Trends in Cord Cutting

coaxial cableFor 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.