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Summary:

Still doubting that cord cutting is real? The enjoy the time you have with that notion: 2011 will be the year that cord cutting is becoming an indisputable fact, as more and more consumers are embracing alternatives to cable and other forms of pay TV subscription.

coax cable

Cord cutting was on everyone’s mind in 2010, dominating the talk at industry events like our own NewTeeVee Live conference in November. However, we’re the first ones to admit that it’s not exactly mainstream yet. Close to 90 percent of U.S. households still subscribe to pay TV in one form or another. We saw the pendulum swing for the first time in 2010, with pay TV subscription numbers declining for the first time ever in Q2, only to be followed by another decline in Q3.

I believe this trend will not only continue in 2011, but actually accelerate to the point where cord cutting is becoming an indisputable trend and an option embraced by a large number of consumers. It’s safe to assume that subscriptions declined again in Q4, which is traditionally one of the weakest quarters of the year for the industry. Q1 of 2011 will likely see a small increase, given the fact that many people resubscribe for major sports events. However, this will be followed by further declines, and we’ll end the year with a substantial loss of subscribers — which is in itself notable, given the fact that the industry gained some 1.8 million subscriber in 2009, according to SNL Kagan.

This trend will be accelerated by a few major factors:

The economy. The housing market and weak job growth will continue to influence consumers in 2011. One of the easiest ways to save an extra 80 or 100 bucks per month is going to be cord cutting.

The Netflix boom. Netflix transformed itself from a DVD rental service to an online streaming company in 2010, and it’s willing to spend big bucks to accelerate its online growth. Netflix will have to renegotiate its Starz deal next year, which could lead to it spending a lot more for Hollywood movies — but we will undoubtedly also see a number of major content deals, especially with media companies that haven’t been able to cash in on TV Everywhere or online VOD. The Saturday Night Live deal was groundbreaking, and I predict that we are gonna see at least one other major TV brand to come to Netflix next year, be it The Daily Show, Conan or something along those lines. At that point, consumers will feel even less inclined to spend money on cable just to record a show on their DVR that they might as well watch ad-free on Netflix.

Retrans spats and fee increases. Consumers like their cable company about as much as the meter maid, and retrans fight-induced blackouts don’t really help with that perception, even though the networks may really be the ones to blame for these inconveniences. Eventually, their attempts to get higher fees for broadcast and cable channels will lead to higher pay TV fees — and every additional dollar will lead to more people jumping ship.

New and improved devices. Google TV, Apple TV and Boxee have captured our imagination in 2010 – but still left us somewhat unsatisfied. That will change in 2011 with apps and more paid services coming to some of these platforms. We’re gonna see live streaming of music and sports events on the Apple TV and hopefully a much more powerful Google TV with access to the Android Marketplace. These services and apps will do for these devices what the iTunes store did for the original iPod: Kick-start demand and on a more fundamental level question the old ways of consuming content.

The failure of TV Everywhere. Cable networks and network operators alike will continue their push for TV Everywhere solutions, trying to force consumers to authenticate through their cable TV provider before they can access online content. However, TV Everywhere is a solution without a problem, and tightening restrictions will actually drive people away from these more exclusive online offerings and towards less restrictive services.

Case in point: ESPN3 used to be available to broadband subscribers of certain ISPs regardless of their pay TV habits. Time Warner Cable recently changed this, making it mandatory to subscribe to its cable TV offering if you want to access ESPN3 through the ISP online. The result has not only been a backlash from consumers, but actually a delay in its deployment. Time Warner customers are still waiting to access ESPN3 on their Xbox 360. AT&T meanwhile is offering ESPN3 as part of its DSL service to these very same customers without any further authentication needs. It’s like the newspaper pay wall saga all over again, and it will have the same consequences for networks operators as it had for print media.

Check out our most recent episode of Cord Cutters below:

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  2. Excellent post!

    1) I look forward to ridding of my $100/mo Directv account…..someday!

    Prediction 2011: Sadly, Boxee will become toast trying to compete against GOOG and AAPL and new entrants with stronger balance sheets. Only saving grace could be some type of exclusive content relationship, but, chances of that are as likely as the 49ers or Giants winning the Super Bowl

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  5. Some comments.

