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Cable Technology Feature Article

November 28, 2011

'Cord Avoidance' - Not 'Cord Cutting' - to Haunt Pay TV Providers

By Beecher Tuttle, TMCnet Contributor

The influx of over-the-top media players and IPTV offerings continue to entice analysts to lower their expectations for cable and satellite services, and, like clockwork, pay TV churn rates remain fairly steady quarter after quarter, especially considering the stagnant economy.

Respected Credit Suisse analyst Stefan Anninger was the latest to issue a dreary forecast for pay TV services on Monday, but for different reasons than all those before him. Anninger and his colleagues project that the market will lose 200,000 subscribers in 2012, reversing their initial forecast of a 250,000 gain, due to the growing trend of cord avoidance.

The report, summarized by the Hollywood Reporter, emphasizes that future losses won't necessarily stem from cord-cutting – which previous reports have speculated – but rather because new households won't be signing up in the first place.

Anninger looked at pay TV subscriber numbers over the last 12 months ending in September and found that they had remained relatively unchanged – a fact that pay TV executives quote on a regular basis. However, he points out that occupied households have grown 1.25 million over the same period of time, and that only 16.9 percent of them signed up for pay-TV services, according to Ad Age

"Such a trend implies that recent industry-wide sub growth weakness is about anemic gross adds," the analysts wrote. "Today’s problem: economically-driven cord-avoiders."

Compounding the problem is the fact that the cord-avoiders are the young, technologically savvy consumers of tomorrow, suggesting that 2012 may just be the beginning.

"These are tomorrow’s householders that are in their teens (and younger) today. They are growing up in an Internet-based video culture, in which the mantra of 'why pay for TV?' and 'pay TV is a rip-off,' develop," the analysts add.

While Anninger and his colleagues were clear to note that they weren't looking to sound "the cord-cutting alarm," they stressed that cable and satellite providers must work to offer lower-priced options that will entice younger consumers to plug in.

Ignoring behaviorally driven 'cord-nevers' will create "an issue that has the potential to become an enormous problem," says Anninger, adding that the ramifications of cord avoidance won’t fully be known for years to come.

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Juliana Kenny