The Great OTT Myth: The Reality of Cord Cutting Isn’t So Real
The days of traditional TV are over as consumers rush to cut the cord, right? Not so fast: We're seeing a migration, but the product and players haven't changed.
It seems we are hearing more about the death of television every day. No, pundits and press aren’t coming out and espousing “TV is dead,” but more and more is being written about “cord cutters”—those pesky consumers who are opting out of traditional television subscriptions in favor of getting all the content they want elsewhere.
In fact, whenever we see a dip in television ratings (like we have recently in NFL viewership), the pot is stirred again, the fervor is whipped up, and the murmuring reaches a crescendo: “That’s it, television is dead. Stick a fork in it.” Because there can be only one reason for a drop in ratings or a reduction in subscribers: Clearly, it’s people cutting the cord.
But let’s take a step back and look at cord cutting a bit more objectively.
First, is it happening a lot? Probably not as much as people think, despite the headlines. According to a variety of different statistics, about 12 percent of consumers have cut the cord in 2016 (with a growth rate of 1 percent–2 percent predicted until the year 2019). Of course, about 20 percent of consumers have never subscribed (mainly Millennials). But that still leaves way more than the majority subscribing to a pay television service. Yes, pay TV subscriptions are down. Yes, consumers are increasingly getting their content directly from content providers (like HBO Now) or from aggregate services (like Sling TV). But the number of cable or satellite subscriptions is still high.
And how do we account for consumers who may subscribe to pay TV providers to get content in an alternate way (e.g., TV Everywhere), for whom the television service itself is just a throwaway part of the relationship?
Second, is it happening globally? The answer to that is a little more complicated. In order to understand cord cutting, you have to look at the economics of it. According to analyst firm IHS Markit’s Ben Keen, the U.S. has the largest gap between consumers subscribing to broadband and an OTT service (he uses Netflix in his analysis) and a “triple play” offering from a pay TV operator—a gap of about $35. That means that U.S. consumers have $35 to use on other OTT services (in addition to their broadband and Netflix subscriptions) to fill out what they might be missing in a pay television subscription. Sling TV? CBS All Access? HBO NOW? All of the above.
In other countries, though, there is little to no gap between broadband plus Netflix and a multiple system operator’s (MSO) triple play, which means that it doesn’t make economic sense for consumers in many other countries to cut the cord. (Keen specifically refers to France, Germany, Spain, and the U.K.) This is especially true as some of the largest providers across Europe, like Liberty Global, ink deals to integrate Netflix and other OTT providers into their television platforms, giving consumers even less reason to sever their relationship.
Cord cutting is less of a reality than we’d all like to think. It’s just a way to describe what’s really happening—a transition from traditional broadcast to IP delivery. Whether that IP is over a fixed line or the internet doesn’t really matter because, let’s face it, there will always be a cord of some kind. It might be to a pay TV provider. It might be to a content distributor or owner. Regardless, consumers are going to subscribe somewhere to get the content that they want (yes, there will always be a small portion who get the majority of their content over the air), and that means they’ll be connected via some kind of cord.
What we really need is a different way to measure the progress of this transition—a better way to represent how consumers are migrating from the television experience of the last 5 decades to one of the future.
[This article appears in the November/December 2016 issue of Streaming Media magazine as "The Reality of Cord Cutting Isn’t So Real."]
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