    The economy may be stagnant or even grow, and people are watching more TV than ever on their DVRs. DVRs have done nothing but increase TV viewing time across the board. Netflix already “boomed.” Now the competitors will enter the arena.

    Retrans spats don’t lead to subscriber loss normally. I’ve been effected by them, and they’ve aggravated me, but I’ve never thought about canceling cable because of it. I’m not alone.

    All the over-the-top devices of 2010 failed. Not necessarily a bad thing for an industry that’s trying to find its legs. Google TV, Boxee and Apple TV are still hobbies for hobbyists. The average consumer needs to be able to use these devices, and we early adopters tend to vastly overestimate their technical ability.

    There will be no killer app or killer box that will bring over-the-top to the mainstream. This will require: 1) Making an over-the-top setup that is easier to use than a typical TV (Not easy. And when i’m talking ease of use–I’m talking about adapting to consumer’s needs–not trying to teach them something new.) 2) Getting premium content and live sports.

    Unfortunately for the average consumer, if over-the-top succeeds, the big guys will just probably jack up our Internet bills because they laid and own the pipe. Should be an interesting 2011.

    1. Couldn’t agree more.

  6. So, in light of 2011 possibly being the “year of cord cutting,” I have a question for NewTeeVee staffers and readers. I adore NewTeeVee and its coverage of the transformation of video and television in the digital era. But a lot of the other sites where I try to follow the same issues are very hit-or-miss. I’d love to know what everyone here thinks are some of the best blogs and sites to follow in thinking about this stuff.

    Is there a well-defined digital-TV/cord-cutting blogosphere that I’m missing? Feel free to tell me I missed some essential post on this, or that there’s a good list somewhere else. I’d just love to know what’s on NewTeevites’ reading list.

  7. Janko, I believe that the key subscriber trend to watch in 2011 is pay-TV service downgrading (dropping premium channels), since this can be the first step towards a total disconnect. It’s therefore a leading indicator of the transition, and it was the under-reported pay-TV KPI in 2010.

    That said, I predict that one forward-looking incumbent pay-TV provider in North America and Europe will offer a low-cost IP-based OTT video service in 2011. These pioneers will validate the notion that a retained subscriber, on a lower revenue offering, is preferable to a subscriber loss.

    My point: fear of the potential for cannibalization of high-cost pay-TV services will diminish as the need for market segmentation is acknowledged. Some pay-TV providers have already started to focus on creating value-based offerings. Look for more to follow…

    1. Until the number of new cord cutters surpasses the number of new 99 weekers (people running out of unemployment benefits) than I think the poor economy is a more likely explanation for cord cutting than a rejection of cable as a delivery channel for television.

      1. @Erik, the economy has been a contributing factor. However, most savvy MSO executives are moving beyond their prior denial — that this trend is being driven by a combination of factors.

        Moreover, the recent report of declining subscriptions by HBO has concerned most informed industry analysts, since it was previously considered the “must have” channel for many cable subscribers.

        We’re witnessing a change in consumer behavior, and the incumbent pay-TV service providers must adapt to the new market realities.

        BTW, the subscriber needs fragmentation isn’t a crisis — as long as service providers evolve with the permanent demand shifts in the marketplace. The rise of the value-based pay-TV consumer is a key shift that’s being driven by the availability of alternative forms of video entertainment. Meaning, it’s an ongoing trend that will still be with us when the economy recovers.

  8. Does anyone really believe that $7.99 can be split among dozens of content providers and cover Netflix’s bandwidth costs?

    I predict that by then end of 2011 the price will be $9.99, and it will go up each year as they add more content providers.

    Sounds just like basic cable.

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  10. I don’t see cutting the cord any time soon. I’m happy with my service. The entertainment value is well worth the amount I pay DISH Network. Not only that, if I were to cancel I would lose the awesome ability that I have now of watching my live TV programming and DVR recordings from anywhere in the world on my laptop or my Galaxy S phone. I’m glad that I work for a company like DISH who is always on the forefront of technology.

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