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Cable Technology Feature Article

January 21, 2014

Premium Cable Subs Drop as Netflix Continues to Grow

By Tara Seals, TMCnet Contributor

Netflix has always said that its prime competitor is not the cable companies of the world, but rather premium cable networks like HBO and Starz. A new study from the NPD Group (News - Alert) has revealed that subscriptions to HBO, Showtime and other premium TV channels have actually declined over the past two years, as Netflix and other subscription video-on-demand (SVOD) services have gained in popularity.

There was a 6 percentage point overall decline in U.S. households subscribing to premium TV channels over the past two years, the firm found—while households subscribing to SVOD grew 4 points.

That said, there is some question here about how to read the numbers; it could be that the premium “gap” is merely a function of Americans dropping traditional pay-TV subscriptions in general, rather than customers simply opting out of HBO because of Netflix. Only 86 percent of U.S. households subscribed to cable, satellite or IPTV (News - Alert) as of August 2013, down from 88 percent in 2010, according to Leichtman Research Group.

And it’s worth noting that the decline is not coming from the top dogs: Starz added a net 1.2 million customers for the 12 months ended September 2013, to hit 22 million. Showtime also grew last year, adding 1 million subs to reach 23 million at the end of 2013. And HBO meanwhile has been holding steady at about 28.7 million—certainly not losing customers.   

That suggests that Netflix is not cannibalizing premium cable, but is rather being adopted as an ancillary service in the home. Its growth has taken off, reaching 29.93 million U.S. subs in the third quarter of 2013, up from 25.1 million one year prior and outstripping HBO.

Nonetheless, NPD feels that premium cable-shaving is happening.

“As SVOD services have gained momentum, it’s clear that some consumers are trimming their premium-TV subscriptions,” said Russ Crupnick, senior vice president of industry analysis for The NPD Group. “As SVOD increasingly strives to become a channel itself, viewers might consider it to be an adequate substitution for other premium channels, or perhaps they are switching to economize on their time and money spent.”

Regardless of the causal effect, the two segments are beginning to claim equal audiences: 32 percent of U.S. households were subscribed to premium-TV channels in August of 2013, compared to 27 percent of U.S. households that subscribed to SVOD services.

NPD said that Netflix remains the clear leader in SVOD; however, Hulu (News - Alert) Plus and Amazon Prime are reaping the biggest growth benefits in the category, as consumers tack on secondary SVOD services.

Overall digital-video transactions (that is, purchases and individual paid rentals, not including free on-demand movies and TV shows included with a pay TV subscriptions) have risen 3 share points since 2012, reaching 70 percent of all home-video transactions in 2013.

In contrast, in 2013 SVOD made up 71 percent of all digital-video transactions, and it continued to grow faster than all other digital acquisition types.

Edited by Cassandra Tucker

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