2011 Prediction: This Will Be the Year of Cord Cutting

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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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