About 1.08 million U.S. pay-TV customers canceled service in favor of Netflix Inc. and other online options last year, according to a report, while the proportion of TV viewers watching full episodes free online declined.

The estimate from Toronto-based Convergence Consulting Group brings the total number of cord-cutters to 3.74 million since 2008. The total will reach 4.7 million this year, the group forecast. The number of people canceling service last year was equal to 1.1% of pay-TV accounts.

The pace of defections, along with younger viewers who never sign up, is slowing growth in pay TV subscriptions, according to Brahm Eiley, president of Convergence Consulting. Cable, satellite and telephone-based video services added an estimated 31,000 U.S. accounts last year and are forecast to gain 98,000 this year.

"Even with the 'cord-nevers' it's still going to be a pay- TV dominated universe for a long time," Eiley said in an interview.

Program owners are putting more shows and movies behind a pay wall, according to the report, titled "The Battle for the North American Couch Potato: Online and Traditional TV, and Movie Distribution." About 18% of the TV audience watched free, online full-episode TV on network websites and destinations such as Hulu, according to the Convergence report. That's down from 19% in 2011. Convergence forecasts a further decline to 17% this year and next, as content providers offer less for free.

The firm bases its estimates on expected pay-TV subscriber growth and economic factors.

~ Bloomberg News ~