Cords And Economics

It's tempting submit to abandon all hope amidst the deluge of studies portraying a world of cord-cutting, cord-trimming, cord-rejecting and cord-nevering; they present a dismal outlook for legacy multichannel video providers. 

It's equally foolhardy to embrace the jingoistic reports about how TV (especially cable) is growing in popularity, with more viewership than ever.  

The soothsaying and analyses of simple viewership numbers generally leave out the fundamental context: how cable and digital entertainment fit into the fabric of household economics and the macroeconomic landscape, including housing and labor conditions. 

That's why Centris Market Science's recent "Economic Forecasting: Pay TV Fails to Keep Pace" report is particularly insightful.  It cites the rising prices of multichannel video subscriptions and plunges beyond the raw numbers, which show that U.S. pay TV penetration (meaning all cable, satellite and telco TV linear subscriptions) have dropped from 84.8% of U.S. homes in early 2011 to about 83.1% by mid-year 2013.  While the percentage decline seems tiny, it represents nearly two million homes -- many of them single-person (i.e. usually one-viewer) habitats.

Indeed, trends in household formation (about half a million new homes created in 2013) plus economic realities (financially "squeezed" audience segments, the report says) are as important to cable's growth as is the competition from over-the-top services. 

That what Centris means by "failing to keep pace." Cable is not getting into many of the new homes.

Centris notes that while traditional multichannel video subscriptions have declined for two years, during the same period over-the-top (OTT) video usage increased by a comparable notch, especially among cord-cutters and non-users."We've had an economic expansion for four years, since June 2009, and now we're seeing more job creation," explains economist Kevin Babyak, senior vice president of Research Operations at Centris. 

He acknowledges that while those economic fundamental are still weak, but he assumes that the overall growth should normally extend into normal home activities, such as cable subscriptions.

"The size of the non-pay TV [sector] has grown over this period" but the cable and satellite sectors are declining, Babyak emphasizes.
"The economic rationale for this trend is that there is a segment of the population that continues to be squeezed, and income growth is sluggish at best," he says. "Meanwhile, the price for traditional pay-TV services continues to rise faster than the average for all goods and services. With more content being delivered through non-traditional pay-TV channels like Over-The-Top, there are low cost options available to consumers. Ultimately,these factors contribute to the trend of consumers moving away from traditional pay-TV."

The analysis from Centris, whose roots are in cable programming and operations research but now, under new ownership is moving into broader economic evaluation, delivers a contextual message about the challenges ahead.  Babyak told me that the Centris (presumably like other researchers who conduct audience measurement studies) is facing an "evolution of video tracking methodology." That inevitably means research findings may be skewed for a while, but the trends are still clear.

The  Centris study's conclusions - in the context of a shaky but growing economy - re-emphasize the expectation that young viewers, the ones doing much of today's aggressive home-creation, will bring their campus or group-house habits with them: living without a TV subscription. And that may carry into their next home and when they get a better job.

Watch out.

Gary Arlen

Contributor Gary Arlen is known for his insights into the convergence of media, telecom, content and technology. Gary was founder/editor/publisher of Interactivity Report, TeleServices Report and other influential newsletters; he was the longtime “curmudgeon” columnist for Multichannel News as well as a regular contributor to AdMap, Washington Technology and Telecommunications Reports. He writes regularly about trends and media/marketing for the Consumer Technology Association's i3 magazine plus several blogs. Gary has taught media-focused courses on the adjunct faculties at George Mason University and American University and has guest-lectured at MIT, Harvard, UCLA, University of Southern California and Northwestern University and at countless media, marketing and technology industry events. As President of Arlen Communications LLC, he has provided analyses about the development of applications and services for entertainment, marketing and e-commerce.