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Cable Technology Feature Article

August 19, 2011

Video Cord Cutting is Happening, not Necessarily a Negative, IHS Screen Digest Says

By Gary Kim, Contributing Editor

IHS (News - Alert) Screen Digest estimates there was a decline of approximately 364,000 pay TV households in the United States over the second quarter of 2011, based on recently reported operating results from public pay TV operators and consultations with private operators. The significant decline was largely due to escalating losses for cable operators and anemic subscriber growth on the part of satellite operators. IPTV (News - Alert) operators posted strong subscriber growth of 386,000, but this was not enough to offset the declines in other platforms. US pay TV subscriptions decline.

IHS Screen Digest forecasts quarterly declines will continue in the next few years. Unlike some other knowledgeable observers, IHS Screen Digest does think video cord cutting, in the form of a switch to Internet delivery, is happening. Others do not agree. Read more here.

“We need to take a hard look at the facts of the situation: the economic situation for a vast population of Americans has worsened in the past four years, and customers are discontinuing video service in favor of lower priced Internet video solutions,” Erik Brannon, IHS Screen Digest analyst said. 

You might think it ironic, but Brannon also does not think the declines are a negative. A challenge, to be sure, but not a major negative.  ”This is not necessarily a negative for pay TV operators,” he said. 

Not necessarily a negative as one might argue declining voice revenues are “not necessarily” a negative for telcos, one might also say. 

The reason Brannon gives is that cable operators already are on the way to creating a new revenue model based on broadband access, voice services and business services. 

IHS Screen Digest estimates cable video average revenue per user at $75.96 a month. But high speed data (broadband Internet access) is $41.10 and voice revenue is $35.80 a month. In other words, the value of non-voice services already is $76.90 a month, about equal to what cable operators make selling video.

The obvious challenge is to keep growing voice and data to offset expected losses in video from satellite and especially telcos, as well as preparing for new competition from true cord cutters, if and when online video actually starts to include the sort of programming one now expects to see on cable TV, namely hit shows and favorite channels.

Oddly enough, continued price increases for cable TV are likely to create just the conditions required to drive even more subscribers away. As the audience of non-buyers grows, the incentive to provide online delivery will grow. 

And price hikes are likely to harm content suppliers at some point. IHS Screen Digest “believes that content owners are in the most precarious position as they attempt to continue the nearly 10 per cent annual growth in cable affiliate fees enjoyed between the years of 2000 to 2010,” says Brannon. “ As video ARPU passes $86 in 2015, can we expect consumers to bear the increases?”

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO West 2011, taking place Sept. 13-15, 2011, in Austin, Texas. ITEXPO (News - Alert) offers an educational program to help corporate decision makers select the right IP-based voice, video, fax and unified communications solutions to improve their operations. It's also where service providers learn how to profitably roll out the services their subscribers are clamoring for – and where resellers can learn about new growth opportunities. To register, click here.

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

Edited by Jennifer Russell