The success of the mobile phone market over the past 10 to 15 years came at the clear expense of the landline market. The insipient creep of cord-cutting behavior coupled with the younger generation that never saw the point of having a cord, has resulted in lower landline numbers and pretty much a universal agreement that the landline will fade, if not to obscurity then at least to a dusty corner of the living room.
The Pay TV distribution business has many similar traits to the landline-to-mobile transition. Like the landline phone, the current TV market is relatively fixed in nature (those TVs are not very mobile) which means that you move to the TV location, rather than the TV coming with you. And like the phone extensions you may have had scattered around your home, many of us have multiple TVs too.
But cord cutting is becoming far more of a reality for cable TV services, with more consumers now looking to either cut the cord, or “shave” it (i.e., reduce subscription levels by chopping content channels). In its place, the consumer is slowly moving to an “over the top” (OTT) environment, watching more streaming content via Netflix, Hulu, or even renting shows from iTunes or Amazon. Furthermore, these OTT solutions are more flexible in nature: there is no need to DVR the content – it’s always “on-demand.”
More importantly, the viewer does not need to be in front of a TV, but rather can use a tablet, PC, or other device. This changes the fundamental paradigm of TV viewing, allowing TV to be far more of a personal experience, rather than a shared one. In fairness to the Pay TV distributors, they are addressing this trend with TV Everywhere solutions, but so far these are underwhelming consumers: less than 10 percent use TV Everywhere, and of those, the majority use the service to remotely set up the DVR, not watch shows.
The result is that cord cutting combined with “cord nevers” – those that have not had cable service for more than two years – are becoming a significant portion of the U.S. consumer market. And as with the mobile phone transition, the greatest activity occurs in the younger segment of the market.
The pivotal point in the cord cutting activity begins once the consumer has tried the OTT experience. According to the Connected Intelligence Video Behavior Report, consumers who have used an OTT service are far less likely to subscribe to Pay TV moving forward: 47 percent of 18-24 year-olds who have used OTT do not subscribe to Pay TV; for 25-34 year olds this number is still a significant portion at 36 percent. Only when the age demographic moves beyond 45 does the impact of OTT subside significantly.
This age trend is similar to the mobile phone transition, and does not bode well for the Pay TV status quo over the next few years. But as mentioned earlier, the Pay TV providers certainly have a number of rabbits they can pull out of their collective hats. A more aggressive TV Everywhere approach is key (assuming contracts allow for this) that defines “Everywhere” as more than just the home and focuses on educating the consumer about all that is possible. Combine this with the cable companies’ wide-area Wi-Fi solution and we could see the beginning of an expanded video offering that is harder for the telcos to match and will give OTT services more of a run for their money.