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'Cord-Avoiders' to Reduce Cable and Satellite TV Rolls in 2012, Analysts Say

And Watch Out for Younger 'Cord Nevers' Coming Up

By Published on . 5

Fewer people will pay for cable or satellite TV next year, Credit Suisse predicted.
Fewer people will pay for cable or satellite TV next year, Credit Suisse predicted.

A correction has been made in this story. See below for details.

About 200,000 fewer subscribers will ante up for paid TV services in 2012, analysts predicted Monday.

Credit Suisse analysts, projecting the modest contraction in a new report, blamed the coming lag on weak formation of new households and a growing number of new households that are avoiding pricey TV subscriptions in the sour economy. Emphasizing that they weren't "sounding the cord-cutting alarm" and remain optimistic on cable and satellite sector businesses, the analysts instead identified the immediate problem as "cord-avoiders" -- households using pay-TV alternatives like Hulu and Netflix that may not return to cable and satellite services when the economy improves.

"The hope is that when the economy and housing improve, these customers will re-enter the category," the analysts, led by Credit Suisse's Stefan Anninger, said in the report. "The problem is that the longer the economy remains weak and if [alternative] options improve, the harder it will be to bring these subs back to pay TV."

Even as pay-TV penetration remained sky-high at 83.2% in the third quarter -- down less than a point from 84.1% in the same quarter last year -- many new households are not signing up for cable or satellite, the analysts said. While there were 1.8 million households formed, according to Census data estimates cited by the report, only 16.9% of them signed up for pay-TV services.

The report comes as years of warnings over so-called cord-cutting have not materialized into a substantial threat for the pay-TV business. While alternatives have seen growth, cable and satellite's domination of live TV, new original content and sports, among other products, have so far insulated them from any mass exodus of subscribers. In most cases, consumers opting out of paid video services are still paying the same system operators for the internet access that allows their video consumption.

However, the analysts did warn of a younger generation quickly being conditioned to live without the multi-channel video services offered by cable and satellite providers -- a demographic they called "cord-nevers."

"The real challenge to the pay TV business model are the behaviorally driven 'cord-nevers,'" they wrote. "These are tomorrow's householders that are in their teens (and younger) today. They are growing up in an internet-based video culture in which the mantra of 'why pay for TV?' and 'pay TV is a ripoff,' develop. As they age, some of these consumers will choose pay-TV substitutes (imperfect as they may be) to satisfy their video needs, potentially damaging tomorrow's pay-TV gross adds stream."

The extent of that problem won't be clear for some time, but remains one of the biggest challenges facing pay TV over the next 10 years, the analysts wrote.

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CORRECTION: An earlier version of this article erroneously said pay-TV penetration was 84.1% in the third quarter and 83.2% in the quarter a year earlier.

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