options other than to watch their customers disappear. Almost all of my clients are losing cable customers at a faster rate than the large ones and I have a number of them already seeing 5% to 7% annual customer dropoff.

But the FCC can fix the problem if they choose. One of the biggest problems today is that the major programmers make cable providers take all of their huge suite of channels if they only want one of them. We all know there are a ton of channels on cable systems that hardly anybody watches but that everybody is being forced to pay for. If cable systems could choose the channels they want, like is possible with products in almost every other industry, then they could control their cost and could get the rate increases back under control.

Cord Cutting Might Finally be Here

Fatty_watching_himself_on_TVRecently, Wall Street has been hammering media stocks due to the fact that most of them have reported falling US subscribers. That makes me ask a question I have asked several times before: are we finally seeing the impact of cord cutting? Most cable companies just released 2nd quarter 2015 cable subscriber numbers and except for Verizon FiOS, all of the other large cable providers lost cable customers for the quarter, as follows:

  • DirectTV               -133,000
  • Dish                        -81,000
  • Comcast                 -69,000
  • Time Warner         -45,000
  • Suddenlink            -44,000
  • Charter                  -33,000
  • AT&T                      -22,000
  • CableOne              -21,000
  • Cablevision           -16,000
  • MediaCom            – 3,000

Just for this group of companies that’s a loss of 423,000 cable customers. And the numbers are actually worse. For instance, the Dish numbers might be as high as a loss of 187,000 because they are now netting the gains from Sling TV into the reported today. And Cox is not in these numbers since it’s privately held. The total losses above are something greater than 530,000 for the quarter.

Then you have to consider the fact that historically cable companies would have captured a significant share of new households. With the improved economy there will probably be at least 1 million new households added to US housing this year, and cable would normally have added about 200,000 customers each quarter from these new potential customers. That brings total net losses compared to historic trends to over 700,000 in a quarter.

The large cable companies have been losing customers for several years now. For a while these losses were offset by increases in satellite customers. More recently there was nearly a one-for-one between the losses experienced by the cable companies and the gains of the telcos, mainly AT&T and Verizon. But in this latest quarter Verizon gained only 26,000 and AT&T lost nearly that many, so that sector is no longer growing.

The second quarter is traditionally one of the poorest performing quarters of the year. For example, the cable industry as a whole suffers when campuses shut down for the summer, although those losses generally net out to gains again in the fall. And so it’s unlikely that these losses are going to annualize to the 2 million customers you might expect from these figures. But for the first time there is going to be a significant loss of cable customers for the year.

The cable companies almost all reported improved revenues. Even though they lost a lot of cable customers, the group as a whole gained 377,000 new data customers. Further, the cable companies had significant cable rate increases (although they also had significant increases in programming costs).

But it’s not hard to see how these kinds of losses affect the programmers. Take ESPN – it’s been reported that they charge cable companies more than $5.50 per customer per month. At that rate the loss of 530,000 paying customers annualizes to almost $35 million per year in lost revenues. And if you look at the historic trend including new housing units their loss is even greater than what they traditionally could have expected.

Not reported in the above numbers is the impact of cord shaving. It’s been anecdotally reported that there are a lot of customers cutting back to smaller TV packages, meaning that they are paying for fewer channels. The channels in the premium tiers have to be losing revenue at a significantly higher rate than the basic channels that everybody gets. But the cord shaver numbers are hard to come by and are not reported in cable company press releases.

ESPN is part of Disney which is a very large corporation with diversified revenues, and $35 million lower revenues gets lost in the rounding on their corporate books. But Wall Street is looking at the long term trend and is worried about programmers in general.

Finally, there is another industry measure that may have also spooked Wall Street. Nielsen recently released trends in TV viewing time. Since 2010 viewing hours per week have dropped for all age groups, but particularly for younger viewers. Viewing by 50-64 year old was down 1%, 35-49 year olds down 10%, 25-34 year olds down 23% and 18-24 year olds down a whopping 32%. That speaks tons about the dropping trend for future advertising revenues, which are aimed more heavily at young viewers.

