The OTT threat is building into a massive tsunami for US pay-TV operators, according to a joint study from researcher FocusVision and consultancy Zanthus reported in Multichannel News. The study surveyed 1,000 pay-TV customers, with 41% of respondents saying they were planning to cut back or drop their pay-TV service, compared with 16% of over-the-top customers.
Pay-TV providers also struggled with customer satisfaction, with only 27% of subscribers satisfied with the value provided by the service, and 41% satisfied with customer care. OTT providers, on the other hand, had 59% of their subscribers satisfied with service value and 62% with customer care.
Despite this, the study found that pay-TV subscribers watch considerably more TV than OTT subscribers: 18 hours of TV per week compared with 11 hours of OTT. In fact, that viewing figure (18 hours per week or 2.6 hours per day) is substantially lower than the Nielsen average for TV viewing in the US, which is 4 hours and 9 minutes per day for Q2 2016.
Still, the fact that 41% want to drop or at least reduce their pay-TV service is quite a worrying prospect for pay-TV providers. It reminded me of some research we conducted at Heavy Reading a few years ago, so I looked up the oldest figures I could easily find to compare the two surveys.
In Heavy Reading's 2011 survey of US households, 5.8% had already cancelled their pay-TV service, and another 10.5% anticipated they would also cut the cord. And another 19.7% felt they would always need basic cable, but would cancel premium services in the future. Adding those up, you get 36% planning to cut or shave the cord; i.e. quite close to the 41% quoted in this new study.
Of course there might be differences in methodology, but it does seem that attitudes haven't changed that much in the intervening five years. But has cord-cutting and cord-shaving accelerated that dramatically? About 82% of US TV homes subscribe to pay-TV today, down from about 87% in 2011. That's about 5% -- or approximately half the number that said they would cut the cord in 2011, five years ago.
Cord-shaving is more difficult to measure, but cable universe estimates from The Nielsen Co. offer good insight into the growth/shrinkage in households receiving TV channels. According to the measurement company, the number of channels receivable in the average US home did fall in the past year as a result of cord-shaving, but only from 208 channels to 205.9 channels. So while cord-shaving is having an impact, it isn't amounting to a major desertion of subscribers (yet).
What Nielsen has found is that some of the larger media companies are finding their more expensive channel packages dropped by pay-TV providers, who are now more concerned with managing costs in the face of increased subscriber sensitivity to price. Disney and Viacom channels were down 3% or more in Q1 2016, and Time Warner, Scripps Networks, NBCUniversal, Discovery and A+E Networks were all down about 2%.
However, some networks have challenged Nielsen's more recent estimates, arguing they show more extreme drop-offs than they are seeing from their own subscriber numbers, and the company has withdrawn its most recent numbers to review its methodology. So we may find that even these estimates are inflating cord-shaving.
Survey research is always a good start to developing analysis; skip this and all you have to rely on is "gut instinct", which is often wishful thinking posturing as wisdom. Data is critical, but surveys in particular need to be evaluated in context. And that's where a broader review of multiple sources of data, an understanding of the value chain, direct interaction with people involved with the business and generally speaking, a more holistic approach, is better.
I do anticipate we will see cord-cutting and cord-shaving ramp up, but it's not very likely that 41% of pay-TV subscribers will slash their bills in the next few months.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation