New Study Says 40% Of American Households Will "Cut The Cord" By 2030

Cord cutting is a topic which we discuss on a fairly regular basis, particularly over the last several quarters as the subscriber losses for cable companies have seemingly accelerated (see: Cord-Cutting Accelerates, Sends Shock Wave Across Traditional TV).  Not surprisingly, one of the biggest losers of the cord cutting phenomenon has been ESPN, a media giant that ironically was one of the largest, if not the largest, beneficiaries of the cable TV bundle since it made its debut in 1979 (see: ESPN Lost 15,000 Subscribers A Day In October).

Of course, as TDG Research notes this morning, the wave of Americans electing to forego the massively overpriced cable TV bundle is only getting started and will see some 40% of American households ditch their service by 2030.

Generally, TDG expects that the penetration of live multi-channel pay-TV services will decline from 85% of US households in 2017 to 79% in 2030. While statistically a loss of only 7%, it nonetheless illustrates the ongoing secular decline of a once healthy market space. TDG predicts that, by 2030, roughly 30 million US households will live without an MVPD service of any kind, be it virtual or legacy.

 

During this time, legacy MVPDs will experience considerable subscriber losses, due not only to long-term industry trends but also growing competition from virtual pay-TV providers. Consequently, legacy pay-TV penetration will fall from 81% of US households in 2017 to 60% in 2030, down 26%. At the same time, virtual pay-TV penetration will grow from roughly 4% of US households to 14%, up 350% but from a very small base.

 

"TDG said early on that the future of TV was an app. Unfortunately, most incumbent MVPDs weren"t taking notes," notes Joel Espelien, TDG Senior Analyst. "The question is no longer if the future of TV is an app, but how quickly and economically incumbents can adapt to this truth and transition to an all-broadband app-based live multi-channel system."

As the Pew Research Center noted over the summer, while part of the cord cutting story is attributable to the growing availability of quality streaming content, another component is a simple demographic transition with only 30% of millennials aged 18-29 saying they subscribe to cable versus 61% with a streaming subscription.

About six-in-ten of those ages 18 to 29 (61%) say the primary way they watch television now is with streaming services on the internet, compared with 31% who say they mostly watch via a cable or satellite subscription and 5% who mainly watch with a digital antenna, according to a Pew Research Center survey conducted in August. Other age groups are less likely to use internet streaming services and are much more likely to cite cable TV as the primary way they watch television.

 

• Women are more likely than men to say their primary way of watching TV is via cable subscription (63% vs. 55%).

 

• Men are more likely than women to say their primary pathway is online streaming (31% vs. 25%).

 

• Those with a college education or more are more likely than those with less education to say their primary way to watch TV is online streaming. Roughly a third of college-educated Americans (35%) say they mainly watch via streaming, compared with 22% of those who have a high school diploma or less.

 

• Those in households earning less than $30,000 are more likely than others to say they rely on a digital antenna for TV viewing. Some 14% say this, compared with just 5% who live in households earning $75,000 or more.

Of course, many people wrongfully interpret the death of the cable TV bundle as a precursor the imminent demise of cable companies overall...but, as we pointed out in a post entitled "Streaming Killed The Cable Bundle: Record 941,000 Pay-TV Customers Ditch Cable In Q2," nothing could be further from the truth as the real losers will be the weaker content providers who won"t have enough of a draw to sell their content direct to consumers when the channel bundle goes away.  Meanwhile, the cable companies will make out just fine as they will still control the fastest internet connections into the home which will become even more valuable to data-hungry consumers.

We"ve long held the opinion that the content creation and media distribution businesses are on the precipice of a major transformation.  Since the birth of cable TV, content creators (think Disney, Discovery, Scripps, AMC, etc.) have been locked in a perpetual tug-of-war with distribution companies (Comcast, Charter, Verizon, AT&T, etc.).  Up until now, content creators have been the clear winners as they"ve continued to force cable companies to carry their growing lineup of channels, many of which are awful, by effectively holding their good content hostage until distributors agree to pay for channels that they (and their customers) likely don"t want.  As an example, a company like Scripps may refuse to sign a distribution agreement with Charter for HGTV or the Food Network, unless they also agree to pay for their less popular channels like TVN, Fine Living or the Asian Food Channel.

 

All of which is precisely why cable customers have ended up paying for 1,000 channels when they really only watch about 5 of them.

 

But, that is all changing with the onset of direct-to-customer streaming.  HBO was the first to blink, then came ShowTime and now Disney has just announced that ESPN will also go direct.  What this means, of course, is that increasingly people will be able to make a la carte purchases of the media they actually value and ditch all the "crap" that clever content creators have forced down our throats for years by holding their desired content hostage.

In summary, just like "Video killed the Radio Star," streaming has just killed the cable bundle.

Are We Witnessing the Death Spiral of Cable Television?

Via The Daily Bell

Cable television has long been the coveted propaganda arm used to program American sentiments. But because of the internet, viewer choice for news, sports, and entertainment has proliferated. Content is becoming decentralized, and that makes it harder to control the attitudes of the masses.

