Miranda Henely spends four hours in front of the TV every day -- but she doesn't pay a dime on cable or satellite programming.
Ms. Henely, 23, instead watches shows and movies streamed from Netflix, Amazon or directly from broadcasters' websites, using a computer hooked up to the TV in her home. She's known in industry parlance as a cord never, meaning she hasn't ever subscribed to pay TV: channels from a cable company, such as Comcast, or a satellite provider like DirecTV, or phone companies -- and she doesn't ever intend to.
"Most people I know are either not watching TV or they're doing it this way," said the marketing-account manager, who lives in Mountain View, Calif. "I think I'm very typical."
Ms. Henely is part of a generation of technology-savvy, budget-conscious consumers who are taking advantage of the availability of high-speed internet connections and the proliferation of smartphones, tablets, lower-cost TVs and other gadgets that make it easy to consume downloadable shows in a snap.
The shift in viewing habits is putting pressure on cable, satellite and phone companies by pinching subscriber numbers. The impact on the $80 billion pay-TV industry is already being felt, with 2013 on pace to be the first year ever that total U.S. pay-TV subscriptions will decline, falling to 100.8 million from 100.9 million last year, according to researcher IHS.
And while 3.2 million new U.S. households were set up in the last three years, the paid-TV industry only added 250,000 subscriptions in that same period, according to market-researcher SNL Kagan.
"It's hard not to be concerned that there's a growing population growing up not using" pay TV, said Rich Greenfield an analyst at BTIG. "Alternatives are growing by the day."
Cord nevers are set to accelerate the erosion that cable and satellite TV providers are already suffering at the hands of phone companies. AT&T and Verizon Communications have taken 11% of the market for pay-TV subscriptions after introducing competing services in the past decade. Cable commands 55% of the market, while satellite TV has 34%, according to IHS.
And consumer choices are broadening. Netflix has attracted 29.8 million subscribers since it was founded in 1997, while Amazon sells streaming shows through its e-commerce storefront. Then there's Hulu and the wide range of programming available for download or streaming through Apple and Google Inc. websites. Silicon Valley technology companies such as Intel are also planning Internet-based TV services.
Ms. Henely and other cord nevers are meanwhile compounding the challenges to pay TV posed by another group known as cord cutters, who once bought traditional cable or satellite-TV subscriptions but now rely mainly on the programming they can access over the Internet.
The cable industry is unlikely to return to growth in customer numbers, said SNL Kagan analyst Ian Olgeirson. "We think this trend probably amplifies a little over time," he said. "That comes from people who have either had a service and discontinued, or never came into the fold."
Still healthy, just different?
None of this means paid TV will disappear. Paid TV subscribers in the U.S., including those buying programming from phone companies, remain prevalent, reaching 86% of households in 2009, according to IHS. Increases in advertising, per-subscriber fees and bundling telephone and Internet services will also help make up for customer declines, said Erik Brannon, an analyst at IHS.
"The pay-TV business is fundamentally sound," he said.
Even so, pay-TV providers themselves recognize that existing and prospective customers, especially younger ones, are watching more video online and that many don't, or can't, pay for a full package.
Dish, the second-largest U.S. satellite TV provider, said it has tried creating a bundle of programming targeted to 18-to-28-year-olds for less than $30 a month. The company hasn't been able to convince programmers to sell them appealing content to make a product viable, Dish Chairman Charlie Ergen said on an Aug. 6 conference call.
"DirectTV targets its service to higher income and family households, so we believe that as these individuals get older and more established, they'll be more inclined to upgrade to our premium offering," said Darris Gringeri, a spokesman for DirecTV.
On the cost side, things aren't looking any better for the industry. Time Warner Cable Chief Operating Officer Rob Marcus, who will move up to CEO at the second-largest cable TV operator in 2014, said increasing programming fees charged by content companies, which rise more than 10 percent a year, are rapidly making the cable bundle unappealing.
"Programming costs continue to escalate at a rate that far exceeds the rate at which customers will bear that cost," Marcus said on an interview on Bloomberg TV. "That's not a healthy dynamic."
Cord nevers are a "legitimate concern," 21st Century Fox President Chase Carey said at a company meeting on Aug. 8. "It remains to be seen what happens as this generation ages, but, what is clear is that this is an issue that will play out over the next 10-plus years, not the next three."
~ Bloomberg News ~