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Report: Netflix Has Minimal Impact on Pay-TV

20 Nov, 2012 By: Erik Gruenwedel

The rise of subscription video-on-demand services such as Netflix, Hulu Plus and Amazon Prime Instant Video has little impact on cable, satellite and telecommunication premium television — despite scuttlebutt to the contrary, according to a new report.

With cable operators such as Comcast, Time Warner Cable and Charter jettisoning video subscribers (dubbed cord-cutting) on a quarterly basis, analyst speculation suggested Netflix and other Internet-based video services were siphoning away subs — a contention denied by multichannel video program distributors (MVPD) and Netflix.

London-based Futuresource Consulting, in a Nov. 20 report, said the specter of cord-cutting was overblown, with forecasts indicating that less than 5% of MVPD subscribers exiting in the next two to three years would be due to SVOD.

“Although the Netflix service has been a major disruptive force, driven by high-profile tie-ins with connected CE device manufacturers and streaming deals with studios, its direct impact on the pay-TV industry has been minimal,” Carl Hibbert, head of broadcast, content and services at Futuresource Consulting, said in a statement.

Indeed, premium TV continues to dominate the U.S. home entertainment industry, with 86% of homes paying for monthly bundled service. Revenue rose 4.3% in 2011 to reach $94 billion.

The tally includes basic cable/satellite/telco TV service, premium channels, electronic sellthrough, packaged media rental and sellthrough and transactional VOD. Of the $32 billion spent domestically on premium home entertainment, pay-TV accounts for 40%.

Futursource said pay-TV is aggressively seeking multiplatform and second-screen opportunities through TV everywhere services, while also exploring SVOD distribution via connected CE devices. Consumers will continue to buy pay-TV subs for the range of programming, the availability of premium content and the additional services.

While the report said pay-TV can compete with SVOD, the latter will continue to expand despite higher content license fees imposed by studios and media companies. Growth in both SVOD and ad-supported VOD will generate more than $12 billion by 2016.

“It's true that cable operators have seen some decline in subscriber figures, though the majority has come from the low-end [of subscribers],” Hibbert said. “Many of those subscribers leaving cable have actually moved to IPTV and satellite, as opposed to leaving pay-TV altogether. The most significant impact from online video services has been on the packaged-media segment, which fell by $2.3 billion in revenue in 2011."

About the Author: Erik Gruenwedel

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