It’s no wonder that Wall Street is punishing the media companies when they are losing revenues from both subscribers and advertising. Many of the programmers are selling enough new content overseas to make up for the US losses, but analysts are obviously worried that this trend is going to quicken in the same manner it did for landline telephones. This could get ugly fairly quickly.

How Real is Cord Cutting?

Fatty_watching_himself_on_TVAlmost every article you read these days about cable TV mentions cord cutting. Service provider are looking for products to satisfy cord cutters and analysts seem to be obsessed by it. But how real is it? I thought I’d take a look at the latest statistics since I haven’t done that for a while.

Total paying cable customers decreased by 31,000 customers in the first quarter of 2015 compared to a gain last year in the same quarter of 271,000. This is looking at cumulative customers for the whole industry including cable companies, telcos, and satellite. But within that number, the net losses for satellite for the quarter was 74,000 customers with a loss at Dish Networks of 134,000 customers and a gain for Direct TV of 60,000.

And cable companies as a whole are still losing customers to AT&T and Verizon, who together gained 129,000 new customers for the quarter, although as a group these two sectors had a tiny gain for the quarter.

This brings the overall loss for the year ending 1Q15 to 0.05%. While that doesn’t seem large, it’s the biggest (and the first) loss the industry as a whole has ever seen. And within the numbers is a worse story. Cable has now been shrinking for several years when measured against the growth of new households in the country. For the first quarter customers actually dropped 2.3% compared with the net change in total households, and for 2014 this was even worse with a net decline for the year of 2.8%.

As somebody who watched the telephone industry decline with landlines this is feeling very familiar. The industry first became sluggish for a few years, then had some tiny losses, and eventually began to bleed customers. But the loss of landlines was accompanied by the meteoric rise of cellphones, which gave people a good alternative to the home phone.

It’s impossible to sit and predict the same rapid decline of cable. For that to happen people are going to need to feel that the alternatives to cable are attractive enough for them to drop the traditional cable packages. So how are some of the alternatives to cable doing?

In the fourth quarter of last year Netflix streamed 10 billion hours of video, which represents 6% of all TV viewing. That number has been growing by double digits and is expected to continue to grow at that same fast rate. 6% of the market may not seem like a lot, but analysts say that Netflix contributed to 43% of the decline in ratings that TV experienced in 4Q14. So it’s not just that people are watching Netflix, but they are watching it during prime time.

And this is all very largely age-related. In the fourth quarter of 2014, viewing of linear TV (watching live broadcasts) was down 10.6%, a huge decrease over the year before. Millennials are flocking from traditional TV to either delayed viewing, viewing alternate content like Netflix, or viewing shorter content on their cellphones. Only about a quarter of millennials now watch linear TV while 44% of baby boomers do.

Linear viewing, in terms of hours watched, peaked in 2013 but has seen significant decreases since then. Over time this has to result in fewer people willing to pay the big monthly bill for something they don’t watch.

There have been surveys for years that predict an upcoming surge in cord cutting, but for various reasons none of those polls has held to be true. These polls tell that us that people are thinking about dropping cable subscriptions, but something is stopping them from pulling the trigger – there is a noted difference between intentions and actions.

There was another such survey recently released by TiVo. This poll says that about 1.5 million customers plan to ditch traditional cable in the next year. The survey says that another 38.1 million customers are dissatisfied with their pay-TV service. But that survey also reported that 20% of respondents had increased their TV packages within the last year, meaning there is a solid core of people who really love TV.

The TiVo survey might be right. When you consider that there has been no growth in cable for several years now it’s possible that there are already between 1 and 2 million people per year dropping cable, and that those drops are being masked by new households entering the market. But since most new households are younger and are the ones not buying cable that is probably not the case. The whole industry is scratching their head in the same way that I am, because the actual behavior in the market doesn’t match what surveys are telling them.

