Just How Bleak Is The Future Of Traditional TV?
As cord-cutters grow in number, canceling their traditional cable and satellite services, the outlook for traditional TV is going from bad to worse, according to an extremely daunting article about the future of TV in The Wallstreet Journal. Talk of cord-cutting versus traditional pay-TV is not a new topic of conversation; there are loyalists to both sides.
Analysts recently released numbers attributed to a mass exodus with cord-cutting jumping more than 30% this year. There are, however, cord-loyalists to contend with. These people are refusing to part ways with their traditional TV services. As of August, media research firm GfK MRI released its own numbers and according to their research, almost three-quarters (71%) of all U.S. consumers have a TV cord and plan to keep it. Of those with a pay-TV service, 97% have no plans to cut the cord.
There does seem to be a generational divide. Since millennials are the ones setting up new households and they have a proclivity to streaming sites like Netflix, Amazon and Hulu, it isn’t surprising that younger households are deciding to cut the cord with their traditional pay-TV services and are instead opting to rely on the internet for their entertainment needs.
There is also a growing number of cord-nevers, those that have decided to skip pay-TV altogether. An estimated 10 million-plus U.S. homes fall into either the cord-cutting or cord-never grouping, according to research firm MoffettNathanson LLC. This number dates back to 2010 when the share of households with traditional video service peaked.
And, eMarketer’s July forecast supports these cord-cutting findings. According to their research, in regards to U.S. pay-TV versus OTT, the number of those cutting the cord is expected to climb 32.8% this year to 33 million, higher than the 22% growth rate (27.1 million) that was originally projected in July of last year. This number represents the cumulative number of adults who have ever canceled a pay-TV service and have opted to continue without it. Overall, 186.7 million U.S. adults will watch pay-TV in 2018, which is down 3.8% over last year. This number is slightly higher than the 3.4% dip in 2017. But not everyone is following the trend.
“The decline will subside next year with two shifts,” says COO/Co-founder of global cross-channel advertising measurement and accountability company, C3 Metrics, Jeff Greenfield. “First, consumers will come to realize cord-cutting costs more as they pay for quality programming. For example, the cost for Sling and others will rise substantially. Second, cable and satellite providers will realize more revenue per customer from addressable advertising than from subscription fees.”
Despite efforts to fight back and hold onto customers, this past quarter saw one of the largest seasonal drops ever as more than one million consumers canceled their cable TV or satellite subscriptions, which has upped the pressure for pay-TV providers to generate revenue elsewhere.
“There’s no question that cable TV and satellite subscriptions are down and will continue to decline, and this phenomenon will disrupt the advertising industry over the next decade,” says SVP of global analytics company, Analytic Partners, Mike Menkes. “However, as the revenue streams of the entertainment industry changes and the balance of paid versus advertising-supported video entertainment evolves, people will continue to watch an enormous amount of content on their various flat screens, whether you call that activity ‘watching TV’ or not. The amount of time spent watching and interacting with video entertainment will remain one of the top leisure activities and will continue to provide different but continued opportunities for brands to communicate with their audiences.”
To counteract the trend, many traditional networks and cable companies are offering their viewers the option to binge-watch their favorite series and movies with the same convenience as the top streamers. For example, cable giants HBO and Showtime have HBO GO and SHOWTIME. In addition, cable companies are embracing on-demand video providers once considered a threat by offering customers access to Netflix, YouTube and Sling TV. To remain relevant, partnerships with streaming services and digital video startups are paramount in the effort to hold onto customers and revenue.
Though cord-cutting and cord-shaving remain a challenge for traditional pay-TV providers, the vast majority of consumers in the U.S. say they’re still not ready to give up on what they consider “proven and deeply established sources of entertainment” via their cable, satellite or telco TV service(s) and have no plans to drop what they’re used to. This includes the majority of the crucial 18-to-34 year-old age group (58%), as well as 69% of people ages 35-to-49 and 80% of those 50 and over.
According to the WSJ article, fiber-optic broadband providers such as Verizon’s Fios and AT&T’s U-verse have shed pay-TV customers most quickly in recent years, though it’s important to note these services started with a smaller subscriber base. And, satellite operators AT&T’s DirecTV and Dish Network have lost the most customers overall.
To counter, DirecTV and Dish launched their own online video-streaming services offering skinny bundles (a more limited range of channels). Though DirecTV and Sling TV have grown, it hasn’t been at a fast enough rate to offset the decline in traditional TV subscriptions. These online skinny bundles, aka over-the-top packages, aren’t as appealing a service to cable companies because they lack a nationwide customer base and they don’t generate the type of profits that pay-TV does.
Deutsche Bank analyst Matthew Niknam estimates skinny bundles’ profit margins are a negative 6%, versus a positive 38% for traditional pay-TV. And, even in absolute subscriber numbers, streaming TV’s growth isn’t enough to offset the decline in traditional pay-TV subscriptions.
“It would be wrong to pretend the pay-TV sector isn’t facing challenges, and cord-cutting, cord-shaving and households that have never subscribed are part of the picture. But the reality remains that while those numbers continue to grow, they are a small part of a very big picture indeed,” says Senior Vice President, Global Media and Entertainment, Magid, Mike Bloxham. “With 119 million TV households, the loss of 10 million pay TV subscribers since 2011 is less than 10%. TV remains vibrant and healthy and it continues to throw off billions of dollars in profit for many, many companies.”
One thing is clear, in the ever-changing landscape of entertainment nothing is ever set in stone. Though things look bleak for traditional TV at this point in time, there’s no telling what the future will bring. With countless TV shows to choose from, the power is truly in the hands of viewers.