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Report: Economy, Not Technology, Driving ‘Cord-Cutting’

27 Sep, 2010 By: Erik Gruenwedel

The Great Recession supposedly ended sometime last year, according to economists, but don’t tell that to pay-television operators, who saw a drop of 167,000 subscribers in the second quarter of 2010.

As pay-TV households, which consist of cable TV, IPTV, and satellite TV subscribers, continue to experience sudden year-over-year declines, a new report says the economy — not technology — is driving the fall.

Scottsdale, Ariz.-based research firm In-Stat said ongoing consumer fears about the economy, underscored by strong unemployment, are pushing people to cancel pay-TV services on their monthly cable or satellite subscriptions.

Other experts believe the drop is due to the evolution of so-called “cord-cutting” devices such as Internet-connected Blu-ray Disc players, HDTVs and media players, which allow users to watch repurposed TV shows and catalog movies via less expensive services such as Netflix streaming, Hulu, and TV.com, among others.

“While growing availability of over-the-top Internet video is spurring talk of mass ‘cord-cutting,’ this decline is not about cancelling pay-TV in favor of Internet video,” said analyst Mike Paxton. “The main driver of this subscriber decline is the struggling U.S. economy and high unemployment.”

At investor events last week in New York, media company executives downplayed the impact of “cord-cutting” services such as Netflix, arguing that the increased availability of entertainment options (and the economy) is undercutting pay-TV subs.

Indeed, a recent Credit Suisse report projected that 17% of Netflix subscribers have dropped premium-priced cable service

Les Moonves, CEO of CBS Corp., said alternative distribution platforms for content — such as ad-supported Hulu, Apple TV and Netflix — are generating much of the hype, if not necessarily much incremental revenue. Moonves said the proliferation of distribution channels requires weighing the impact each new channel has on existing channels.

“It is something we are looking at very closely,” Moonves told a Goldman Sachs event last week.

Media companies, notably those that own cable services, are extolling so-called “TV Everywhere” platforms that allow pay-TV subscribers to access first-run content on demand and the Internet via media devices for no additional cost. The rationale being that ubiquitous access will help sustain subscribers.

In addition, a la carte services offering content access for low single-digit monthly fees, including Hulu Plus and Netflix, are increasingly eyed as alternatives to monthly cable bills that average more than $140 a month.

“It’s a potential thing for us,” Moonves said.

Comcast CFO Michael Angelakis said he believes making new-release movies available on transactional video-on-demand (VOD) at the same time as packaged media will help sustain subscribers. With Comcast’s majority purchase of NBC Universal pending regulatory approval, the cable operator's VOD slate could grow significantly.

“That trend has more monetization to it,” Angelakis said. 

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