Should You Have a Cord Cutter Package?

rabbit earsIf you are in the cable business is it time to consider a ‘cord-cutter’ product? Obviously Cablevision thinks it’s a good idea as they became the first cable TV company to offer a standalone version of HBO Now to its line-up.

Cablevision has also adding two specific cord-cutter products as well. For $34.90 per month they will provide a 5 Mbps download cable modem, a Mohu Leaf 50 digital antenna to watch network television without a cable subscription, and their Freewheel unlimited text and voice WiFi phone service (more on this below).

For a promotional price of $44.90 per month they will provide a 50 Mbps down/25 Mbps up cable modem and the same free digital antenna. There is no description of what the price will rise to at the end of the promotional period. Both products have an option to add HBO Now for $15 per month.

The Cablevision Freewheel WiFi phone is an interesting product also. It provides unlimited voice and text as long as the customer is on WiFi and inside of the Cablevision service footprint. As long as you buy another Cablevision product it’s priced at $9.95 per month and you have to buy a Motorola Moto G phone for $99.95. The phone does not work on traditional cellular, so it’s only going to be attractive to those who are always around WiFi.

Cablevision says these packages are meant to go after cord cutters or cord nevers and are to provide an alternative for those who don’t want to pay for a traditional cable programming package. This begs the question: should other providers consider the same sort of cord cutter packages? A few weeks ago, the FCC officially announced that cord cutting is real (a little late to the game) since I don’t know that I have any clients that are not losing cable customers in a given footprint.

The Cablevision options are somewhat odd, though. While Freewheel WiFi phones will be attractive to those who stay around WiFi all day, it’s a product that doesn’t work in moving vehicles and which doesn’t revert to traditional cellular when you are out of reach of WiFi. For around $15 per month you can buy a better version of this product from several cellular resellers that partner with traditional cellphone service so that the phone will work anywhere in the US. And the more expensive cord cutter package is basically a naked cable modem with a free digital antenna thrown in.

There are two questions to ask if you want to consider a cord cutting product. What do cord cutters really want? Can you put together such a package?

Cablevision seems to think that people want a naked standalone data product, but most of my clients have offered that for years. They have come to the conclusion that they should never turn away anybody willing to pay for their highest margin data product, especially since most small companies are losing money on cable TV anyway. You can often get standalone cable from the larger cable companies if you fight hard enough for it, but they will spend a lot of effort getting you to buy a bundle of some sort instead.

Companies like Sling TV seem to think that cord cutters want smaller packages of programming, and I am sure some of them do. But recent surveys show that customers are extremely loyal to the few networks they most want, and so a smaller package is only going to be attractive to that tiny sliver of your customers who only want exactly what is in the smaller package you offer. I think what people really want is a la carte programming and the ability to buy only what they want and nothing more. But that is not going to be on the table soon, if ever.

If Verizon is able to wade through the lawsuits and offer their smaller packages, I think they are going to get limited response as well, because their proposed pricing for smaller packages is not much cheaper than normal cable packages. And this highlights the second thing cord cutters want – they want to save money. Unfortunately, as many have warned, when you pull channels out of the bigger line-ups and sell them in smaller piles, the programmers are going to charge a lot more for you to carry them. They still want to be paid as if you are taking their larger line-ups.

I would be shocked if Cablevision sells very many of their smaller package – it’s just too quirky in forcing both a WiFi phone and a slow cable modem together. The number of households who are going to think that is the perfect product can’t be very large. But Cablevision might address this over time by offering a wide array of different cord cutter options. But then they will have violated something that cable companies have learned the hard way – which is to keep the options simple.

I’m not sure that there is any real cord cutter package that will be a killer product to keep your cord cutter customers happy. But perhaps there is a suite of different products that will be attractive to different segments of cord cutters and which will each get a little piece of the market.

Some Thoughts on Sling TV

Old TVSling TV is the first on-line package of programming that is offering a real alternative to the big cable packages. They have put together a package of 15 channels for a base price of $20 per month.

