Internet Video Distribution Will Not Displace Cable TV: “Cord Cutting” Is Hype

I know I am not the only one who thinks there is way too much hype within some segments of the online video industry and none more than the subject of "cord cutting". Far too many writers, bloggers and analysts are preaching about consumers dropping their cable service in favor of getting video content from the Internet when in reality, that's not happening in any large scale and shows no signs of doing so. I get the sense that many are simply writing for headlines and want to use scare tactics like cord cutting to create a false sense of panic amongst those who don't know better.

As the economy starts to show small signs of improving, it seems more people want to try to build this industry back up with hype rather than with cold hard facts. The online video industry has been through a lot of bubbles in the past and any vendor in this space will tell you they stink for business. Part of the bursting of those bubbles is due to many preaching about things taking place in this industry that simply aren't happening and as a result, are setting wrong expectations.

That's not to say the topic of cord cutting should not be discussed, but when many people use
the phrase, they make it sound like it's impacting the market, when it
isn't. In fact, the cable companies continue to grow their subscriptions
to TV year after year and more than 90% of U.S. households subscribe to some kind of pay TV service. Anyone who thinks the cable companies are dying
or that online video based content offerings even come close to what
cable offers in terms of reach, inventory and quality, is fooling
themselves and hurting the industry by implying it.

The cord cutting phrase could turn out to be the single biggest downfall in this industry, simply to do the fact, that's it's not taking place in volume. In fact, to even imply it, without mentioned that it's an isolated case is simply wrong. When some want to imply, suggest or predict that the cable industry is going to be taken over by an online video based offering, they setting up a lot of companies in this market to fail. Based on those wild predictions, vendors change their entire strategies, raise new capital for a market that does not exist and lose focus on the real business opportunities in the market today. Companies start believing the hype and get so focused on what they think is the "holy grail" of the online video industry that they lose their way. All we have to do is look at "TV Everywhere" as an example of this.

When Comcast first announced their TV everywhere service, now called Xfinity, the vast majority of bloggers and analysts fell all over themselves to talk about how good it was going to be and how it was the start of a new "TV Everywhere" revolution. The service was not even live in the market and blog post after blog post hyped the service like never before. Yet, now that the service has been out for five months, where are all those analysts who said it was the start of a whole new TV Everywhere revolution? When was the last time you saw anyone write anything about Xfinity? So far, it's has had absolutely zero impact on the market, yet how much hype surrounded it before it even launched? And now that it's in the market, where are those same writers and analysts who said it was going to change the landscape for pay TV? And I'm not picking on Comcast because three years before Xfinity, all the hype was around Joost and the impact it would have on cord cutting. How well did that work out?

Every month is seems like a new report is coming out that wants to imply that cord cutting is taking place and is going to ramp up over the next few years. A recent report from the Yankee Group predicts that 1 in 8 consumers plans to cut their TV service this year in favor of Internet options but rightfully points out that, "the decision to cut off pay TV services is an economic one." I know of many folks who have cut their cable service simply due to the fact that they don't watch a lot of TV to begin with and are simply trying to save money. But that has nothing to do with getting video online.

And by survey standards, even I would be classified as one of those eight users who the Yankee Group says, "will reduce their pay TV services" since I recently canceled my HBO service as I watch more cable shows than I do movies. But I didn't cancel HBO because I can get their content online, I can't. I reduced my pay TV services simply because I wasn't watching movies. Consumers do cancel services for other reasons besides just replacing them with a different distribution medium. I do like the fact that in the report, the Yankee Group does say that cord cutting is a, "small phenomenon now" which puts things properly in perspective, but sends quite a different message than the title of the press release which is, "New report finds consumers reducing or eliminating pay TV services in favor of Internet options." That's a bit of a mixed message.

Another report by Strategy Analytics estimates that, "the number of so-called "cord cutters" could reach more than 10% of US television households by the end of the year." What they don't say is why these consumers will supposedly cut the cord and whether the cord cutting is a result of a poor economy with people trying to save money, or because they are replacing that video consumption in some other way. This is just one example but there are lots of reports out in the market that use language that's very generic, yet also seems to want to alarm readers.

