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Cable Technology Feature Article

March 24, 2011

Watch for Significant Cord Cutting in 2012

By Gary Kim, Contributing Editor

Nearly 25 million U.S. households have watched online video on their standard TVs, Forrester Research (News - Alert) reports. The U.S. online adults Forrester Research surveyed reported that 14 percent of their total video viewing was coming from the Internet, on average. Assuming a typical user watches five hours a day worth of video, which implies about 42 minutes a day of online video consumption using TVs, PCs or other devices. 

When the results are sorted to include only respondents who say they watch online video on a TV, 28 percent of total viewing time—about an hour and 24 minutes a day—is online video. 

In about 56 percent of cases, consumers are using their videogame consoles as the gateway to online viewing that is displayed on a TV. That makes sense, as the game players are, by definition, already connected to the TV and to a broadband connection.

The personal computer is the second most common gateway device used to view online video on a standard TV, Forrester Research reports that 10.9 million homes currently connect a PC to a TV at least occasionally, representing about 44 percent of the gateway devices used to watch online video on a TV display.

All other devices, including specialized online video boxes, digital video recorders, Internet-connected TVs and Blu-ray players each have less than 3.4 million households using any of those methods.

So far, however, most users view online video as a supplementary source of entertainment video. Forrester Research consumer surveys show that just 6 percent of U.S. online adults are interested in cutting the cord specifically to replace a multichannel video service with online video. Fewer than 2 percent are “very interested” in doing so.

On the other hand, there is evidence of growing disenchantment with some forms of traditional cable TV. Premium channels, for example, seem to be growing less popular precisely as Netflix has become more popular, and added streaming video features. Also, some consumers are taking less-expensive tiers of service. 

But it is a reasonable guess that, as people become more comfortable using online sources, they will start to use such services more regularly, creating more demand for online sources and creating additional pressure within the video delivery chain to offer more content using the online channel.  

The anchor for multichannel TV services will continue to be "live" events such as news, weather and sports, plus some major events (Super Bowl, Academy Awards). Forrester analyst James McQuivey argues that about half of all current cable, satellite or telco TV subscribers buy service largely for such real-time programming. But measurable evidence of a greater degree of video cord cutting might not be obvious until early 2012, when something less than 10 percent of the current customer base will be candidates for full abandonment of multichannel TV services. 

By the end of 2012, though, McQuirvey expects about 10 percent of cable, satellite and telco TV subscribers will have defected. Some smaller providers unwilling to invest the money and effort to create a role for themselves in online distribution will sell their businesses. 

Other providers likely will experiment with lower-cost, simplified bundles of channels, to retain some customers that otherwise would simply abandon cable, satellite or telco TV. Content owners, on the other hand, will have strong incentives to tweak release windows as demand shifts. In some cases, that might mean giving dominant distributors longer windows. In other cases that might mean creating new windows or shortening some existing release windows. 

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Janice McDuffee