The channels included are ESPN, ESPN2, TNT, TBS, the Food Network, HGTV, the Travel Channel, Disney, the Cartoon Network, ABC Family, CNN, Maker, adult swim, El Rey and Galavision. Additionally, they offer three add-on packages for $5 each: one for sports, one with news and info, and one for kids.

This is being marketed to cord cutters — people who once had cable. A survey from Esperian marketing near the end of last year put cable cutters at 5.5% of households. To put that into perspective, that translates into 8.6 million households. But there is a larger potential market that is not much talked about, which are the cord-nevers who have never had cable TV — a little more than 24 million households.

The first news stories I saw about Sling TV assumed the package is aimed at millennials, since younger households are leaving cable at the fastest pace. But the demographics of the channels in the line-up paint a different picture. Consider the following average ages of those who watch the following Sling channels: CNN (59.1), ESPN (48.6), ESPN2 (53.1), HGTV (56.4), TNT (53.6), Travel Channel (48.2), Food Network (47.6), and TBS (44.4). There are a few channels for kids: Cartoon Network (11.9) and the Disney Channel (11.7). Overall the average age of the viewers of the Sling channels is 48 years old. That’s not exactly a millennial line-up.

There is also a rumor that some of the contracts for programming are putting a subscriber cap on Sling TV at somewhere between 2 million and 5 million total customers. That would be one way for the programmers to stop the online phenomenon from getting too large. They do not want to put at jeopardy the 100 million households that have a cable subscription of some sort.

All of the numbers say that the market is ready for online TV. Just last week it was announced that between the fourth quarter of 2013 to the fourth quarter of 2014, overall live TV viewing dropped 12.7%. That’s the average drop, and varied between a 23% drop for Viacom (MTV, Nickelodeon, Spike, and Comedy Central) and a 7.5% drop for Disney, including ESPN.

A number of analysts say that the viewers that left cable didn’t go away, but instead shifted to streaming services like Netflix and Amazon Prime. This trend will bring about changes to the cable industry. Losing advertising eyeballs at this rate is going to translate to less advertising dollars going to cable channels and networks.

One can see this shift already happening in the advertising world. In 2012 there was $39 B of advertising online and $64 B on TV. By 2014 online advertising had grown to $52 B and TV advertising to $67 B. 2015 is projected at $57 B online and $68 B with TV. One can envision that soon after that TV advertising is going to trend downward along with the lost TV viewers.

I look at Sling TV as the first volley among many to provide more programming online. Both Verizon and AT&T say they will have an online programming package sometime in 2015. There have been rumors of a package from Google and also that Apple is taking another run at this. And some of those who have tried in the past like Sony and Microsoft might give it another shot. Even CBS is now streaming their content online for a fee.

This trend towards online programming is likely to get a major boost from the FCC later this year. The FCC is looking at the barriers that programmers have in place against online programming and it’s clear that the sentiment of Chairman Wheeler is to enable more online TV. The current docket at the FCC asks if we should give online programmers the same rights to get content as cable companies. If they are given that right, then online programming will explode.

I am probably going to buy Sling TV. This might even prompt me to buy a television. My interest in TV networks is really limited. My perfect package would be ESPN, the Big Ten Network, HBO, the Food Network, the Travel Channel, and Comedy Central. Sling TV provides me with half of my wish list, which is not bad for a first volley.

Musings on the Aereo Shutdown

Rabbit_Ears)I was traveling last week when the Supreme Court ruled on the Aereo case, and that gave me a chance to read a lot of reactions to the ruling before I wrote about it. The Court said that the Aereo business plan was basically a gimmick and that they had to shut down. I will admit that I always thought the same thing and that it’s hard to build a business based upon a loophole. It’s too easy for your competition to attack the loophole and such arbitrage opportunities are rarely permanent.

But in reading articles about the industry reaction to the ruling I noticed that the executives from the major networks reacted in absolute glee over the shutdown and hailed it as a major victory. And frankly, I think they made some huge mistakes with the way they handled Aereo from the beginning. I think what they failed to realize is that Aereo was serving the niche of the market that gets their entertainment using laptops, tablets and cellphones. You know the industry doesn’t get this because they refer to these devices as the ‘second screen’, failing to recognize that for millions of viewers this is the primary screen.

