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Glass Half Full on Video Cord Cutting?
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IPTV Feature Article

June 06, 2011

Glass Half Full on Video Cord Cutting?

By Gary Kim, Contributing Editor

It would be hard to argue that there is any current and massive trend for U.S. households to substitute online video for linear subscription TV services. On the other hand, it also would be hard to argue that the trend is not in place. Such substitution is only “nascent,” but could grow if content owners decide to provide the content in that way, says Time Warner (News - Alert)  chief operating officer, Landel Hobbs. 

Though it remains largely true that Americans are not rushing to cancel their subscription TV services, as a survey by the Consumer Electronics Association (News - Alert) suggests, neither would it be true to say the phenomenon is not growing. 

But 10 percent of survey respondents say they are “very likely”  or “likely” to cancel their linear video service. And about 14 percent say they “might” do so. That is consistent with many other recent surveys.  

CEA’s research suggests that 76 percent of U.S. consumers have no interest in cancelling their multichannel video TV service, with  51 percent reporting they are “very unlikely” to cancel TV service. 

But that represents a reversal of the multichannel TV growth pattern of the past few decades. Is it possible that linear subscription TV is a product that has reached the declining phase of its product life cycle? A similar notion about the stage of product life cycle for fixed-line voice might have seemed equally surprising a decade ago, though. These days, many take it for granted that fixed-line voice has indeed entered the declining phase of its life cycle. 

That might be true of linear subscription TV as well, though it isn’t a clearly-accepted theory. 

CEA also found that 93 percent of households view content on a television, followed by computers (49 percent), car video entertainment (13 percent), cell phones or smartphones (13 percent) and MP3 players (11 percent). While viewing content on computers (all types) is growing, the television remains the central CE device for viewing television content.

It would be inaccurate to say the situation is like a “glass half full.” For the most part, most linear video subscribers continue to buy the service. What isn’t clear is what might happen as younger consumers start their own households and have to make choices about their own subscriptions. 

It would be fair to say that virtually all observers think the attachment those younger consumers have to linear subscription TV is not as strong as has been the case for older demographics. The issue is whether those attitudes might change as younger consumers gain more purchasing power. 

It is possible to argue that lower uptake for linear video in younger households is primarily based on rational choices those consumers are making to spend their entertainment money elsewhere, at a time when disposable income is limited. As disposable income grows, linear video might become a product that makes more sense. 

On the other hand, SNL Kagan estimated that almost 3 million US households would be using Hulu (News - Alert) and other Web TV options as their primary video solution by the end of 2010, up from 1.5 million in 2009. 

For 2011, the company expects that figure to hit 4.3 million out of the roughly 116 million TV households in the United States.

One of the hardest things for these surveys to measure is whether or not these three million households in 2010 were previous cable or satellite subscribers. Downgrades by former subscribers are one thing. Refusals by new households arguably represent something else.

Though it is conceivable that scarce disposable income is the reason both types of non-buyers behave, the more “dangerous” trend would be a simple preference for other ways to spend entertainment budgets.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

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