Why People Cut the Cord

TiVo did a large market survey at the end of last year that, among many questions asked cord cutters why they cut the cord. Respondents were allowed to choose more than one response, with the responses as follows:

  • Too expensive                                     80%
  • Use an Internet streaming service   48%
  • Use antenna to get basic channels   27%
  • Like to binge watch entire seasons  19%
  • Dropped cable when moving            13%
  • Like the streaming original content 11%

Interesting to me personally was that my number one reason for cutting the cord was not even on this list. I’ve found that I can no longer tolerate watching linear TV. I generally am multi-tasking when watching video and I love the ability to pause, re-wind or watch video in a manner that suits my mood at the moment. I can absolutely not stand commercials any longer, and that means I can’t stand broadcast cable. I tolerate commercials when watching sports, but I will not otherwise willingly watch anything that includes ads. The same goes for me for any web site that wants me to watch an ad first – I just skip past the site regardless of how interesting I might have found the content. I know there are ways to skip ads on linear TV using DVRs to record shows, but it takes more work and doesn’t work for channel surfing. Netflix and other OTT providers have let me just forget about ads.

But I’d like to look deeper at the primary reason people list for dropping cable TV – the cost. Certainly there are households who feel like they are getting priced out from being able to afford cable TV after each large annual rate increase. Real household incomes have not grown much for many years while cable rates have risen 6% to 7% each year. And so there are some households that are forced to give up cable when the alternative is not paying for something more important like rent or a car.

But I don’t think that is what most people mean when they say that cable costs too much. Most cord cutters are not dropping cable because they can no longer afford to pay the monthly bill – rather, what they really don’t like is the perceived value of cable. And value is something very different than cost.

We conduct customer surveys at CCG and I think the big national surveys are not digging hard enough with the questions they ask. I don’t fault them for that because the TiVo survey was not just asking about cord cutting, but also about a whole other range of issues related to video. Our surveys are generally being conducted in small town or rural markets where one of our clients is considering building a new network. And in these surveys we can dig a little deeper because we are trying to answer a much smaller range of questions.

For instance, consider rural homes and farms in areas with little or no broadband. People without broadband in these areas generally watch cable TV using satellite service since that is their only option. We don’t see much discussion about cord-cutting in these markets, because that would means cutting your home off from almost all video. In rural areas you might be able to get a few channels through an antenna, but sometimes that’s even very limited.

But today the majority of people with broadband have tried one or more of the streaming services like Netflix or Amazon Prime. In doing so they are finding that they love the amount of unique content on these sites and they love the commercial-free streaming experience. And the more they like the streaming video experience, the less value they perceive in their linear cable TV subscription.

I think every cord cutter is happy to be saving money, and that is why they would pick that choice out of a list of reasons for why they cut the cord. But I really think that most of them really mean that they could no longer justify paying the high price for something that they no longer value as much as they did in the past.

In economic terms streaming video is now becoming a substitute for traditional TV. Since cable systems were built in the 70s the only real substitute for cable TV was rabbit ears and a big majority of homes opted to get more channels and more chose through a cable subscription. But as homes perceive streaming video as a substitute for a cable subscription they will do the side-by-side comparison and decide that cable TV costs more than what it’s worth to them. And I think this is what would prompt most cord-cutters to say that cable is ‘too expensive’ when given a survey.

Our Shifting Viewing Habits

Old TVNielsen did a huge survey earlier this year where they asked 30,000 viewers worldwide questions about how they view video content. The responses show how quickly people are changing their viewing habits in response to the proliferation of new options.

Even as recently as a little more than a decade ago, options to view video other than at the scheduled broadcast time  time were rare. I was an early adapter to TiVo and got my first set in 2000. At that time almost nobody watched TV on a time-delayed basis. But TiVo let me watch things on my own time schedule and I quickly invested in a CD burner that would let me capture content from the relatively small TiVo hard drive to further expand my options to watch on a time delay.

The cable companies responded to TiVo by introducing video on demand, which provided watch-anytime capabilities to a subset of their programming. I am probably somewhat unusual in that I can’t recall as an adult having ever watched a network TV series by watching at the scheduled time. I just have never been able to structure my life in that manner (or even remember what day of the week it is).