The industry doesn’t seem to understand the demographics that Aereo was serving. It’s easy to think that this is just the cord cutters, but it’s also most of the kids in the country. Let me talk about the cord cutters first since I am one of them. I don’t think I have watched a network TV show live, other than football games in over a decade. Perhaps that makes me unusual, but my life no longer includes network TV shows, commercials or watching TV at a fixed time. They lost me many years ago. I know that the industry keeps their eyes on cord cutters like me, but we are still a small enough segment of the market and they are not yet truly worried about us.

But the big mistake they are making is with the kids. The majority of kids do not like and will not tolerate the linear nature of broadcast TV. I’ve written many times how kids prefer YouTube, Vine and numerous other sources of entertainment and that they are largely walking away from traditional programming. The various industry surveys may show that kids still watch traditional TV, but only a few of the more detailed surveys show the truth, which is that even while they might be watching the big box TV, they are also watching something else on their ‘second screen’.

TV executives are looking at the Aereo decision as an indicator that they are free to keep on doing business as usual. And that is a huge mistake that is going to bite them hard one of these days. Instead of suing Aereo they should have purchased them a few years back and then embraced this as the way to get to the younger demographic.

Aereo didn’t just bring network TV to the second screens. It also came with a built-in DVR letting people with other screens watch what they want where they want and when they want. Aereo was the industry’s best chance at staying relevant with the kids under 16. True, Aereo wasn’t paying retransmission fees, but it was doing the networks a favor by bringing their content to people who obviously don’t want to watch TV on the big box. I guess the TV executives assume that these people will now flood back to their TVs, but I am going to guess that most of them are going to be more like me and they will decide that if they can’t have Aereo they will just forego network TV. There are enough alternatives to keep us second screen people happy whether we are old cord cutters or teenagers.

I really find it hard to believe that the industry and Aereo couldn’t have worked out a compromise solution. It certainly would have been relatively inexpensive for the networks to buy Aereo, and if that wasn’t possible then they certainly could have worked out some kind of reduced retransmission fees that could have kept the company functioning. Instead, the networks gleefully poked a lot of cord cutters and second screen viewers in the eye and I really don’t think most of them are coming back.

I don’t think that the networks understand how easy it is for them to lose a whole generation of TV viewers. Kids have already decided for the most part that they don’t like the constraints of traditional TV and it would be very easy for this whole generation to just walk away from the networks. To some degree they already have. The average age of network viewers keeps climbing. Surveys show that the networks barely register with this generation in their list of favorite sources of programming.

It’s too late to keep Aereo going, but it’s not too late for the TV networks to find some way to remain relevant. But I don’t see them doing anything that is going to enamor them to the younger generation and I think the clock is ticking on a whole generation of viewers. At some point the advertisers that support TV are going to realize that they aren’t getting to the right demographic, and that could bring about the demise of the networks in a big hurry.

Chipping Away at the Cable Industry

Digital-tv-antenna-620x400It seems that every day I read a story about some big company who is working very hard to break the cable monopoly and to bring alternate programming packages to the market. Aereo is at the Supreme Court this week for trying just that – for bringing a small package of network channels to cell phones and tablets in major metropolitan areas.

Yesterday I read that Dish Networks expects to have a new service out by late this summer that is going to further chip away at the cable industry. They plan to offer a smaller package of programs over the web that are aimed at Millennials that will let them watch TV on smartphones and tablets for $20 – $30 per month. But I think a package like that is going to be appealing to a lot of households and is going to lead to a lot more cord cutters.

Dish has already signed up Disney, which brings them Disney, ESPN and ABC. They have reportedly been in negotiations with A&E, Turner, Comcast (which includes NBC) and CBS. The largest content providers have reportedly placed some contractual conditions on Dish getting such a package. They must include at least two of the major networks of ABC, CBS, FOX and NBC. They also must include at least ten of the highest-rated other networks in the package.

