Has Video Cord Cutting Finally Reached an Inflection Point?

This is probably a good example of what an inflection point (if accurate) looks like: more than half of “cord cutters cancelled their legacy pay-TV service in the two calendar years of 2015 and 2016,” according to The Diffusion Group (TDG).

In other words, the rate of change--assuming the data is correct--itself changed in 2016. In 2016, the linear video abandonment rate hit about two percent, much higher than had been the case over the last decade or so, where annual net losses have been in the “far less than one percent” range for most of the last five years. So a jump to as much as a two-percent abandonment rate in a single year would, if continued, represent an inflection point.

Inflection points are important, as they signify the “turning point” where an existing trend changes its rate, and goes exponential.

About a third of all respondents reporting they had abandoned linear video services had done so in a single year: 2016, an indication that the long-expected inflection point for linear video has been reached, and that change now will rapidly accelerate, if the TDG consumer response data is accurate.

The issue is that the self-reported behavior is at significant variance (an order of magnitude, 10 times) with other data.

Still, assume the high and low estimates of service abandonment are directionally correct, and that even the low estimate represents a dramatic rate of change difference that is sustained over the next few years and beyond.

If so,  then cord cutting not only has passed its peak of adoption, but now will decline much faster than has been the case over the last decade. Much depends on whether respondents are accurately reporting their behavior. There is some evidence they are not.

It is true that the rate of linear video subscriptions is increasing, but still at relatively low rates.

One has to be careful, though. It appears to have generally happened that sales of voice subscriptions by legacy telcos has fallen as precipitously as projected in the past.

What also has to be noted is that there has been offsetting product substitution (mobile for fixed) as well as supplier market share changes (share shift to alternate suppliers such as cable TV providers).

To be sure, few telcos actually report that voice line sales are as low as 18 percent of locations passed, though some have predicted losses would be that large. Instead, most legacy telcos say slightly fewer than half of homes passed actually buy a voice service.

The point is that, in the U.S. market, an inflection point for fixed network voice subscriptions was reached about 2000 or 2001, marking not simply the point where growth rates changed in terms of magnitude, but also in direction (positive to negative).

The same inflection point can be seen in global use of text messaging, where over the top alternatives hit an inflection point around 2003 to 2006, for example.

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