Since 2013, pay tv subscriptions have been declining, losing more customers than they gain. Over one million people per year are fleeing from paying for cable TV from companies like Verizon, Time Warner, and Comcast.

For three straight years, the viewership of the Emmy’s has declined. Yet while cable networks broadcast the award show, original Hulu and HBO shows were winning the awards.

You don’t need a cable subscription to watch shows on Netflix, HBO Now, or Hulu. While Netflix and Hulu run some cable shows, they also produce their own content. This doesn’t automatically mean the content won’t be akin to the typical propaganda on cable. But it does mean that control over programming is more decentralized. This includes the FCC’s slipping grip, as they have thus far failed to seriously regulate online programming.

Now consumers have a choice. Youtube offers even more choices which allow independent and much smaller content producers to disseminate their shows. Owned by Google, there is plenty to criticize when it comes to Youtube. They arbitrarily remove certain content that they don’t like. But this will just bolster alternatives like Vimeo and DailyMotion.

Amazon also offers subscription programming that goes along with their Prime program. Like Netflix, they are investing in making their own TV shows and movies to better compete with all the alternatives. An Amazon Prime 30-Day Free Trial lets you see what they got before committing.

And whatever issues you may have with companies like Youtube and Amazon, there are now plenty other options available, with more coming.

An exciting new startup called BadMirror.tv will soon go live. The company aims to tackle programming from a community perspective. They offer “hyperlocal broadcasting” that is boosted based on popularity but always starts locally. BadMirror.tvseeks to reconnect people to their community so that a handful of big executives–and whoever is influencing them–can’t centralize control over content, and decide what will be popular.

Pride comes before the fall.

A user base can vanish quickly when customers no longer get what they want from a business, and have plenty of alternatives.

And we should expect viewers to go elsewhere as their favorite content starts leaving a bad taste in their mouth. For years, football has enjoyed tremendous ratings, insulated from the decline of other cable programming. But viewers have recently been turned off by excessive political correctness from the NFL, as well as protest displays from pro-football players which many view as unpatriotic and disrespectful to law enforcement.

Overall viewership for the 2016 NFL season was down 8% per game, an average of 1.4 million fewer viewers per game compared to 2015. So far in the 2017 season just beginning, there has been a 14% decline in viewership.

The kicker is that football has been counted on by Cable networks to save television. Sports games are still better watched live since hearing the score for a recorded game is a major spoiler. When you watch live, it is harder to get around the commercials. But people aren’t watching football as much, not even on alternative providers. The NFL has overplayed its hand in delving into politics.

The good news is, as an individual, you don’t have to be affected by Cable TV one way or the other. You have the power to simply choose alternatives that don’t play into the machine of manipulation, fear, and drivel.

Of course, another great alternative is to read books for entertainment. Go full Farenheight 451, reject the screens which take up whole walls of the living room, and become a literary outlaw.

Netflix Now Has More Subscribers Than Cable

Despite going all-in on Adam Sandler content – a bizarre choice - Netflix has managed to continue growing its subscriber base, recently reaching a new milestone: It now has more paying customers than Comcast Corp., Charter Communications and all other US cable companies combined.

As Forbes reports, Netflix now has 50.85 million subscribers, surpassing cable"s 48.61 million. There is one caveat, though: Cable’s total doesn’t include minor cable networks, which could amount to 5% of total customers.

Over the past five years, Netflix has managed to more than double its subscriber base from 23.4 million in the first quarter of 2012. But growth has slowed recently due to intensifying competition from a host of rival streaming services, causing Netflix to miss both its domestic and foreign subscriber targets for the first quarter.

Here’s a summary of Netflix"s Q1 results:

1Q revenue $2.64b vs est. $2.65b

1Q GAAP EPS 40c vs 37c

1Q domestic streaming net adds 1.42 million, vs consensus est. 1.59MM vs company forecast 1.5MM

1Q international streaming net adds 3.53MM consensus est. 3.90m vs company forecast 3.7MM

2Q GAAP EPS forecast 15c vs est. 23c

2Q revenue forecast 2.755BN  vs est. $2.76BN

Luckily for American cable companies, the battle for subscribers isn’t a zero-sum game. Here"s Forbes:

While cable subs are down by 4 million in the same five years that Netflix has seen huge growth, that"s not a massive drop off. It"s also worth bearing in mind that cable TV makes up only 50% of total TV viewership in pay TV. That said, Q1 2017 shows a net loss in subscriptions while Q1 2016 saw cable grow a little.

Satellite TV is doing okay, with around 38 million subscribers. Dish Network added 318,000 customers in Q1 with Direct TV stalling with gains that didn"t outpace customer loses. Satellite is still growing faster than cable though.

Faster still though are the internet-delivered services like Sling TV and Direct TV now which have added 350,000 in Q1. These services now have 1.7 million customers between them, and it"s likely that this segment will continue to see growth as customers move away from cable TV.

Cable, satellite and internet streaming services in the US have a combined 93.3 million subscribers. Even as Netflix expands into more foreign markets, it likely won’t match that total any time.

To be sure, the Netflix to cable comparison isn’t really fair to the cable companies: While the exact cost depends on the specific package, monthly fees associated with cable are typically many times more expensive than Netflix"s $10 fee.