This concept is not new for Dish and they already sell packages on the web in fifteen different languages that they market under the name of DishWorld. This includes packages at $14.95 per month in Arabic, Hindi, Cantonese, Urdu, Filipino, Punjabi and many other languages and is a great way for emigrants to see programming from their home countries.

In another announcement that came out today, HBO, a division of Time Warner agreed to sell its library of original content to AmazonPrime. This is the first time that HBO or any cable network has made such a deal. This content has been made available on the web to people who subscribe to HBO at a major cable company like Comcast or Verizon. But the content has never been available to people who did not subscribe to HBO.

No one of these deals is going to break the cable industry. However, these two particular deals will chip away at the subscribers who buy traditional cable packages. These are deals that will let people get content on the web in a way they could not get it before. I think it is these sorts of deals that will chip away at the cable industry, and the industry won’t die in a big bang but will die from a thousand cuts.

Dish will lure away a pile of cord-cutters with this package. Verizon Wireless will lure away another pile. Google, or somebody non-traditional will get the rights to the NFL Sunday package and will lure away a pile. Somebody will make a deal with ESPN and the other key sports networks and take a pretty big pile. The Dish deal is the first major OTT deal but it will not be the last. As the programmers find a way to monetize their content over the web we are going to see more and more people dropping the giant packages. Virtually nobody is happy about paying for content they never watch.

Interestingly, not everybody sees the world in this same way. Here is one guy who sees a rebound for the traditional cable providers. He sees an increase in both customers and penetrations through 2019 for the cable industry. Nothing is impossible and we don’t have to wait long to see if he is right, but just about everybody else predicts that the large cable companies are going to keep losing customers and that the rate of loss will accelerate. Every little side deal made with Dish Networks or Verizon Wireless or Google is going to drag another pile of customers away from the big dollar, big-channel packages.

And at some point, the big line-up model starts breaking when programmers start getting less revenues for the less popular channels that are not being included in the new Internet-only alternatives. ESPN and Disney and the other popular networks are going to do just fine since they will probably be viewed by more people than ever. But the other 80% of networks have to be very worried about the trend towards OTT.

Statistics on How We Watch Video

Old TVExperian Marketing has published the results of yet another detailed marketing survey that looks at how adults watch video. This is perhaps the largest survey I’ve seen and they talked to over 24,000 adults about their viewing habits. This one has a bit of a different twist in that it correlates TV viewing with the use of various devices. The conclusion of the survey is that people who use certain devices are much more likely to be cord cutters.

Probably the most compelling statistic from the survey is their estimate that as of October 2013 the number of cord cutters has grown to 7.5 million households, or 6.5% of all households. This is several million higher than previously published estimates. This survey shows that age is an important factor in cord cutting and that 12.4% of households that have at least one family member who is a millennial between the ages of 18 and 34 are cord cutters. And something that makes sense is that over 18% of those with a NetFlix or Hulu account have become cord cutters.

The survey also shows that the number of people who watch streaming video continues to grow and that 48% of all adults and 67% of those under age 35 watch streaming or downloaded video from the Internet each week. And this is growing rapidly and both of those numbers increased by 3 percentage points just over the prior six months.

The main purpose of this survey was to look at viewing habits by type of device. One of the surprising findings to me is that smartphones are now the primary device used to watch streaming video. I guessed it surprised me because this is not one of the ways we watch video in our household other than videos that pop up from Facebook. But during a typical week 24% of all adults or 42% of smartphone users watch video.

The television set is still the obvious device of choice for viewing content and 94% of adults watch something on their television each week. Only 84% of adults now use the television to watch live programming and the rest are watching in some different manner. For instance 40% of television watchers still view content from DVDs, 32% get content from a DVR, 13% watch pay-per-view and 9% watch streaming video. As of February 2014, 34% of television sets are now connected to the Internet. Of those 41% use AppleTV, 35% use Roku and the rest have Internet-enabled TVs.

