What Declining Product Demand Looks Like at Colleges, Hotels

Declining product demand already has hit hotel revenue streams, in the form of vastly-lower telecom revenue from guests. Now it appears we are seeing similar declining demand for entertainment video subscriptions, in an important demographic.

It’s hard to ignore the lack of demand that has lead Northwestern University to get out of the business of providing a cable TV entertainment service on campus.

That would follow a general move away from providing in-room telephone service on college and university campuses with student housing that has been underway since the mid-2000s.

Some might say college students prefer to watch TV on devices other than TV screens. Others would say Netflix is the preferred choice for video entertainment, since paying for Internet access tends not be an issue, and access tends to be fast.

The big issue is whether college students are acquiring new habits that will persist after they have graduated. In fact, there already is evidence that earlier generations of students have indeed been less enthusiastic adopters of the subscription TV service habit when they have gotten into the workforce.

In fact, newly formed households have been buying subscription TV at lower rates than older consumers. While 3.2 million new U.S. households were set up since about 2010, the subscription TV industry (cable, satellite, telco TV) only added 250,000 subscriptions in that same period, according to SNL Kagan.

That is an issue for younger people overall, who seem to be losing their appetite for  subscription TV. It has been a standard pattern for some time that older people subscriber at higher rates than younger people.

Some might attribute at least part of that to lower typical incomes for younger age cohorts, and that is a reasonable enough assumption. But evidence is growing that even households with no apparent inability to pay.

For starters, Millennials watch less traditional television than any other demographic, suggesting they find the product less engaging than older people might.

Some 13 percent of 18 to 34 year olds (8.6 million) who already have broadband service are committed to a broadband-only existence, with no plans to buy a subscription TV service.

In addition, many consumers who do buy service are at least considering dropping their entertainment video service (17.9 million 18-34s, as well as 32 million 18-49s).

Perhaps seven percent of potential churn candidates indicate they would consider keeping their TV subscriptions if offered programming streamed live and on demand, anywhere.

More significantly, 58 percent of broadband-only subscribers would consider subscribing to TV for a bundle of networks from their broadband provider, streamed live and on demand.

The study, sponsored by programming channel Pivot, was conducted by Miner & Co. Studio in association with Beagle Insight.

The point is that demand for subscription TV is on the wane, among younger consumers.

To be sure, colleges and universities already had discovered that selling telephone service no longer makes sense, given widespread, virtually ubiquitous use of mobile phones by college students.

That mirrors similar trends for hotel-supplied telecom services, which also fell dramatically after 2000, which is very close to the peak year for fixed line usage in the U.S. market, as well.

According to PKF Hospitality Research, telecommunications revenue at the average U.S. hotel declined from a peak of $1,274 per available room (PAR) in 2000 to $269 PAR in 2011, a 79 percent decline.  

During the 1990s, telecommunications revenues used to account for three percent of total hotel sales.  In 2011, that number declined to just 0.6 percent of sales.

In fact, some would argue that telecommunications service in guest rooms now “costs” most hotels money.  In 2011, for every dollar of telecommunications revenue earned, the average hotel spent $1.46. In other words, in-room telephone service now is an expense item, not a revenue generator.

Also, as U.S. communications service providers also have discovered, it now is Internet access that is driving revenues, not voice services. An uptick in telecommunications revenue at hotels surveyed by PKF Hospitality Research in 2011 and 2011 suggests Internet access now is lifting revenue.