Cord-Cutting on the Rise

With the diffusion of broadband and the growth in online video options, there is a growing concern that viewers will drop expensive pay TV services from multichannel providers and go to local broadcasters and online video outlets for their programming.  This "cord-cutting" is starting to have a significant impact, with multichannel providers losing more than 400,000 subscribers in the last quarter.

  The economic impact on multichannels and networks is worse, as this number doesn't include those subscribers who dropped some or all of the premium services while maintaining basic subscriptions.  The premium movie channels and specialized networks are major profit centers for multichannel services.  A broad range of big entertainment companies, from content producers to networks to multichannel distributors generate much of their profits directly or indirectly from subscription fees paid to channels or bundlers.
  While the numbers aren't good, analysts note that the second quarter is traditionally a weak period for pay-TV subscriptions, with many subscribers moving or dropping services for the summer.  Historically, pay-TV services get most of those back later in the year.  However, the net year-on-year growth rate in terms of subscribers has slowed, and dropped below the overall growth rate in U.S. households with TVs.  Pay-TV's share is declining, whether due to cord-cutting or other factors.
  The cable industry has been particularly hard hit, as what had been (locally) monopoly markets have become fairly competitive, first with the rise of DBS (satellite) services, and more recently with telco-based multichannel providers.  Still, the multichannel market continued to grow overall - it was not until 2010 that the market experienced a net loss in subscribers.  Since then, there have been subscription losses in 5 of 9 quarters.
  For most of the last decade, cable systems have managed to keep revenues growing, offsetting the decline in subscribers with gains in premium services (HD, DVR, premium channels), local advertising revenues, and the provision of broadband services.  One-fifth of Charter's customers subscribe to broadband only. and Time-Warner Cable reported a 28% increase in broadband-only subscriptions over last year.  Even so, several cable operators reported declines in video revenues.
  DBS operators are also looking to broaden their revenue base, as both experienced drops in subscriptions last quarter (for DirecTV, it was the first quarter with a net reduction in subscriptions). Dish is working on building a wireless broadband network to enter that market.  DirecTV is looking to its expansion into Latin America, and bundles of international channels, to feed continued growth.

  The market for viewers (subscribers) is growing ever more competitive - not just in terms of sources for live TV, but in terms of increasingly accessible archives of movies and TV programs, specialty channels, and a massive supply of user-generated content.  Audience research shows that more people are watching videos delivered through the net, and that they the time they devote to online video is growing.  Every indication suggests that online viewing will continue to grow, and will cut into the time spent watching TV delivered by traditional distribution systems.  And as the cost differential between broadcast/online sources and multichannel sources increases, more people will end up cutting back on premium channels and services, or cutting the cord outright.  And multichannel video providers will need to find new markets to enter, or find new services that provide a better cost-benefit ratio for viewers, if they want to grow.

Source - Evidence Grows on TV Cord-Cutting,  Wall Street Journal