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Will 2017 Be Cord-Cutting's Big Year?

Will 2017 be the year that US pay-TV customers finally cut the subscription cord in huge bunches?

Could be. Indeed, after several years of slow but steady US pay-TV subscriber losses due to OTT's video's consistently rising popularity, the new year may prove to be the tipping point that's long been anticipated by industry observers but hasn't quite happened yet. And, if so, it could in turn prompt many pay-TV providers to finally throw caution to the wind and plunge deeply into the OTT video market themselves.

There are two main reasons why cord-cutting could really take off next year. First off, the demand among pay-TV subscribers for a cheaper, better alternative to their current "fat bundles" is stronger than ever. In the latest consumer survey by Limelight Networks Inc. (Nasdaq: LLNW) published two weeks ago, for instance, more than two fifths (41.5%) of respondents cited price increases as the primary reason why they would abandon their current pay-TV provider. Plus, nearly one quarter (24%) of respondents said they would cut the cord when they could directly subscribe to the channels they want online.

In fact, only about one eighth (12.4%) of survey respondents said they would never ever cut the cord no matter what. Not exactly a sterling endorsement of today's pay-TV environment.

Second, while the demand for pay-TV alternatives remains high, the supply of plausible alternatives is about to increase markedly. With the launch late last month of DirecTV Now by AT&T Inc. (NYSE: T) and fresh bundled OTT video offerings from the likes of Hulu LLC , YouTube Inc. and Facebook in the works for next year, cable operators and other conventional pay-TV providers will find themselves competing against a slew of new market-savvy rivals. And that lineup doesn't include any possible moves by such other aggressive video players as Apple Inc. (Nasdaq: AAPL) and Amazon.com Inc. (Nasdaq: AMZN). (See OTT Went Big in 2016, Aims Higher in 2017.)

"The idea that cord-cutting is at least as much about supply as it is about demand is finally getting its due," Craig Moffett, a principal and senior analyst at MoffettNathanson LLC , noted in a recent report to investors. "There is no question that there are an awful lot of Americans who would gladly switch to OTT if they could pay less for their video entertainment than they do today. But the real question, as ever, is when will we see service offerings that oblige?"

That lack of supply helps explain why cord-cutting hasn't exploded yet. While such initial 'skinny-bundle' OTT services as Dish Network LLC (Nasdaq: DISH)'s nearly two-year-old Sling TV service and single-channel offerings like HBO Now and CBS All Access have made some promising inroads, they still haven't led to massive cord-cutting because they are simply not that competitive with traditional pay-TV packages yet.

To cite one prime example, all these new services lack the heavy sports and live events components that pay-TV still boasts, making them a tough sell to some key demographic groups. In the Linelight Networks survey, for example, about 20% of male millennials said they would not cut the cord until more sporting events and other live content become available online.

If cord-cutting does finally spike next year, it will represent an abrupt change from this year's fairly piddling trend line. In the third quarter, the nation's pay-TV providers collectively shed 486,000 subscribers in what's typically a seasonally weak period, according to figures compiled by MoffettNathanson. That's a bit higher than the year-earlier loss of 432,000 subscribers but translates to a pretty similar 1.4% annual rate of decline.

Notably, US cable operators are now more than holding their own against their pay-TV rivals, even as they continue to bleed video subscribers overall. Despite shedding another 124,000 video customers in the summer quarter, cable companies actually gained pay-TV market share because the telcos lost a whopping 365,000 video customers as AT&T converted many of its U-Verse video subscribers to DirecTV customers, according to MoffettNathanson's tally.

"The share shifts here are breathtaking," Moffett noted. "YoY growth in telco TV subscriptions has gone from positive 2.6% to negative 11.7% in a single year... By contrast, cable losses have gone from -1.7% a year ago to just -0.4% in Q3."

But all bets may be off in 2017. So watch for the return of the cord-cutting craze.

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

danielcawrey 1/1/2017 | 12:57:32 PM
Re: Pay TV subscriber revenue is the key parameter, not subscribers - most have missed the ARPS (average revenue per subscriber) factor since satellite service entered the competition, now you have streaming. We're living in a world where the consumer gets what he or she wants. Cell phone contracts are going. McDonald's now serves breakfast whenever we want it. And soon we shall see content providers giving people access to exactly what they want when it comes to video.

It's simply inevitable. 
SeniorCo30149 12/29/2016 | 10:03:56 AM
Re: Pay TV subscriber revenue is the key parameter, not subscribers - most have missed the ARPS (average revenue per subscriber) factor since satellite service entered the competition, now you have streaming. SeniorCo30149,
User Rank: Light Beer

not correct

 

 
SeniorCo30149 12/29/2016 | 9:54:09 AM
Re: Pay TV subscriber revenue is the key parameter, not subscribers - most have missed the ARPS (average revenue per subscriber) factor since satellite service entered the competition, now you have streaming. Correction!  post above was made by me - not sure where following came from?

SeniorCo30149,
User Rank: Light Beer
SeniorCo30149 12/28/2016 | 4:56:11 PM
Pay TV subscriber revenue is the key parameter, not subscribers - most have missed the ARPS (average revenue per subscriber) factor since satellite service entered the competition, now you have streaming. Key point that has been missed over the years is that you can maintain Pay TV subscribers, but lose substantial current and future revenue - how many subscribers are opting for low cost OTT options over high priced premium services. Same can be said for the subscriber with lowest cost cable TV (Economy / Start up) service to only get local channels and ESPN and adding channels via OTT, eliminating costly package step-ups
Michelle 12/28/2016 | 4:35:12 PM
Content licensing I think content providers will need to restructure content licensing agreements for cord-cutting options to become more popular. Cable operators can cut packages only by so much.
JosephBrown1962 12/28/2016 | 5:08:23 AM
Great I guess it will be big year for them. And I hope so. I really like their policy!
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