'Cord-cutting' crisis coming?

There’s something strange happening in the US cable industry that may have relevance to our ongoing OTT (over-the-top) player concerns in telecoms. Ever-vigilant TM Forum contributor, John Wilmes, pointed The Insider to an interesting report that the US pay-TV industry lost nearly 200,000 subscribers in the second quarter. It seems they just disappeared!

Ryan Lawler, writing for Gigaom, presented figures showing a net loss of 193,000 subscribers, and while losses by cable providers are nothing new, they are usually offset by stronger growth in satellite and IPTV providers picking up the slack. That just didn’t happen and he fears that as the figures only show the top eight, and no Tier 2 or 3 providers, they could actually be a lot worse.

Whilst cable and satellite providers are losing subscribers, in part, due to increased competition and deals from the telecoms providers, particularly Verizon and AT&T, who are aggressively buying share with steep upfront discounts, a look at the actual numbers doesn’t seem to bear that out. Even though the two added 386,000 new subs between them, the figures were considerably lower than usual quarters. As mentioned above, the overall net effect across all providers was down.

So, where are these subscribers going to, and is this a trend we will see worldwide? If, like The Insider, you assumed these aptly named ‘cord cutters’ were going to OTT video streaming, you’d be wrong. Another Gigaom report suggests otherwise. Instead, Lawler suggests, those who are choosing to go without cable are doing so because they either don’t see much value in pay TV packages, can’t afford to keep paying for TV, or some combination of the two.

The most fascinating concept he puts forward is that as cable operators push customers into higher value packages and a broader range of services to generate higher ARPUs the chance of alienating lower income customers increases. In fact, the loss of some low-end revenue streams with associated credit issues may actually be encouraged.

Lawler uses the analogy that “in a world where all the cable operators are trying to sell ever-more expensive packages of services, there’s a sad truth of business they’re running up against, and it’s that not everyone is a luxury car buyer. That is, not everyone is in the market for the biggest and best. But in the cable world, there’s very little choice if all you want is a Kia.”

There may actually be a ‘breaking point’ where customers baulk at spending $150 per month for pay-TV packages and question the value, especially when there are other ways to get low-cost video entertainment from services like Netflix or Hulu.

It is also becoming increasingly popular to simply buy a TV series via services like iTunes and watch only the programs you want to see rather than having a package of five to ten channels, of which only one is of interest. Applications such as ‘iPlayers’ provided by major networks are also making online streaming an easier, and often free option, for premium content.

Although it may be too early to set off alarm bells for telecoms service providers, there could be a lesson to be learnt here. Yes, the move to triple and quad-play offerings by CSPs do generate stickiness, but they also increase cost to the subscriber. Everyone has a limit and if customers start questioning the value of some of the lesser-used components, they may ask them to be unbundled.

If this cannot be done quickly and easily, they may just ‘cut the cord’ completely and opt to go for cheaper, individual services from other providers like, dare I say it, OTT players!