At the Cable Show last month, executives from multiple cable companies said so far, "there’s not any real evidence" of cord cutting and mentioned that telephone companies that reported earnings in May added about 500,000 net new subscribers combined in the first quarter. Or course, you can't always believe what a cable executive may tell you when it comes to online video, since they have a vested interest in not seeing more content move to the web, but it's hard to argue with the number of new subscribers for pay TV. Not to mention, if even 10% of all the current TV subscribers went to the web to get video at the same time, delivering that video on the Internet would not scale with a guaranteed quality of service (QoS).

Of course, just like the print business, we know the pay TV business is
being disrupted thanks to the Internet, that I am not debating. But instead of many thinking of
online video as a replacement for TV, it should really be thought of as a
compliment to it. While we each have our own opinions on pay TV
services, frankly I'm happy paying $95 a month for a 25Mbps FiOS
connection, tons of channels I actually watch, video quality I can't get
online and unlimited phone calls. Clearly some won't agree with me but
that's simply a difference in video usage, content tastes and perceived
value of the service. But to imply that any large volume of people are cutting their cable TV service in favor of online video, or that there is any data to show this is a major trend moving forward, simply would not be accurate.

Related:

Cable Companies Hyping Over-The-Top Video, But Where's The Business Model?

Some Industry Vendors Betting Big On TV Everywhere, Most Will Lose

The Promise Of TV Everywhere Is Doomed For Failure, Here's Why

TV Everywhere Offerings Will Struggle To Be Successful

  • While I share your scepticism about the current hype surrounding cutting the cord, I think your analysis needs to consider two other important dimensions to this:
    (1) Demographics: Pay TV subscribers cover the full age range from 18 to 80 and over this range I’m sure the digital switch-over is driving more people to pay TV services (it certainly is in the UK). However, in the teenager segment I think there is a large pool of people growing up on a diet of mostly internet video (including premium services like Netflix). As these kids start out in their own properties, a significant proportion of them may not bother taking out a cable subscription, since they associate that with their parents’ generation. This could create a dangerous factor for pay tv providers that they would be wise to plan for now, whilst there is time to invest.
    Of course, my point depends on seeing a demographic breakdown of pay tv subscribers.
    (2) In PC video, it is easy to renew software and deploy new products. But a subsidised set-top box has a development time of 1-2 years and an in-the-field life of, say, 4-5 years. A TV has a longer field life – typically 10 years. Thus STB vendors need to plan now for what the market will look like in at least 2015, which is a geological time scale for internet video.
    Relating (2) back to (1) – 2015’s buyers of STBs are today just finishing high school, since in 2015 these kids will be graduating and furnishing their first appartments.
    So I agree with the damaging effects of hype on steriods, but different bloggers may have different market assumptions.

  • David Flannery

    Perhaps, however, the slow move to online will happen due not to market demand, but a mere lack of awareness by consumers about how easy it is becoming to get 80% of your TV fix online. Unless you’re a sports fan, or HAVE to watch American Idol, with commercials, at 8pm on Wedensday on the nose, there is very little you cant get online now, between streaming and downloads. Services like Clicker (both their regular site at http://www.clicker.com or their new HTML5 one at http://www.clicker.tv) and Boxee are making this reality but most consumers don’t know about them yet.
    The cable companies are doing everything they can to drag their feet of course because they’ve got the most to lose.

  • Txemi

    Dan, I agree with you there is huge hype on “cutting the cord”, nonetheless the fact that the impact today is low is not a prove that it could not eventually happen.
    See the post below with an analogy on postal mail:
    Phase 1 – Hype mail will disappear because of Internet
    Phase 2 – Negation it will disappear but rather increase
    Phase 3 – Disruption. Postal mail is now dropping 30% YoY
    http://disruptionmatters.com/2010/05/06/views-spotting-disruption-before-it-happens/

  • Dan, like you, I’m not a “cord-cutter” I’m a service down-grader. However, in addition to dropping HBO I also dropped the digital cable tier and now subscribe to basic cable, period.
    FYI, I didn’t watch ESPN channels, and have no interest in continuing to subsidize all those that do. In contrast, I do watch recent release movies and Starz and Showtime TV series, and so a Netflix subscription and access to Amazon PPV via my Roku STB is “good enough” for my needs (better value for the money).
    My point: don’t be distracted by the labels used to describe this phenomenon. Instead, pay more attention to the market segmentation that has occurred since the U.S. legacy mass-market lost its past mass. I may be a micro-market member, but my ranks are growing — while full-service cable subscribers have clearly plateaued.
    cheers, David