But today we have a huge array of options and this survey shows that people are using them. We can, of course, still watch TV live and sit and surf the channels. But the cable company video on demand offerings are much larger than in the past. The large cable companies and networks have also provided on-line delayed viewing for most of their popular content that is available with a cable subscription. There are the huge libraries of content at Netflix, Amazon Prime, and other streaming services. There is some pretty decent content today being produced only for the Web, along with an absolute mountain of content on YouTube. And for those willing to hunt, there are huge piles of older movies, newsreels, and offbeat content all over the web.

Here are a few of the more interesting findings of the Nielsen survey:

  • Only 48% of people now prefer to watch video live. This means that the shift to time-delayed viewing is now the predominant way of viewing video.
  • A gigantic 63% of people say that time-shifted viewing best fits their personal schedules.
  • Only 51% think that the big screen TV is the best device for watching video. This is a pretty amazing shift that says that people not only have gotten used to watching video on computers, tablets, and smartphones, but a lot of them now find those alternatives to be their favorite way to watch video.
  • 37% now finding watching video on their cellphone to be ‘convenient’.
  • Another 37% say that a tablet is as good of an alternative as a television screen or a computer.
  • 58% of people like to catch up on content through binge viewing and watching more than one episode at a time.
  • 21% of people are more likely to watch content that has a social media tie-in.

The survey also shows that the type of content affects which device we use. People still prefer the television when watching live news, documentaries, comedies, and dramas. But less than half of viewers choose the television screen to watch reality TV shows. And almost nobody uses a TV screen to watch short videos under 10 minutes in length.

Probably the most interesting phenomenon is that the choice of multiple screens is killing off the once-powerful social impact of watching television with others. I remember the days when the whole family sat around in the evening watching whatever happened to be on (since we could only get three networks that wasn’t a big choice). But this survey shows that 65% of viewers now watch video alone. I know that my wife and I share almost no common interests among the things we watch, and we routinely watch different things at the same time.

This shift is certainly still not over. I still have many older relatives who only watch traditional TV on the screen as it is broadcast. But just about the opposite is true of young viewers and they have largely abandoned the big TV screen except perhaps as background noise while they are multi-tasking on their phones.

The one place where these shifts ought to soon have a huge impact is TV advertising. With over half of all viewers now watching content on a time-delayed basis the traditional advertising model is quickly dying. Surprisingly, TV advertising spending is only slightly down this year, but it won’t be surprising one coming year to see a huge fall-off in TV advertising spending. It seems a waste to pay to advertise where fewer and fewer of us are viewing.

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.

The Future of TV – The Viewer

The Twilight Saga (film series)

The Twilight Saga (film series) (Photo credit: Wikipedia)

Probably the biggest change in the TV landscape is that viewers are changing, or at least their expectations for the viewing experience. For the first time in the history of the industry, the consumer is in the driver’s seat by their ability to collectively determine which content is popular. This must be driving the executives at cable companies and media production companies crazy.

For most of the history of the industry, the content providers were in charge. For most of the history of TV the studios or cable networks would choose the content and determine when it would be seen. And the process was a huge chess match trying to get the most eyes to product hits. New content that was scheduled opposite an existing hit show were dead on arrival.

Not all consumers fit well with the process of having to watch shows at pre-set times. I am an admitted space cadet and I have never been able to watch a TV show regularly at a pre-set time. And so, when TV shows started showing up on tape and then DVDs, I scrapped television and would just buy the series I was interested in to watch at my leisure. I saved money by not having cable TV, but buying DVDs for shows was expensive and so I would watch only a few old series per year. And I bought movies. Lots and lots of movies. But I was in the minority and I was an early cord cutter due to my personal spacey habits and my willingness to pay a premium price for alternate content.

But then along came new technologies that let people drop out of the treadmill of watching shows at pre-determined times. First came TIVO followed by video-on-demand that let people record and watch shows later. And more lately has come OTT programming on the web. So now, people have an immense amount of content that they can watch at any time. Both my wife and I are the kind of people who like to watch a whole TV series back-to-back and so OTT programming satisfies us for the most part.

And if that is all there was to the change in the industry the cable companies and content providers would not be worried. They would continue to monetize the ability for people to watch their content whenever they wanted to, and in the end their finances would not change too drastically.

