Michael Grotticelli /
05.10.2010
Originally featured on BroadcastEngineering.com
One in eight is cutting cable and satellite TV subscriptions

One in eight people in the United States will either eliminate or scale back their subscriptions to cable and satellite TV, finds a new Yankee Group study.

The study, which was the result of a survey of pay-TV operators and more than 6000 U.S. consumers, found that many will choose to drop premium channels or cut their service down to a basic package, while others will choose to cut off their service completely.

There are a combination of factors, including a growing number of battles between cable companies and networks, soaring Internet video viewings, and an increase in connected TVs and devices. But the biggest reason why customers will cut the cord, according to the study, is the growing cost of pay-TV service. Cable and satellite viewers pay an average of $71 per month, and they receive an average annual price hike of 5 percent, according to research firm Centris.

A cutting-the-cord trend has been the subject of speculation for some time, as networks have increasingly made television programming available for free on the Internet.

“Admittedly, this is a small phenomenon now, but a number of recent transactions and new items point to a shift in consumer thinking,” said Vince Vittore, analyst at Yankee Group and author of the study.

Going without cable or satellite is unthinkable to many Americans — just over 90 percent of U.S. households subscribe to some form of pay TV. But just as mobile phones have replaced many users’ land-line service, Vittore said on-demand Internet video will soon whittle that 90 percent figure down.

Broadcasters like ABC, CBS, Fox and NBC have traditionally cost cable and satellite providers nothing to retransmit, since they are offered for free over-the-air anyway. But lately, broadcast television networks have demanded — and have received — fees for their programming comparable to what cable networks like TBS, E!, MTV and Comedy Central have been charging. Those fees get passed on to subscribers.

Vittore said that higher costs will ultimately drive more consumers to cut their pay-TV service —especially for nonsports fans. Sports programming makes up as much as 50 percent of a pay-TV provider’s costs. Users who are not sports fans are essentially paying half of their cable or satellite bill on channels in which they have no interest.

Meanwhile, free or cheap alternatives to pay-TV subscriptions are growing wildly popular. More than 180 million U.S. viewers watched 31 billion videos on the Internet last month, according to online data tracker comScore. That’s more than double the 15 billion Internet videos that were watched at the same time last year.

Netflix’s streaming service is rapidly gaining ground as well. The company said last week that 55 percent of its users watched at least 15 minutes of streaming video in the first quarter. Netflix has grown its customer base by 35 percent over the past year, and recently raised its 2010 subscriber forecasts by 1 million customers. Now, more devices are coming preinstalled with Netflix or Internet connections, so people can stream videos right onto their televisions.

“Just like with telephone land lines, it’s going to become hard to sell pay TV to anyone under 30,” Vittore said.



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