What Drives "Cord Cutting" and "Cord Avoidance?" Will Lower Prices Make a Difference?

Some 14 percent of U.S. households do not buy a linear video subscription, according to a new study by The Diffusion Group, up from about nine percent in 2011.

That has many linear video service providers trying to create lower-cost packages, on the assumption that price is the issue (actually price for perceived value). But lower prices might not attract buyers who do not value the product.

At this point, most observers would expect that "declining subscriber" trend to continue, driven by customers who decide they can live without the product, and those who so far never have bought the product.

About 6.5 percent of U.S. households have cut the cord, meaning they used to buy a linear video service but no longer do so. On the other hand, those statistics do not include respondents who never have purchased a linear video service.

The differences between the two groups--those who used to buy, and those who never have bought--are so pronounced that any company targeting these consumers must think in terms of two distinct packaging and pricing strategies, according to Michael Greeson, TDG president.

It often is tempting simply to say such cord cutting or cord avoiding behavior is driven by younger consumers. That is not an unreasonable observation.

Millennials are significantly more likely than their older counterparts to not subscribe to cable or other pay TV services. In fact, 18-34 year olds are 77 percent more likely than average to be a cord never” household and 67 percent more likely to be a “cord cutter” household.

But the issue is a bit more complicated. In fact, it is not clear whether the causation or correlation is household size or parental status, even more than age.

Some 60 percent of single-person households and 52 percent of households without children are “cord never” households. So single-person homes, and homes without children, are highly correlated with refusal to buy linear video service.

And that arguably is the bigger problem for linear video providers. Though some customers desert, others simply have never had any reason to buy the product. The difference is substantial.

The former group might be behaving in a way that suggests “I like the product, but it costs too much,” while the latter group is behaving in a way that suggests “I don’t find your product compelling enough to consider buying.”

More-affordable linear packages might turn the former into buyers again. That is not likely to work for the latter group.

What is so far largely untested is whether an over the top linear programming service would be substantially more favorably received by cord never households. It isn’t hard to imagine why the question exists.

About 40 percent of U.S. households subscribe to a paid digital video subscription service,
with Netflix being the leader (32 percent), followed by Amazon Prime Instant Video (19 percent) and Hulu Plus (9 percent).

Across all of these services, Millennials have significantly higher subscription penetration, with nearly half belonging to Netflix. That suggests a possibility that shifting former linear delivery services aimed at TVs to over the top services aimed at PCs, tablets and smartphones could represent a different, and more-attractive proposition for cord nevers.

Among Netflix subscribers, the preferred method of watching (44 percent) is through internet-connected TV devices such as Apple TV and Google Chromecast.

Computers (27 percent) and gaming consoles or Blu-Ray players (21 percent) also have strong levels of preference among the Netflix subscriber base.

On the other hand, the issue of household size and presence of children in the home could still be a key issue.

Netflix subscription has a strong relationship with household size, with the presence of children in the household likely a key factor. Among one person or two person households, Netflix penetration is less than 25 percent, but penetration jumps significantly to well over 40 percent among households of three and greater.

The point is that it remains unclear whether over the top streaming services or cheaper linear video services will appeal to each of the two groups (former buyers and those who never have bought).

The former might respond to a better value-price proposition. The problem with the latter group is that some might not value the product enough to pay. It isn’t the price; it is the product itself which is unwanted.
Post a Comment

Popular posts from this blog

Voice Usage and Texting Trends Headed in Opposite Directions

Spectrum Fees, High Incremental Capex, Lower Value in Ecosystem Mean Historic Changes Might be Necessary

For Ting, Operating Costs are Key to Business Model