Cable Technology Feature Article
Fundamentals of U.S. Video Subscription Business Still Intact
By Gary Kim, Contributing Editor
About 86 percent of U.S. households subscribe to a video subscription service provided by a cable, satellite or telco provider, the latest research from Leichtman Research Group shows.
The importance of that number is that penetration apparently peaked in 2010, when some 88 percent of households bought video subscription services from cable, satellite or telco providers.
Since then, the market has receded, as a lower percentage of housing units buy the product, even if service providers can claim customer lift of about one percentage point, according to Leichtman Research Group.
Among TV households that do not currently subscribe to a multi-channel video service, 40 percent subscribe to Netflix, 11 percent subscribe to Amazon Prime, and seven percent buy Hulu (News - Alert) Plus.
Overall, about 42 percent of non-subscribing households use an over the top service. But 58 percent of non-subscribing households do not appear to be watching TV or buying a video service at all.
Some eight percent of households appear to use over the air TV only. About six percent of households appear to watch a combination of broadcast TV and over the top programming.
In fact, one might argue that, at least for the moment, while total video subscribers and video sub penetration both are going down, the business remains largely stable. As you might expect, households with lower incomes buy the product less than households with higher incomes.
Nationwide, 20 percent of TV households with annual incomes less than $50,000 are non-subscribers, compared to nine percent with incomes greater than $50,000.
That might suggest there is some potential for greater sales if lower cost subscription alternatives were available. But the more ominous figure is the nine percent of consumers with higher incomes who apparently do not see value in buying the product.
In other words, many of those households can afford to buy, but choose not to do so.
Mean reported monthly spending on multi-channel video service is $83.25, an increase of 5.9 percent, year over year.
Again, that might be either a sign of trouble or a positive sign from a service provider perspective. The positive is that consumers were willing to pay substantially more, in the aggregate. The negative is that such price increases likely cannot continue indefinitely.
Indeed, spending by the top end might be obscuring growing price trouble. Multi-channel video subscribers with household incomes greater than $50,000 spent 18 percent more per month than those with incomes less than $50,000.
So a disproportionate share of the spending increases, as you would expect, come from households that value video entertainment more than average.
Some 10 percent of non-subscribers had subscribed to a multi-channel video service in the past year, and seven percent plan to subscribe to a service in the next six months.
There are some signs of resistance, though. About 1.4 percent of all TV households paid to subscribe to a service in the past year, but currently do not buy. That is roughly consistent results over the past five years, LRG indicates. In other words, the rate of abandonment is flat.
Only about five percent of current multi-channel video subscribers did not subscribe at some time in the past two years and just watched programs from the Internet instead of buying a video service provided by a cable, satellite or telco provider.
Some will argue that is a sign that the fundamentals of the video subscription business remain intact.
Edited by Blaise McNamee