Adults are watching content on a lot of different devices now. Something that might be surprising to bosses around the country is that 16% of adults with a PC at work use it to watch streaming video. One fourth of adults who own game consoles watch streaming video, 26% of adults who own a home PC use it for videos, and 42% of adults who have either a smartphone or tablet use them to watch video.

The survey also looked at what people watch and the time spent with specific programming on each kind of device. For example, YouTube is the source for 59% of the video watched on PCs and the average adult spends over 21 minutes per week watching it. Only 7% of content viewed on PCs is NetFlix, but the average time spent is over 23 minutes per week. And over 10 minutes per week is spent on PCs watching Hulu, Bing Videos and Fox News.

The survey also asked how adults feel about advertising that comes with the video on each kind of device. Not surprising to me, only 9% of those over 50 found the advertising on their smartphone to be useful and 14% found advertising on the TV to be useful. But younger viewers are not quite as jaded as us baby boomers and 36% of millennials find advertising on their smartphone to be useful and 39% find TVs advertising to be useful.

What’s up with Cord Cutters?

Fatty_watching_himself_on_TVMorgan Stanley just released their fourth annual survey on the media, cable and satellite business. In thus survey they talked to 2,501 adults nationwide. In this survey they looked in detail about how people use media – what they watch and how they watch it.

The most interesting statistic to come out of the survey is that for the fourth straight year a significant percentage of people said they are going to cut the cord in the coming year. 10% of respondents said that they were definitely going to cut the cord and another 11% said that they would probably be cutting the cord. If these percentages were true, and 21% of the country was going to be cutting the cord, the cable industry would be in a major tailspin. This survey ought to be major headlines on every business page, right?

But it’s not, and that’s because there have been similar responses to this survey the last few years. In last year’s survey those same two percentages added to 17%. The prior year they added to 15%. But the cable companies did not experience cord cutting to anywhere even remotely close to those percentages in the last two years. Certainly there is cord cutting going on and the industry has certainly lost at least several million people due to this new trend.

But what this survey tells us is that people want to cut the cord. One full fifth of households with cable are clearly unhappy with the big bundles of channels, and eventually that is going to come home to roost with the cable industry. The other statistic that bears this out is that only 50% of the respondents in the survey actually like the big package bundles, a number that is dropping every year.

We’ve seen the same thing before with home telephones. For years people talked about getting rid of their home phone and yet it took a number of years for many people to do so. But eventually people will act on how they feel and the cable industry has a big problem brewing.

As you might expect, there is an age component to potential cord cutters. 30% of the people who said they would or might cut the cord are in the 18 – 29 year-old age bracket. And that percentage decreases as the age increases.

I find these results interesting because almost everybody I talk to is unhappy with what they pay for cable TV. Maybe that’s because most of those people I talk to are in the industry. But I know many cord cutters and I know that this is really happening. I would be a cord cutter myself, but Comcast made me take basic TV (20 or so channels) if I wanted to buy a cable modem faster than 12 Mbps. So I am officially a TV subscriber, even though I don’t own a TV and the cable box they gave me is gathering dust in the closet. There can’t be a lot of people with my same story and who are being coerced into buying cable and who then don’t even watch it. But this does show that perhaps the reported subscribers of the big cable companies are a bit inflated due to these kinds of policies.

The survey also showed that the OTT programmers are doing quite well. 30% of the households in the survey watch NetFlix, up over 5% from the last survey. 18% watch AmazonPrime, up 10% from the last survey. And while the free Hulu service lost about a percentage of viewers, its for-pay service Hulu Plus is up almost 5%.

I titled this blog ‘What’s up with Cord Cutters’, but perhaps a better title would be ‘What’s up with the Almost-Cord Cutters’? There are apparently a whole lot of people who are thinking of cutting the cord. Perhaps one year soon a large percentage of the number of people who say they are going to cut the cord will actually do it. And then the wheels start coming off the cable model.