Cord Cutters Aren’t Just Leaving Pay-TV Because of Price

Price, Stephenson said at Communacopia, was the main reason consumers, especially younger ones, are either canceling their cable or satellite subscription or opting not to subscribe at all. The attraction of Netflix Inc. (NFLX – Get Report) and other over-the-top services that don’t require a pay-TV subscription was secondary, he said.

“A lot of people conjecture why that is, cord-cutting and cord-shaving,” Stephenson said in New York on Sept. 13. “It’s the over-the-top plays, it’s Netflix. Look, at the end of the day, it’s not really complicated. When the average revenue per video subscriber is well over $100, it’s a price issue.”

For that reason, AT&T launched DirecTV Now in November, a direct-to-consumer streaming service that costs $30 to $60, depending on the channel package. Subscriptions to DirecTV Now surpassed 500,000 at the end of June, Stephenson said.

“Prices on the cable bundle continue to go up,” Stephenson added. “And so people are opting out of the cable bundle. And when you look at who it is that is opting out, it’s 20 million households that have opted out of their cable bundle. And they tend to be younger, they tend to be lower income, and they tend to be millennial.”

Some 941,000 customers of cable and satellite services canceled their pay-TV subscriptions in the second quarter, the largest single quarterly decline ever, according to MoffettNathanson LLC, an equity research firm specializing in media and telecom. The pay-TV industry has lost about 6 million subscribers since 2006, and that trend has been accelerating.

But price, it turns out, isn’t the main factor motivating consumers to cancel their pay-TV contracts, according to a study by industry consultant Frank N. Magid Associates Inc. conducted between May 24 and June 11.

Rather than price, Magid found in the nationwide survey of 2,400 people ages 8 to 64 that the attractions of video-on-demand programming combined with a general decline in television watching among 18- to 24-year-olds were the main reasons people said they would cancel their pay-TV subscription.

Magid found that 61% of pay-TV subscribers who reported being “very likely” to cut the cord cited such reason as “I don’t watch enough TV to make it worth it,” and “I can watch the TV shows and movies I like on the internet” and “I am satisfied with online streaming option like Netflix, Hulu.”

Price, as in “it’s too expensive,” was cited by just 25% of those surveyed. Respondents were allowed to cite multiple factors. “Overwhelmingly, people gave us reasons having to do with content,” said Mike Vorhaus of Magid Associates, who oversaw the survey. “Cord-cutting continues to grow, and its accelerating in the young population,” he told TheStreet.