Americans Are Dumping Cable TV, but Execs Say Economics to Blame

Cord-Cutting Still a Concern, but Not Showing Up in the Numbers

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LOS ANGELES (AdAge.com) -- Last quarter pay TV executives saw the day they hoped would never come: the first total decline in subscriptions since, well, the advent of cable.

Dish Network's newly launched Dish Online allows subscribers to watch and remotely program their DVRs with protected content from networks like HBO, Starz and E!.
Dish Network's newly launched Dish Online allows subscribers to watch and remotely program their DVRs with protected content from networks like HBO, Starz and E!.
But experts cautioned this isn't about "cord-cutting," or consumers opting out of cable TV for Hulu, Netflix and other online services. Rather, economic forces hit cable hard, including low housing formation, high unemployment rates and the lack of renewals for cheap contracts new customers signed last year during the digital-TV transition.

Ian Olgeirson, a senior analyst for SNL Kagan, described the phenomenon as the culmination of a confluence of events including the digital-TV transition of summer 2009 and the mass expiration of cheap one-year contract offerings that many new customers may have opted not to renew. Add that to the end of the school year and you get a historically weak quarter for multichannel TV.

The multichannel TV industry -- including cable, satellite and the telcos -- collectively lost 216,000 subscribers in the second quarter to the same period last year, declining to 100.1 million overall. That was driven by a steep 711,000 decline in cable TV alone, which more than offset subscriber gains for telcos such as Verizon Fios and satellite providers like DirecTV and Dish Network.

Ultimately, however, Mr. Olgeirson sees the negative churn as cyclical and not long-term. "While it may be repeated occasionally, it's not going to be a quarterly pattern," he said. "We would be surprised if there was negative quarters in a row. To say that this signals the top of the market and it's all downhill from here would be shortsighted."

But just because cord-cutting isn't a measurable phenomenon yet, that doesn't mean it doesn't prey on the minds of media execs. Jeff Bewkes, CEO of Time Warner, launched the TV Everywhere initiative last year as a way to combat potential piracy of premium cable content but also reinforce the value of the pay-TV subscription. As he told The New York Times' David Carr earlier this week, "The financial support for television is higher than it's ever been. That's something that gets missed in some of the excitement of covering the internet."

Cord-cutting was also enough of a concern to prompt lead cable company Comcast to rebrand its online TV service as Xfinity, as well as to persuade DirecTV to introduce TV Everywhere-like principles to its own broadband TV services and, just this week, entice No. 2 satellite company Dish Network to introduce its own TV Everywhere-like authentication service, Dish Online

That means a lot of marketing opportunities for the TV providers that are offering extensive online-video services. Dish's new site, which launched today, allows both existing and prospective customers to stream select broadcast programming, movies and cable-TV shows for free, as well as allow subscribers to watch and remotely program to their DVRs' protected content from networks such as HBO, Starz and E!, simply by verifying their paid Dish TV subscription. The site will be marketed primarily to existing customers for the remainder of the year before a broader external push rolls out in early 2011.

Bruce Eisen
Bruce Eisen
Bruce Eisen, Dish's VP of content development and strategy, said the service was not designed to be available without actually subscribing to Dish, meaning it won't replace an existing subscriber.

Moreover, Mr. Eisen doesn't think there's much urgency to roll out online services. "If you look at the various players in the [multichannel] industry every day, you might say we have to do this immediately. But if you look at the actions those companies are taking you see a range of behavior," he said.

Indeed, Time Warner Cable has been slow to adopt TV Everywhere-like principles to its RoadRunner service, opting instead to focus on developing an app for the iPad that would allow paying subscribers to better search for and potentially view programming from Time Warner's extensive video-on-demand library.

"We're TV Nowhere at this point," a spokesman said jokingly of the company's participation in TV Everywhere.

Cox Communications, the third-largest cable company in the U.S., has also yet to formally commit to TV Everywhere, in part because the marketing and branding of the initiative is still too fragmented. Joe Rooney, Cox's senior VP of brand strategy, told Ad Age in May that the consumption patterns of TV Everywhere's target consumers needed to be quantified on an apples-to-apples basis before it could really be pushed in a meaningful way. Cox measures the "cord-cutting" segment as less than 2% of the current multichannel customer base.

"You have to ask, 'Are they over the top or over the air, or is it a combination?' People who buy multichannel video are interested in getting more on the big-screen, but if they look for web-to-TV services they gotta go site to site. So the question is, 'How does a big operator deliver web to TV?'" he said.

But recent consumer research suggests that cord-cutting is becoming more than just anecdotal. A new social and demographic trends study conducted by the Pew Research Center found that only 42% of Americans believe landline phones and TV sets to be "essential" items, with just 30% of 18- to 29-year-olds claiming they couldn't do without the devices.

Meanwhile, YouTube reached all-time viewing high of 14.6 billion views in May, averaging a record of more than 100 videos per viewer, at the height of the broadcast TV season. Hulu also continued to gain share, accumulating more than 1 billion video views across 43.5 million unique viewers during the same time period, according to ComScore.

Netflix, another company widely credited with contributing to the diminished value of the pay-TV subscription, also reported web streaming was now used by 61% of its customer base, up from 55% in first quarter. Hulu Plus, a Netflix-esque paid streaming service, rolled out in beta last month for a $9.99 monthly fee with only broadcast partners and a limited ad model. One cable executive told Ad Age at the time of Hulu Plus' launch that cable networks were being paid like broadcast networks for their content, but felt that cable networks deserved a premium for their subscription-protected content.

"Jason [Kilar, Hulu's CEO] would've had to go out on a limb with his broadcast partners to give us the kind of number we were looking for," the cable executive said. "We felt there was a premium for this unique content, but to set that precedent was going to get very thorny for him."

Cox's Mr. Rooney agreed that a sustainable model for online content needed to be agreed upon quickly.

"No one wants to see the Napsterization of video," he said.

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