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Cable Technology Feature Article

September 22, 2011

Are 'Cord Cutters' Different from 'People Who Cancel Video Subscriptions?'

By Gary Kim, Contributing Editor

Collectively, U.S. subscription TV providers lost 400,000 subscribers in the second quarter 2011, their single worst period in over three years. Cable TV took the brunt of the hit, though satellite operators also saw softness. Many would argue the shrinkage is a logical response by consumers to tough economic times. Certainly that is the picture cable operator executives paint.

But Strategy Analytics (News - Alert) argues that many cord cutters are, in fact, not lower-revenue customers that service providers can afford to lose. The other explanation is that people dropping their subscriptions are people who do not watch much TV, or value TV all that highly.

In what would be a troubling finding, Strategy Analytics found that many former customers place a high value on content, and are three times more likely to report watching paid Video on Demand than “traditional” economically- motivated churners. That isn’t to say a good number of churning customers are doing so for economic reasons. But a significant number of departing customers are people who have the money to buy video services, value video services, but want better choices.

“The pay TV industry has gotten it wrong on the topic of cord cutting,” said Ben Piper, Director of the Strategy Analytics Multiplay Market Dynamics service.  “For the second consecutive year, our survey research clearly indicates that those who intend to cut the cord are high value, high-revenue customers, not the deadbeats they have been made out to be.”

Cord Cutters are motivated less by price, and more by control of content, according to the report.

“Forty percent of Cord Cutters—compared to twenty percent of economic churners—said they would be willing to pay more than they currently do for pay TV if it meant they could pick and choose content on an à la carte basis,” said Piper. Video cord cutter demographics

That isn’t how Comcast (News - Alert) sees matters, though. A “small number” of former Comcast subscribers do appear to be swapping out cable for a free, over-the-air signal, said Comcast Cable president Neil Smit (News - Alert). But Comcast doesn’t believe, based on exit interviews, that those departing customers generally plan on using the Web or services like Netflix, Apple (News - Alert) TV, Hulu, et al as a cable substitute.

To be clear, any departing customer is a “cord cutter” in one sense. They used to buy the product, and have chosen not to. But there is some logic to separating departing customers into two buckets: those who would buy, but cannot afford to, and those who can afford the product, and don’t want it. Lost customers aren't cord cutters?

The bigger problem, strategically, is the latter group of customers, who resemble another important group. A growing number of younger, affluent people simply do not see the value of subscription TV.

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

Edited by Rich Steeves