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US Pay-TV Penetration Falls From Peak

Alan Breznick
9/3/2014
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In another ominous sign for the US pay-TV industry, a new study revealed that that the industry's penetration rate is slipping even as the number of potential customers keeps going up.

The study, conducted by Leichtman Research Group Inc. (LRG) , found that 84% of US households now subscribe to some type of multi-channel video service from cable, telco or satellite TV operators. While that number is still very high, it represents a notable drop from the peak 87% penetration rate seen in both 2010 and 2012, following the broadcast TV transition to digital transmission. As such, it reinforces other data indicating that the giant US pay-TV market is now shrinking for the first time in the industry's 65-year history. (See US Pay-TV Subs Renew Plunge and Cord-Cutting Slows But Danger Still Real – Moffett .)

In its 12th annual telephone survey on this topic, LRG found that the actual number of pay-TV households "has been fairly flat over the past four years," leveling off at around 100 million homes. But, with steady population growth and an increase in the number of US households, the penetration rate has dropped.

In a separate report last week, The Nielsen Co. estimated that there are now 116.4 million TV households in the US, up 0.5% from a year earlier. Nielsen also estimated that about 96% of these homes actually receive some type of TV service, including free over-the-air broadcast television.

Bruce Leichtman, president and principal analyst for LRG, blamed the unprecedented decline in the pay-TV penetration rate on the changing makeup of new US households. He noted that most, if not all, of the household growth has been "among renters, who tend to be more challenging for the pay-TV industry than home owners because of their comparatively lower income, younger age and greater likelihood to move."


Get the latest updates on pay-TV market trends by visiting Light Reading's video services content channel.


Buttressing this point, the latest study found that 22% of households with annual incomes below $50,000 don't subscribe to a pay-TV service, while just 13% of those with incomes over $50,000 don't subscribe. Moreover, 22% of those who moved in the past year don't subscribe, up from previous years.

At the same time, the cost of pay-TV service continues to climb. The study found that the mean household spend on multi-channel video is now $89.78 per month, up 36% over the last five years in a period of low general inflation.

In one of those glass half-empty or half-full findings, only 11% of non-subscribers cited Netflix Inc. (Nasdaq: NFLX) or the Internet as their main reason for not taking a pay-TV service. However, that percentage has nearly quadrupled from a mere 3% in 2009.

Finally, in another sign to watch for the industry, about 12% of both cable TV and telco TV customers said they are likely to switch providers in the next six months. Slightly fewer satellite TV customers, or 11%, said they are likely to switch as well.

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

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mendyk
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mendyk,
User Rank: Light Sabre
9/4/2014 | 5:28:30 PM
Re: Reasons?
I like to blame Malcolm Gladwell for a lot of the dubious quantitative analysis we now see. Lots of people are trying to show how smart they are by seemingly doing a deep dive on the numbers. Gladwell is very good at what he does, but he has inspired a slew of imitators who aren't nearly as bright. Common-sense filters are still important.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
9/4/2014 | 5:23:42 PM
Re: Reasons?
Good point, regarding saturated markets. 

Related point that occurs to me because I am an Apple fanboy: For a few years, Apple had the only smartphone worth having for most people. Then Android started getting pretty good. Oh, noes! Apple is losing market share. 

Well, of course it is. If a market has only one credible product, then that product will lose market share when another credible product comes along. 

Cuts both ways though: On a recent presentation, Tim Cook bragged about people switching from Android. Well, of course if they're going to switch they'll switch from Android. There's no other significant platform to switch from. 
MikeP688
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MikeP688,
User Rank: Light Sabre
9/4/2014 | 12:32:49 PM
Re: Switch providers
Part of what will be their saving grace, as I see it, is convienence.  The idea that somehow you have to analyze a multitude of providers may continue to somewhat sustain these folks.  It is still ever so fascinating,though..isn't it?

 
KBode
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KBode,
User Rank: Light Sabre
9/4/2014 | 9:07:59 AM
Re: Switch providers
Get them locked into more than one service, and the effort to compare shop and move all of their services becomes too much of a hassle for them. Though it's also true they may not actually have a decent alternative in their neighborhood -- or more likely -- they may believe that there isn't that much of a difference between carriers based on their personal experience, so they may as well sit still.
KBode
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KBode,
User Rank: Light Sabre
9/4/2014 | 9:06:29 AM
Re: Reasons?
I cancelled cable some time ago, and recently stayed at a friend with DirecTV. I was absolutely blown away by how many of the "channels" he is paying for is either infomercial, or really low-grade reality TV dreck.
alanbreznick
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alanbreznick,
User Rank: Light Sabre
9/3/2014 | 8:16:50 PM
Re: Reasons?
These are all prime reasons. I think the expense is by far and away the biggest reason. And the fact that there are increasingly good, cheaper alternatives helps a great deal too. I'm not surprised that pay-TV penetration is heading down; I'm surprised it didn't start earlier and hasn't gone further yet.   
alanbreznick
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alanbreznick,
User Rank: Light Sabre
9/3/2014 | 8:14:11 PM
Re: Switch providers
Good question. Don't think we know the answer to that. But a safe bet is that at least 30-40% of those who say they're likely to switch service providers actually do so. The rest? They just keep complaining.   
Atlantis-dude
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Atlantis-dude,
User Rank: Light Sabre
9/3/2014 | 6:50:15 PM
Switch providers
How frequently do customers do that and how many of those choose an OTT provider?
MikeP688
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MikeP688,
User Rank: Light Sabre
9/3/2014 | 3:00:31 PM
Re: Reasons?
I took a day to actually go thru about the 600+ channels that AT&T has.   Frankly, it was not much--there is so much that can be done with re-runs of NCIS, Mork & Mindy et. al.   People are waking up--and it is gratifying to witness to such transformation as we continue to deliberate it here and beyond.   I would humbly suggest that it is a matter of time although the "consolidation" apparently will continue: http://tinyurl.com/ozelkqf  
mendyk
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mendyk,
User Rank: Light Sabre
9/3/2014 | 2:19:41 PM
Re: Reasons?
From the Semi-Educated Guess Department: Reason #1: Can't afford it. Reason #2: Don't have a TV. Reason #3: Broadcast TV is all I need. This information comes to you with no big data or analytics involvement, so caveat as always is emptor. It continues to amaze that there is surprise when a saturated market acts precisely as a saturated market should act (i.e., no growth, ebb and flow of minimal movement in share percentage).
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