  • The trend is “on demand”. If “cable” wants to stay relevant they need to do more of it. Internet TV is getting easier every couple of months and now Google is stepping in the ring and rumor has it Apple will be releasing another Apple TV. Cable should be scared. Look what iTunes did to CD sales. Once Internet TV is convenient for the masses people will jump if “cable” doesn’t have a better offering then they do now.
    Note I’ve been land line free since 2000. Cable free since 2005 and even “over the air tv” free for the last couple months since my fiancé and I bought a new house. She’s an avid cable tv watcher and the first week was rough but now she’s hooked on Boxee, Netflix, and Hulu. I told her today I was going to try get OTA TV working and she said she doesn’t care, she doesn’t miss it.

  • tbd

    Consumers aren’t cutting the cable cord (in scale), but maybe the better metaphor is “cord splicing”.
    Many consumers are willing to accept reduced cable service because reduced cable content can now be supplemented by content from less traditional sources. So maybe people aren’t cutting the cord, but when they stop paying for a premium service, that is an economic decision (if it was free who would cancel it?) but the economic savings make sense partly because streaming content options like Roku, Netflix, game consoles, etc are viable alternatives for the relative price.
    Dan, as you stated, you didn’t cut HBO because you could get it online, but isn’t it accurate to say you cut HBO because you are getting better value from other content? Some of that content comes from your remaining cable service, but presumably some of that content is also coming from other streaming sources?
    So you didn’t cut the service, but you spliced your cable services. The value proposition your cable company offers you via HBO was compelling last year, but right now it simply isn’t strong enough.
    Call cable cutting hype if you want, but it is based on a reality that is taking place everywhere… apparently, even within your own living room. This change that is taking place on the margin is more revealing than the anecdotal stories about cord-cutting, but it is still noteworthy.

  • Jim

    Dan,
    Timely story, have just cut the ‘Triple Play’ cords to AT&T Landline, Earthlink DSL, and Comcast Cable. Switched to Clear 4G wireless (faster Internet and unlimited VoIP for significantly less money). Not missing Cable, as The Boss says “57 channels and nothin’ on”.

  • Obviously, anyone who thinks that internet video will simply replace TV is just… Wrong.
    People are willing to pay for a good living room experience – it’s a constant. I don’t think it will EVER change.
    Cable providers aren’t blind to that, they learn new ways to monetize in the IP world. Triple Play is one of their strongest weapons. And don’t think of TP as a marketing term – it actually a business objective.
    Watch the video panel at IMTC – http://bit.ly/czLkNw, it talks about the technical aspect of triple play.
    When we talk about Social TV (or Interactive TV, or Internet TV) – It seems quite obvious why cable providers are here to stay.

  • Itzhak, why do you assume Internet TV isn’t currently or in the future going to be “not a good living room experience”? Watching “Big Bang Theory” right now on an HDTV in living room via a Mac Mini. Fiance (not that computer savvy) is the one that put it on. On Demand, great quality, not sure what I’m missing? Oh yeah, the giant cable bill. 😉

  • Hi Christopher,
    I don’t think one must contradict the other, there are millions who prefer the more simple, seamless experience of a set-top box.
    Carries will adapt to the new market – they Will offer great data-telephony-video plans, to make it worthwhile for you and me to choose them as our main video source.
    I too, have a nice streamer connected to an HDTV, and family members with apple TV – they still have cable connection. It’s just easier for the average Joe.
    You know, even the fact that they choose the content for you – makes it More appealing to the average consumer.
    Itzhak W.

  • “$95 a month for a 25Mbps FiOS connection, tons of channels I actually watch, video quality I can’t get online and unlimited phone calls.”
    Is that a promo rate? That sounds too good to be true.
    My wife and I dropped our premium channels and just have basic cable and internet service via Comcast. We’re saving $100 a month and not missing a thing. The kids can watch their favorite shows on PBS and Netflix and I can get ESPN on my Xbox 360.
    We still have cable because we don’t want the hassle of making a OTA antenna work. Also for $2 more we have basic cable because it is bundled with our high speed internet. I can live with $24 a year instead of dealing with installing the antenna.

  • I think tv as we knew it is already over. Streaming is here, it’s only a matter of time now. The only thing that remains, if for them to decide how to charge us for these new services.

  • goose

    Fios? More like $150+ for hundreds of useless channels. Better off getting them over the air.

  • oblivion328

    I’m here from 2015. You were wrong.