Which brings us to our next, and final topic: Slowing subscriber growth isn’t the only metric that makes Netflix"s critics uncomfortable. The company’s unprecedented cash burn is another major red flag. In Q1, the company burned $422 million, which while less than the record $640 million burned in Q4 (over $1 billion in the last 6 months) was $160 million than its cash burn from a year ago. The company still expects to burn a total of $2 billion for the full year.

Here’s how the company explains it:

Free cash flow in Q1’17 was -$423 million vs. -$261 million in the year ago quarter and an improvement from -$639 million in Q4’16. The growth in our original content means we continue to plan to have around $2B in negative FCF this year.

We have a large market opportunity ahead of us and we’re optimizing long-term FCF by growing our original content aggressively. Negative near-term FCF is the result of the big increases in our original content, combined with small but growing operating margins. Since we want our operating margins to grow slowly so we can spend enough to quickly grow revenue and original content, we anticipate negative FCF to accompany our rapid growth for many years.

Our operating margins are our key indicator of improving global profitability; they are already growing and we plan to keep them growing for many years ahead. Eventually, at a much larger revenue base, original content and revenue growth will be slower, and we anticipate substantial positive FCF, like our media peers.

It remains to be seen if the transition from massive cash burn to cash flow positive is as simple as the company expects it to be.

Visualizing The Netflix Generation

Since launching in the United States in 1948, cable television quickly emerged as the media consumption method of choice for families around the world.

Cable brought to us some of the most memorable and noteworthy events in history. People saw the fall of the Berlin Wall from their living rooms in 1989 – and many even remember being inspired by Neil Armstrong taking his first steps on the moon twenty years earlier.

And although television is still a vital medium today, Visual Capitalist"s Jeff Desjardins warns that it is also stuck in an inevitable quagmire. Digital already generates more ad revenue than television, while more people switch to streaming platforms every day.

Make no mistake – even though there is still plenty of money to be made in television, cable is experiencing a slow death, just like other traditional media channels. It might not yet be reduced to the more niche territory of radio or print, but cable is treading the same path.

THE DIGITAL NATIVES

Why this is the case is very simple math.

Even just six years ago in 2011, the average 18-24 year old millennial consumed about 25 hours of traditional television per week – today, they consume closer to 14 hours.

That said, it’s no surprise that the first generation of digital natives skews heavily towards digital content, but what will be even more interesting is the behavior of the next generation on deck: Gen Z (born in 2000 and onwards). This cohort was born into a world of screens and iPhones, and will not be aware of a prior era. To them, flipping through channels on cable television seems even more antiquated and arbitrary than it does to older generations.

Gen Z watches between two and four hours of YouTube and less than an hour of traditional television per day. They’re also twice more likely to use YouTube than Millennials, and a lot less likely to use Facebook.

– Shireen Jiwan, chief brand experience officer at Lucky Brand

Less than an hour per day is not very conducive to the cable business, especially when there are hundreds of channels in existence today. And while insights on Gen Z are still fluid and evolving, it’s highly doubtful that the generation will do a 360 on video anytime soon.

In the meantime, cable’s survival as a dominant medium rests squarely on the shoulders of older generations. While it works as a business for now, cable can’t fight the demographics forever.

AT&T Buying Time Warner: If Approved, Assures Greater Scoundrel Media Consolidation Than Already

 

Six corporate giants control most media and related content Americans consume. Comcast, News Corp., Disney, Viacom, CBS and Time Warner dominate US broadcast and cable television news, entertainment and sports, movie and TV production, theme parks, record labels, publishing, and for-profit online operations.

On Saturday, the Wall Street Journal reported telecommunications giant AT&T and Time Warner agreeing to merge. Approval, if granted, would likely assure greater consolidation in both industries – benefitting corporate predators at the expense of the vast majority of consumers, giving them less choice than already, ensuring higher prices for poorer service.

Hillary is a Wall Street, war profiteers, corporate predators tool, virtually certain to support this outrageous deal – likely to get FCC and Justice Department approval on her watch. Campaigning in Pennsylvania, Trump called the proposed deal another example of too few sources disseminating information to Americans, warning of “too much concentration of power,” manipulating people, telling them how to think.

As president, if elected, he vowed to oppose it. He’s against jobs-killing TPP, NAFTA and similar deals.

“Our jobs are fleeing the country,” he said. “They’re going to Mexico. They’re going to many other countries.”

Hillary calls TPP the “gold standard in trade agreements,” sure to approve what Trump opposes.

He calls friendly relations with Russia a good thing, praising Putin as “a leader…far more than our president has been,” saying “(i)f we have a (normal) relationship with Russia, wouldn’t it be wonderful if we could work together on it and knock the hell out of ISIS.”

Hillary’s rage for endless wars to eliminate all sovereign independent governments risks nuclear confrontation with Russia, China and Iran on her watch.

Trump is no peacenik, no paragon of virtue, yet he’s on the right side of vital issues discussed above.

Hillary should terrify everyone – on the wrong side of virtually everything mattering most, the most ruthlessly dangerous choice for president in US history.