Customers who despise their cable companies have long dreamed of a day when their fellow consumers would switch their allegiances to streaming services, putting pressure on the industry to lower prices, improve customer service and let buyers assemble their own bundles of channels. A new report from the business analysis firm SNL Kagan suggests that they might be getting the first half of their wish: providers of pay television services ended 2013 with 251,000 fewer subscribers on the rolls.
But is a revolution imminent? A closer look at consumer behavior suggests that even as subscribers flock to newer services such as Netflix, they still seek out products that let them buy content in ways that are similar to cable subscriptions. And taken together, they remain willing to pay similar prices for content.
I asked Ian Olgeirson, the senior analyst at SNL Kagan, if a larger problem might be looming for the cable industry. It’s one thing to lose subscribers who at one time wanted your product and who might be cancelling because of temporary financial hardships or changes in their families. But what happens if an even more significant cultural shift is under way? As a generation of cable subscribers moves into assisted living facilities or passes away, will a new demographic of young consumers raised on Netflix and accustomed to binge-watching series long after they air come on board to replace them? His answer: It’s too soon to tell.
“What we lack is detailed information on the demographics from the subscribers as they churn off,” Olgeirson explains. “You probably lack the magnitude to support that sort of hypothesis. . . . It’s relatively small to sort of support the idea that there’s no fresh supply of subscribers for the multi-channels.”
But cable companies are certainly aware that so-called “cord-nevers” — as opposed to the cord-cutters who had, then ditched, cable service — are a threat to their business model, and Olgeirson says the cable business is trying to avoid a demographic cliff. The recession-era experimentation with more tiers of basic cable service ultimately did not lower prices enough to change the perception of cable as expensive, especially in comparison to Netflix or Amazon Prime. But Olgeirson explains that the companies are pushing packages meant to appeal to a consumer base that shows little interest in the basic cable channels that are supposed to make the cable bundle attractive.
“We see promotional plans where they do high-speed data along with broadcast only and premium channels,” he says. These packages aren’t exactly new, but Olgeirson suggests they’re marketed differently now. “They had to offer access to HBO and other premium channels on any of their tiers. They marketed it in a way that really made it look like they were going after someone who might really want to watch ‘Game of Thrones,’ but they spend a lot of time watching content online.”
Even if cord-cutters and cord-nevers are skeptical of cable, that does not necessarily mean that they have soured on buying entertainment in bundles rather than by the show or episode — or that their costs will ultimately be lower if they buy streaming services rather than cable.
“You might have people who are going into Amazon Prime for $100 per year for a specific show or a block of shows,” Olgeirson says, pointing out that the approach is similar for streaming services customers add on top of their internet connections and for premium networks that get tacked on top of a cable subscription. “People float in and out of HBO and Showtime. . . . I think that there is a certain tolerance for buying content in a semi-individualized way, but we haven’t seen a tremendous amount of momentum behind people paying $2 or $5 per episode.”
While individual streaming services may be less expensive than the cost of a cable subscription, taken together they add up. And they face the same cost pressures for the content that cable companies do. “There’s very little way for most of these guys to avoid eventually having to raise rates,” Olgeirson says. The new way to get all your favorite shows may involve a lot of smaller bills instead of one big one. But in all other ways, the new multi-channel video model looks a whole lot like the old one.