Blog Post

New Numbers Reveal: Cord Cutting Is Real

U.S. pay TV subscriptions have declined for the first time in history last quarter, according to new data from SNL Kagan. The business intelligence company reports that cable companies lost 711,000 subscribers, which represents the biggest quarterly loss in cable TV’s history. Six out of eight cable TV operators also reported their worst subscriber losses ever last quarter.

Telcos and satellite TV providers were able to pick up some of those customers, posting combined gains of 495,000 subscribers. That still leaves 216,000 subscribers who cut the cord entirely. Pay TV operators gained some 378,000 subscribers during the same quarter last year.

SNL Kagan analyst Mariam Rondeli was careful not to read too much into those numbers when I talked to her on the phone today, saying that much of those losses seem to be attributable to customers who subscribed to pay TV early last year due to the broadcast digital transition. Now these customers see the prices for their introductory packages going up, and quite a few of them have decided not to stick around.

She also said that the continuing recession and its impact on the job and housing market seem to make people rethink their subscriptions. However, she doesn’t believe all is lost for cable and other forms of pay TV. “We do think the second quarter was unique,” she told me. SNL Kagan expects the industry to gain a total of 900,000 subscribers in the third and fourth quarter.

Rondeli also said that she doesn’t see over-the-top video as a driving factor behind the current losses, but she cautioned not to ignore online video. The overall pay TV market is saturated, with around 100 million households in the U.S. paying for TV services. That also means that over-the-top services have could impact future growth, even if the overall numbers of users accessing programing exclusively over the Internet are small. “It can make a difference even if you don’t have a huge pie,” she said.

Earlier today, the New York Times published a piece that proclaimed “no shortage of demand” for pay TV. Our own Ryan Lawler shot back, saying that “(t)he $100 cable bill is dead; the cable industry just doesn’t know it yet.”

Photo courtesy of Flickr user sfxeric.

Related content on GigaOM Pro: Cord-cutting? Hold the Phone (subscription required)

31 Responses to “New Numbers Reveal: Cord Cutting Is Real”

  1. No Static

    The $100 cable is dead, that’s true. Its now pushing towards $200 as a bundle.

    Cord-cutting geeks are a minority, and will remain so.

    Nothing spells “domestic tranquility” like ESPN and LifeTime Movie Network, or the right to abandon parental supervision to Nick. You won’t get those via Netflix and Roku.

  2. I see it all around me. Friends locally, in Philly, in NYC, and in Florida all cut their cable. The economy really has people scared. Plus, you can find any and everything on the internet these days. Want to keep up with True Blood on HBO… just download it. Shows area available the day after they air on TV and you can watch it whenever YOU want.

  3. I wonder how much the bundling of basic cable plays into this.

    I cut the cord years ago, but Comcast gives me ~$10 off on my internet connection if I keep basic cable as part of the service. So technically I count as a cable subscriber, even though I’ve never actually connected it to my TV.

  4. I read the SNL Kagan report summary with interest. It tells only part of the story (total disconnects). I’d like to know how many U.S. cable TV subscribers downgraded their services – by dropping premium channels, or moved to lower-tier services, or basic cable.

    My point: it seems to me that it’s really difficult to determine the full impact of the 2nd quarter unless you have all the data about the ARPU trending results.

  5. Gubatron

    2 years I go I stopped paying for cable and consumed only Netflix, Hulu, Joost, YouTube, TED and many other online shows.

    It’s ridiculous to be paying for a service that’s so expensive, so limited and on top of it all shows more ads than content. On the Internet world when you pay for something it’s usually ad free.

    Multiply your current cable bill by 24 months, that’s how much you would’ve saved since then.

    • ChimChim

      Nice sermon. Go back and read the NYT article. Several examples of those who tried consuming thru Hulu, Netflix, etc, for a year, but came back to cable. Reasons: lack of content (HBO, etc) and poor technology setup. Younger demographics were more likely to use kluged setups and also more likely to steal content by downloading torrents, etc.

      “Internet = ad free” is a myth. Hulu and the network studio streams are every bit as ad-filled. The serving technology is often too slow to create an uninterrupted viewing experience. (FiOS suffers from this as well). This will be the failure point for GoogleTV’s aspirations, I believe, but since that product is vaporware at this point, it is still too early to predict. Lack of cooperation from the content providers will be another. Read the LA Times article from last week for Hollywood’s local reaction to Google TV.

      Bottom line, if you can put up with the poor viewing experience and don’t care about missing content (True Blood, sports, American Idol) then going cattle class may be for you. For now, most people simply want it to work, want to watch professionally produced content and it isn’t ready for prime time.

      • you don’t miss content.
        you can get sports, amer idol, just about anything over the internet.

        it’s all going internet unless they kill it with metered broadband. count on the cable companies somehow lobbying somebody to make metered broadband happen.

  6. jimmy lee

    cable TV can keep sticking their heads in the sand and wind up like blockbuster. IP based video is the future. When IPTV start to get deployed over wireless 4g directly to the television, that is when the cable loss will accelerate.

