Skip to main content

Sifting Through Online Tea Leaves

Audiences watching cable and broadcast programming on network websites dipped slightly in 2012, which appears to indicate that authenticated and subscription-based online services are having an effect on that category of online viewership.

A new report by Convergence Consulting Group estimated about 18% of the weekly TV viewing audience watched an average of one to two episodes of shows on a broadcaster’s or cable network’s web site, down from 19% of the weekly audience in 2011.

Toronto-based Convergence estimated that slice of viewers will dip further, to 17%, in 2013 and 2014.

AUDIENCE DILUTION

“What’s happening is that far more people using Netflix and far more people are using their DVRs,” which is cannibalizing viewing, Convergence president Brahm Eiley said in an interview.

The main catalyst in the decline is a dip in the number, and quality, of shows freely available on programmers’ sites, especially as those networks cut TV Everywhere-like authentication deals with distributors, Eiley said.

“All these factors added up don’t make free online as palatable as it was,” Eiley said.

At the same time, the number of cord-cutters — TV watchers who have dropped their pay TV service in favor of over-the-air broadcast or subscription-VOD services like Netflix, iTunes or Hulu Plus — is expected to grow by another 1 million homes by the end of 2013. That represents about 1% of total pay TV subscribers, according to Convergence, about the same number as the year before.

Convergence estimated about 3.74 million television subscribers cut their TV cord between 2008 and 2012, with 1.04 million cutting the cord in 2012 alone.

Those figures seem to jibe with earlier results from ratings measurement giant Nielsen, which said last month there that the U.S. has about 5 million “zero TV” households — homes that claim they don’t watch pay TV or over-the air broadcasts — up from about 2 million in 2007.

While “zero TV” is a bit of a misnomer — in its latest Cross-Platform Report, issued March 8, Nielsen estimated that 75% of those homes have at least one TV set and 67% watch video online — pay TV viewership is on the decline.

Nielsen also estimated 81.8% of Americans had either cable or satellite television in their homes, down from 83.2% in 2011.

Tacking on an additional 1 million to 2 million cord-cutters and cable-nevers seems reasonable, ISI Group media analysts Vijay Jayant and David Joyce said, mainly because of price sensitivity and job growth that is causing young consumers to leave their parents’ homes after moving back during the recession.

“We remind investors that consumers who are going to be heavy users of online video access need a robust online connection, which wireless access cannot reliably provide; therefore, we still see cable having a way to benefit from this trend,” Joyce and Jayant said in an email.

The increase in cord-cutters is in line with the number of cable customers that have broken ranks with their local operator over the same period of time, Eiley said.

Convergence estimates U.S. pay TV operators (including faster-growing satellite and telco TV operators in addition to cable companies) gained, in total, about 31,000 subscribers in 2012, down from the 112,000 gained in 2011.

Convergence’s figures are a bit different than those published in other recent research reports. SNL Kagan estimated that pay TV gained about 46,000 customers in 2012, while Leichtman Research Group projected a gain of about 170,000 pay TV customers.

LRG used information from 13 top distributors, while Kagan relied on public reports, private surveys and its own estimates. Convergence estimated growth based on public and private companies and its own estimates.

‘MANAGED DECLINE’

“I wouldn’t breathe a sigh of relief,” Eiley said of U.S. pay TV subscriber performance, adding that the evidence that cord-cutting exists is pretty strong: “Cordcutting is here. It’s just not very big.”

Eiley said, though, that cable companies should be praised for continuing to reduce subscriber losses, and overall losses in the pay TV market are manageable.

“It is more like a managed decline,” Eiley said. “This can go on for a long time.”

Convergence also compared the U.S. data with its neighbor to the north — Canada — with some surprising results.

Pay TV subscribers in Canada — which has a TV market about one-tenth the size of the U.S.’s — rose by about 52,000 in 2012.

A difference between U.S. and Canadian TV watchers is choice, Eiley said. In the United States, Netflix offers subscribers 60,000 titles, while Canadians pick from just 7,000 titles.

“The price is the exact same, and yet they have 85% less content,” Eiley said of Netflix in Canada.

TAKEAWAY

Authenticated and subscription online services are snatching audience share of online viewing away from network websites.