But that is not the end game. If you want to see the end game, spend a few days watching how 14-year olds watch video. The way they watch content is the future:

  • They rarely watch just one thing at a time, at least for very long. They may watch something on a TV screen, but they will watch their tablet and smart phone at the same time.
  • They don’t have long attention spans, regardless of the content and getting them to watch a movie the whole way through is difficult.
  • They like to watch content made by themselves and their friends as much as they like professional content.
  • They don’t want to watch something end-to-end. They will not go back and watch a Twilight movie they have already seen. Instead they will watch compilations of their favorite scenes from the Twilight movies that they or somebody else has strung together on YouTube.
  • They love the 7-second clip content on Vine. No adult can handle Vine for more than a short time. Vine produces memes more than content, but kids find this entertaining.
  • They love watching together with other teenagers, be that live together or virtually together.
  • They don’t even need cable for the news. Take the example of the Boston marathon bombing. There were hundreds of people in the area going live on the web talking about what was going on there.
  • And they don’t want to pay for content. Not so much because they are 14, but because they believe that content ought to be free.

It is the 14-year old girls that are scaring the industry because they presage a new way of interacting with content. These kids are not going to grow up and buy traditional cable subscriptions. They are not even that likely to buy the alternates like Hulu or NetFlix. They are largely happy with free content or short clips of industry content. The cable companies are hoping to snag boys with ESPN and sports content, but they don’t know what in the hell to do with the girls.

The Future of TV – Content

Photo of cable tv headend rack. Louisiana. Now...

Photo of cable tv headend rack. Louisiana. Now closed out of business. (Photo credit: Wikipedia)

Since cable TV became a nationwide product the content has been delivered by the cable providers in large packages that differed little from coast to coast. Small rural systems have typically smaller line-ups, but the programming available in the big cities is about the same everywhere.

The first big crack in how programming is delivered came with Tivo which let people record TV to watch later, including the ability to skip commercials. And quickly following that was video-on-demand from the cable companies. Now we are seeing a large amount of programming available on the Internet and I think we have turned the corner and consumers now have more say than the cable companies in how and when they watch content. This trend will strengthen and greater numbers of people will step away from traditional packages. I looked around to see what others are expecting for the future of content and here are some of the predictions:

Content Participation. This started in a mild way when home viewers could vote each week for the winners of shows like American Idol. This got millions of viewers heavily invested in the outcomes of such shows. Expect a lot more of this in the future and to a much greater degree. There will be programs that are driven by the viewers. The viewers will get a say in the plot development, the introduction of new characters or getting rid of existing ones. The shows and characters will participate in social media and become part of fan’s lives.

Viral TV Production. Even better than participation, viewers will be able to help fund new shows they want to watch. To some extent this has happened to a few shows today that were discontinued by networks but then picked up for independent production for the Internet. Viewers will not only get to participate as backers of new shows but will have the ability to have some say in the creation of content. I can picture Star Trek fans funding episode after episode forever.

Produce Your Own Content. Anybody who has witnessed 14-year-old girls watching video will see that a lot of what they watch is clips made by their friends or by themselves. As it becomes easier and easier to make your own content, and as this content is easier and easier to play anywhere, a lot of people are going to produce content to share with their friends.

More Local Content. To a large degree local content has died on cable TV. Larger markets have local news, but there is a lot of demand to watch local content such as high school football and basketball, parades, government meetings and other local events. The Internet is already producing ways to channelize local content and I expect local ‘channels’ to pop up all over the country. There is no reason that every high school, every college, every church can’t have their own local channel of web content.

Fewer Network Channels. I think everybody expects that as more content is on the Internet and as some of the more popular content becomes available on a per-pay basis that many of the existing cable networks will die. It’s been reported that 80% to – 85% of cable channels don’t make enough money to stand alone in an a la carte cable world.

Different Perspectives. Expect programming that will offer different perspectives. This has been done a little in the past with shows being filmed with different endings for different viewers, but expect a lot more of this in the future. There will be shows that will allow the viewer to watch the show from the perspective of a specific character.

Personalized Ads. Of course, with all of the good changes that are coming, there is a lot of consensus that ads will become more personalized. Of course, advertisers think that this will make you like to watch their ads since most of what you see will be aimed at you, but I suspect that is going to make most people even more jaded about advertising.

Sensory TV. As a science fiction fan I have been to a number of movies that purported to invoke the sense of smell, taste or touch during movies. I must say that movies with Sniff-o-rama were a little less than successful! However, it is predicted that in the near future that it will be possible though personal electronics to make a viewer really invoke the different senses. This will begin with gamers and will involve wearing helmets or goggles that will trigger brain sensations. But this will move eventually to wider programming.