Blog Post

Cord-Cutting May Be Myth Now, But Reality in 5-10 Years

Cord-cutting enthusiasts got a sobering dose of reality the last few weeks when a number of prominent analysts and research firms published data proving that consumers are rushing toward cable rather than away from it.

The cold hard facts: the three-headed multichannel beast otherwise known as cable operators, satellite providers and telcos collectively added 441,000 multichannel video customers in the fourth quarter of 2008.

Those statistics fly in the face of the conventional wisdom that in a recession consumers would cut back on cable services to save money, and they also go against the broader newteevee belief that TV fans can survive on Hulu, YouTube (s GOOG) and iTunes (s AAPL) alone. Because evidently we’re quite content with our oldteevee, thank you very much.

But, let’s pause and ask ourselves if maybe there is another side of the story. Because traditional television providers and programmers would be foolish to assume that net cable adds in the fourth quarter means everything is peachy. Sure, only 3 percent of online adults would pull the plug on cable to just watch video online, according to Leichtman Research Group, and we’re also watching more traditional TV than ever, according to Nielsen.

But what are teenagers doing?

The industry needs to peel back the layers in the research to understand what teens and young adults are doing now to be better prepared for business in 5-10 years. Consider this: Leichtman Research Group reported that while only 8 percent of web-video-watching adults say they watch less TV because of their web viewing habits, 18 percent of web video watching teens say they’re turning away from the tube thanks to the Internet.

“Yes, there are some teens who are watching TV less often, while the majority are still watching just as much TV,” Bruce Leichtman told us via email, adding that they’re mostly watching YouTube and music videos online rather than TV shows.

Any cord-cutting effect, if there is to be one, won’t manifest for almost a decade, Leichtman said. “It will be 6-12 years before this group is actually making decisions for themselves on whether or not they subscribe to a TV service – that they never paid for before, so it’s not really a cord cutting – so the impact of this group, accounting for about 9 percent of all in the U.S., could possibly be felt several years from now.”

Still, there is evidence that young Americans are slowly shifting their habits, and both Hollywood and the web world should pay attention to their behavior. Earlier this year, the research firm Solutions Research Group reported that that 70 percent of 18- to 34-year-old online Americans have watched TV online at some point, but only one-third of that group has ever viewed a show on a DVR or a TiVo.

While we as a society of video viewers aren’t thumbing our noses at Comcast (s CMCSA), Time Warner (s TWC) and DirecTV (s DTV) right now, we might be in a few years. “It’s obvious to most that online will become the main platform for video entertainment,” said Kaan Yigit, an analyst with Solutions Research Group. “When we reach a true tipping point is debatable — some say five years, others 10. But it will happen, based on all the indicators.”

8 Responses to “Cord-Cutting May Be Myth Now, But Reality in 5-10 Years”

  1. Cyclocrossmechanic

    Doesn’t surprise me one bit. I still have DirecTV including HBO and Showtime for a few reasons:
    1) Nobody makes a device that will allow me to easily watch content on my living room TV. I’m talking about a device that you plug-in and that’s it. No dowloading software onto USB drives or dealing with Linux, blah, blah, blah.
    2) I don’t like pay as you go pricing plans such as Apple. I sat down and did the math on this and going with an AppleTV would end up costing me more money for content than what I pay for DirecTV. Plus many programs I watch are not even available on AppleTV.
    3) DirecTV offers all the content I want in one source. I can view premium, first run content on HBO, Showtime, etc., niche programming on specialty channels such as Versus or DIY, and plain old junk TV. I’ve yet to find a streaming device that offers all of that. I don’t want to have to jump from one streaming site to another to another looking for programming. I want a single guide from which I can access everything.
    4) My DirecTV has a DVR so watching content when I want to watch it is easy.
    5) Reliability. DirecTV and Comcast have been around a while and are likely to be around in the future. I get twitchy about dropping $300 on a box from a company that might be gone in a year or two.

    In theory a device like an AppleTV or Roku box would be my dream but so far none of them have been able to offer the same amount of content at a better price. The Roku is affordable enough to be tempting. If they offer Hulu I’ll definitely buy one.

    My dream offering is this:
    1) A set top box in the $100-150 price point.
    2) The ability to add an external drive for storage and/or connect to a home network to access additional content.
    3) Access to all the content currently available in standard cable/satellite packages.
    4) A reasonable subscription fee. I realize content doesn’t come free and am willing to pay for it. I’ll also pay a premium for premium content such as HBO or Showtime.
    5) Access to view on demand offerings from Netflix or Amazon (or both). Again, I’d be willing to pay extra for this.
    6) Reliable picture quality. So far I’m not all that impressed with the streaming quality I’ve seen. I see more jitters and jumps in picture quality while watching Hulu over my cable modem connection than I do watching TV via DirecTV.
    7) An ability to play all media formats. I want to look at my pictures, play my home videos, and listen to my iTunes library. Whatever device I buy needs to seamlessly import my existing content the way I already have it organized. I don’t want to have to rebuild thousands of playlists and photo albums.

    The technology hurdles are all pretty minor. It’s the content hurdles that have kept me from buying any of these devices. I am encouraged at the direction things are going.

  2. Jeremy

    What is also not taken into account here is the number of households that subscribed to cable for the first time in order to circumvent the digital OTA switchover. I know several of the older generation that have done this. 4Q ’08 is most likely a poor indicator of the current state of the industry.

  3. jim adler

    What I don’t think these studies take into account is the way technology is shifting. I don’t think it’s possible to extrapolate any assumptions about viewing habits fiver years out, or especially ten years out, based on metrics derived from technological options in place today.

    As television sets converge with the web (as they will in a couple short months) I feel as thought he line between old teevee and web based teevee will begin to blur and merge.

    So five years from now or ten years from now, the teens who get most of their video on line may still very well do so, but they may watch it on a TV that also has a cable feed, a netflix subscription for streaming HD movies, and who knows what else.