Is Netflix Really Cannibalizing Pay-TV?

Contrary to conventional wisdom, Netflix may not be taking all that many customers away from traditional US pay-TV providers.

In a comprehensive new study, TDG Research found that usage of conventional pay-TV services by US Netflix subscribers declined only marginally over the last three years.

The percentage of Netflix Inc. (Nasdaq: NFLX) customers using pay-TV services slipped from 87% in 2012 to 84% in 2015, a mere 3% decline that fell within the study's margin of error.

At the same time, Netflix streaming by pay-TV users surged by 33%, rising from 36% of pay-TV subscribers to 49%. So, even as the number of pay-TV subscribers taking Netflix rose dramatically over the three-year span, only a relative few actually cut the pay-TV cord.

"So much for the hypothesis that Netflix use leads to the cancellation of legacy pay-TV services," said Nick Bayer, a TDG analyst who authored the study.

Want to know more about OTT video trends? Check out our dedicated OTT video content channel here on Light Reading.

But cable, satellite TV and telco TV operators shouldn't exactly start dancing in the streets yet either. While Netflix may not be driving all that much cord-cutting right now, it is still having a serious impact on the pay-TV industry, according to TDG.

Bayer notes that Netflix is acting as "an incremental threat to premium TV services," prompting pay-TV subscribers to shave the cord if not cut it entirely. "Today's Netflix streamers are significantly less likely to use value-added pay-TV services like PVR, premium sports and pay-per-view then they were in 2012," he said. In other words, pay-TV providers are not making as much revenue on many of their video subscribers as they did just three years ago.

The study findings come at a time when both traditional service and content providers are starting to embrace the OTT platform as at least a complement to their conventional pay-TV offerings. In particular, major US TV programmers are plunging into the OTT space, with Showtime Networks Inc. joining the movement earlier this week and AMC Networks Inc. preparing to go next. (See Showtime Launches, AMC Tests OTT Services .)

— Alan Breznick, Cable/Video Practice Leader, Light Reading

danielcawrey 7/11/2015 | 2:34:49 PM
Re: Makes sense I am a Netflix subsrciber, and I don't have cable. Other than sports, there's really no reason for me to have cable.

I like having Netflix content available when I want to watch it, and they have some really great content that I enjoy. I really have no reason to go get a cable subscription. 
Ariella 7/10/2015 | 12:30:21 PM
Re: Makes sense < I haven't done yet because of inertia> @melao2 Likely that's also what keeps the numbers from slipping in general. We tend to stick with what we have because it seems to be less trouble than finding alternatives. 
jeff.stuparits 7/10/2015 | 10:24:02 AM
Re: DO IT NOW! ;-) Would be interested in knowing how you get your internet connection, and the cost for that.  Most people don't have access to Google Fiber or some similar option so the only option with good speeds and data caps at ~ 300GB seems to be Cable, .
Owner54433 7/9/2015 | 8:28:37 PM
DO IT NOW! ;-) I cut the cord and never looked back...I couldn't be happier. I have save myself over $1,200 per year and can't understand why anyone wouldn't walk away from such a poor deal. I guess it's true - you can't teach an old dog a new trick. BTW: I am 47yrs old and very tech savy. If you haven't dropped your cable TV subscription and picked up a Netflix or Hulu account, DO IT NOW! ;-)
mhhf1ve 7/9/2015 | 4:07:43 PM
Not losing subscribers isn't the same as growth, either If pay-TV providers are simply making as much as they were 3 years ago... perhaps that's also saying that they aren't getting any new customers either... which is the effect of 20yos not ever getting a pay-TV subscription b/c they're sharing Netflix accounts and "cutting the cord" by never getting one.
mhhf1ve 7/9/2015 | 4:04:22 PM
Can't cut the Internet cord... Also, it's pretty hard to cut the Internet cord and go totally wireless or without internet now. So pay-TV might not go away -- as much as just be forever somehow bundled with an internet connection. 
mhhf1ve 7/9/2015 | 4:02:21 PM
Demographics? Are demographics included somewhere? It seems like the people who are doing the switching (or cord cutting) may not be the ones paying the bills -- ie younger folks who share netflix logins, etc, etc... So while the number of pay-TV subscribers might not be moving too much, the behavior of a younger generation might still be changing -- and the effects might not fully become known until those kids move out on their own and decide to really cut the cord (or never buy a cord to begin with).  
melao2 7/9/2015 | 3:11:51 PM
Re: Makes sense Content is king.

It depends on the "traditional tv channels" to keep the content interesting.

Speaking about myself, I am less and less inclined to watch TV from the usual channels, most of my content now can be found on streaming.

So I am considering cancelling my TV subcription. I haven't done yet because of inertia :)


Maybe it is a matter of time, or a matter of content, or both.

jeff.stuparits 7/9/2015 | 2:55:20 PM
Subs vs ARPU Although the cable companies have not lost many customers, I'd venture that the average monthly revenue (excl PPV) is trending down.  Comcast has by far the best Internet speeds in Atlanta (now up to 75mbps on Blast) which is what drives my buying decision.  For only slighly more, I can get basic channel TV service.  If someone was to come along with a Internet only package at a great price, I would likely move to all OTT television.  Until that happens, will likely stay with a cable provider, double play package.
Mitch Wagner 7/9/2015 | 12:28:53 PM
Makes sense The findings are counter-intuitive, but they make sense when you think about them. 

They're counter-intuitive because you'd think that a consumer spending money and time on Netflix would spend less time on traditional networks, and therefore spend less money on those networks. And indeed that has been the common wisdom. 

But in fact the consumer will continue paying for those traditional networks, because they are still watching programming on those networks, as well as Netflix. 

However, the consumer is watching less pay-per-view content in that scenario, and therefore reducing spending on those channels. 
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