  7. I find the whole idea of a $100 monthly cable bill as absurd, and it is not because IPTV is becoming more prevalent. In India subscribers pay $5~$6 for a large bouquet of channels via a digital (old technology) set-top box. And may be willing to pay only a bit more when HD is available, if at all. And everyone, well almost everyone, is profitable and happy – the channels, the cable service providers, and the customers (happy, not profitable). the Satellite TV chaps are struggling a bit with their initial investments, but even they hope to break even in the next 3 years.

    Someone from a different market has to dream up a sustainable model, which is agnostic to the means by which the content is delivered to the idiot box.

  8. The reality for many pay-TV Operators around the world is that the second quarter, of any year, is usually a slow quarter.

    When you also look deeper into the numbers, you’ll see that IPTV providers like AT&T and Verizon gained about 200,000 subscribers per quarter in 2009. In all, they gained about 2 million combined new IPTV subscribers in 2009. That’s a huge gain, just from IPTV.

  9. This headline is very misleading. The author of the report says that:

    the continuing recession and its impact on the job and housing market seem to make people rethink their subscriptions
    thinks the second quarter was unique
    expects the industry to gain a total of 900,000 subscribers in the third and fourth quarter.
    doesn’t see over-the-top video as a driving factor behind the current losses

    So one bad quarter in the industry and all of a sudden that means cord cutting is “real”? No chance. In order for something to impact the industry, we need to see it happen for more than one quarter.

    Folks are really quick to jump on numbers when it shows them going down, but when they go up in other quarters, nothing is mentioned.

    • Ryan Lawler

      Dan we’ve been reporting these numbers and similar for multiple quarters, whether they be good or bad for the cable industry (or for our particular thesis). However, I think this is a secular and not a seasonal trend for a number of reasons:

      1) The pay TV market is saturated. 88% of households now pay for cable, IPTV or satellite (per NYT). There’s a limit to the number of households that can actually be added, and simply not that much room to grow. In other words, the only place to go at this point is down.

      2) MVPD subs have been artificially inflated by the DTV transition. This, I think, is the biggest reason for the Q2 decline. People that hadn’t paid for cable before decided to sign up and got low introductory deals. Once their cheap first 12 months were up, they declined to continue paying for cable. We can probably expect more of this as the year goes on.

      Cable companies, IPTV providers, etc. are more or less stuck in a holding pattern. The best they can do is hope that they can hold on to the customers that they have, because there’s precious little room for attracting new customers. Sure, IPTV, cable and satellite companies can steal customers amongst themselves, but this isn’t a growth industry by any means.

      The fact of the matter is, 200k households decided that there wasn’t enough value in paying for cable anymore. Do you really think those people are outliers? Do you know anyone that’s truly happy with their cable bill, service or the value that they get from pay TV?

      • Yes, 200K out of 90MM+ cable/sat households are outliers.

        I don’t disagree that long-term there will be a shift. But until you can get ESPN, live local sports, the NFL, etc. over-the-top, you won’t see a big drop. Sports is huge for many folks (yadda yadda World Cup – yes, lots of streams).

        And as several posters have pointed out, many folks also don’t like to be a season or two behind on premium cable (e.g. you can’t get in-season Weeds, True Blood, etc. over-the-top).

      • I would agree with all the points you make except the numbers. 200K is not a big number and until we see this happening for many quarters in a row, it’s not a trend.

        I know a few families who cut the cord, but did so because they needed to save money. The current economy has more to do with it than anything else. I also know someone who just got a new job and decided they didn’t want TV anymore as they won’t have the time to watch it. They are a cord cutter, but not due to anything online related. There are a lot of reasons people drop cable TV but it seems our industry always want to imply that the reason is due to online video.

        We’ve also seen reports that talk about cord cutting and list someone like me as a cord cutter simply because I downgraded. I don’t want HBO any more and cancel, but that should not count me as a cord cutter.

        I am a very happy with my cable bill. For $95 a month I get unlimited phone calls, a 25Mbps FiOS connection and TV channels that have the best picture around. To me, $95 a month for all three services is a good deal. I’m sure others will say they disagree, but for me, I’m happy paying my cable bill each month and watch a lot of TV.

      • Dan, online video may not be the reason many people cut the cord, but that doesn’t mean Netflix & Co. won’t benefit from it. Assuming that everything will be just fine for MSOs in months and years to come ignores both economic realities and the fact that people cutting the cord now for economic reasons are still consuming entertainment, and this consumption is increasingly happening online. Why should we assume that they’re just gonna go back to pay 100 bucks for cable after they’ve gotten used to new ways of consumption that are much cheaper?

  10. Little mentioned is the contribution of low-quality content to this decline. When traditional channels are overflowing with cheap nasty “reality TV” content, hey it’s no surprise that the public starts to their cable service is overpriced and should be sent packing.

  11. Um, the massive job losses and foreclosures wouldn’t have anything to do with it? Of course not, according to NewTeeVee, everyone is sitting around subscribing to Netflix online and watching Hulu on brand-new PCs.

    Forest for the trees, folks, forest for the trees.

    • Ryan Lawler

      And the funny thing is the NYT article totally hedges. Second half of the story is about young users who don’t pay for TV and overall consumer dissatisfaction with cable services.