Well over a decade ago, we began charting the rise of TV cord-cutting.
In the beginning our models were crude, relying on failure to reach projected growth in TV subscribers and not decline.
Being among the first comes with privileges, but it also comes with slings and arrows.
Here’s an email we received in the early days from a media company executive:
“There is absolutely no credible evidence of multichannel cord-cutting in favor of online, Netflix or OTT video in the U.S. On a year-to-year basis, subscription to multichannel TV and multichannel TV with broadband in the home have grown. Nielsen data shows that the very small number of people who have cut the cord are predominantly very low-income and are far overshadowed by those who added cable and broadband despite the weakness of the economy, the decline in home ownership and continued high unemployment. We are seeing no evidence of systemic weakening of demand for multichannel television. TV viewing continues to grow and online viewing is still just 1% of overall viewership. Our own research shows that those who claim to have ‘cut the cord’ are no more likely to be Netflix subscribers or online ‘porters’ than the general population. Conversely, Netflix subs and those who claim to view online video OTT are heavy consumers of all video, including television, and are much more likely than the population to be multichannel video subscribers.”
Despite the critiques, we carried on. However, in 2014 it was becoming clear to us that our cord-cutter model had to change. Cord-nevers were becoming as large a phenomenon as cord-cutters, hence when young adults left the house they were no longer subscribing to TV as they had been before, so our model became a cord-cutter/cord-never model.
The U.S. TV base declined by 1.3 million TV subscribers in 2015, four times the decline of 2014. In 2016, there were 2.3 million losses, while 2018 reached 4 million and 2019 rose to 6.4 million. Based on our model, as of year-end 2019, 36% of U.S. households did not have a traditional TV subscription, double a decade prior.
Despite its perennial low operating income margins, Netflix has certainly proven the critics wrong. As of 2019 every major programmer was in the market with an OTT offer or planning to launch one.
With or without COVID-19, we had and have been forecasting mounting declines in U.S. TV subscribers, accelerated growth in cord-cutters/cord-nevers and formidable rises in OTT revenue for 2020 and beyond. Extending out forecasts to year-end 2025 from year-end 2019, demonstrates a decline of more than 50% of TV subscribers, over 40% of annual TV access revenue, while cord cutter/never households and OTT access revenue more than double.
No doubt these are devastating numbers for the TV business.
Nevertheless, and in respect to our critics from the early years, we are troubled by the recent quarter-by-quarter TV death-watch analysis. If COVID-19 has taught us anything, it is that conditions and variables change.
Blanket statements such as “cord-cutters are never coming back to TV subscriptions even if sports returns” make no sense. A return of sports would clearly help TV subscriber numbers, though their return would also help sports OTT numbers.
Further, we do not believe that low OTT prices are sustainable, more so if a significant portion of programming sales and advertising revenue are going to be destroyed by the decline of traditional TV access. In this regard, it still unclear what strategies programmers, OTT and TV access players will pursue going forward.
Without a doubt, parts of the decline of TV and the rise of OTT story have yet to be written. This is not a story set in stone, just like no one could have foreseen a year ago that we would be social distancing.
So we remain open to the possibility that there might be, as Grace Paley once wrote, “enormous changes at the last minute.”
Otherwise, based on our model’s trajectory, TV will be dead by 2030.
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