There’s still some debate over whether or not pay TV subscribers will begin canceling their cable subscriptions, and choosing to fill their entertainment hours with online video instead. But the real challenge for such providers might not be retaining existing cable subscribers who already have jobs and families, but convincing college students and young adults living with their parents to become cable subscribers when they get their first jobs and move in to their first homes.
Thanks to an aggressive connected-device strategy from over-the-top video providers like Netflix (s NFLX) and Hulu, a new generation of young people has grown up with access to content on demand and on multiple devices. This is similar to the debate that played out during the early 2000s, as a generation of college students increasingly turned to wireless mobile services, eschewing landline connections that their parents relied on. The question is whether cable, satellite and IPTV operators will be more successful in converting the younger generation to pay TV subscribers than telcos were in driving interest in fixed-line phone services.
On a panel of connected TV experts at the National Association of Broadcasters show, Senior Director of Sony’s (s SNE) PlayStation Network Susan Panico said she sees the PlayStation 3 audience — which is primarily young and male — is becoming increasingly comfortable with viewing content online and not paying for cable, satellite or other traditional distributors to access it.
“Kids are growing up digitally,” Panico said. She said that access to services like Netflix and Hulu Plus is giving that audience “a reason to disengage with cable… There’s a changing usage pattern there” with the 18-24 demographic.
By contrast, pay TV operators have been slow to make their own video services available online and through new devices like Apple’s iPad (s AAPL) and Internet-connected TVs and Blu-ray players. That’s been one impediment to attracting a new generation of connected video viewers.
“We were trained to get all of our content in the living room, but kids today were not,” said Intel’s (s INTC) General Manager of Retail CE Products Wilfred Martis. “[They say], if I’m going to sign up for your content, I want to get it on every screen I own. It better be on every screen or the new generation is not going to adopt it.”
Operators are catching on, and companies like Comcast, (s CMCSA) Time Warner Cable, (s TWC) Cablevision (s CVC) and Verizon (s VZ) are making applications available on the iPad that enable viewers to access cable content through the device. Some are also building apps for the next generation of connected TV platforms, hoping that IP applications could provide a better user experience for their subscribers.
But even so, they will also need to compete with services that are offered at a fraction of the price of most pay TV offerings. Netflix and Hulu Plus are both available for $8 a month, much less than the average $70 bill cable subscribers pay. To get young people on their first jobs and in their first apartments to sign up, cable, satellite and IPTV providers will need to find ways to be more competitive.
That’s something VP of Video Services for Comcast Media Center Richard Buchanan acknowledged on the panel. He said Comcast is working on ways to capture that new audience with basic packages that it hopes will get young people on board, and to grow revenues as their income grows.