US TV Subscriptions Decline

IHS Screen Digest estimates there was a decline of approximately 364,000 pay TV households in the US over the second quarter of 2011. The significant decline was largely due to escalating losses for cable operators and anaemic subscriber growth on the part of satellite operators. IPTV operators posted strong subscriber growth of 386,000, but this was not enough to offset the declines in other platforms.

IHS Screen Digest forecasts quarterly declines will continue in the next few years. Unlike some other knowledgeable observers, IHS Screen Digest does think video cord cutting, in the form of a switch to Internet delivery, is happening.

"We need to take a hard look at the facts of the situation: the economic situation for a vast population of Americans has worsened in the past four years, and customers are discontinuing video service in favor of lower priced Internet video solutions," IHS Screen Digest says.

Ultimately IHS Screen Digest believes that content owners are in the most precarious position as they attempt to continue the nearly 10 per cent annual growth in cable affiliate fees enjoyed between the years of 2000 to 2010. As video ARPU passes $86 in 2015, can we expect consumers to bear the increases?

US pay TV subscriptions decline

What Has Changed in Media, Entertainment Since 1975?

Since 1975, there have really been only three immediately significant changes in U.S. end user "time spent with media," clearly evident in this chart from Veronis Suhler Stevenson.

Though it now seems "everybody" plays video games, consumers actually spend far less time playing video games than they did in 1975.

The big gainer, in terms of time, is cable, satellite and telco TV, which shows a steadily growing time commitment.

Radio listening has been significant since 1975, but now is in a decline. Aside from those three media, most of the others have trended within a relatively finite range since 1975.

All of that might suggest one clear implication: any media that makes dramatic gains in the coming years will probably do so by taking time away from multichannel television services, radio and video games. That doesn't mean the alternatives have to mimic the value of the displaced services, simply that the rising services will have to become more compelling, compared to radio, multichannel TV services and video games.

Cisco's View of the Video Future

Online Video Will Probably Follow the Early Steamship Model

Over-the-top video clearly resonates with consumers. The big challenge is figuring out a revenue model for the content owners and providers that supplies the content people want, at prices they are willing to pay.

Some might predict that the interim business model will essentially be the same as was adopted by sailing ships as the "age of steam" arrived. At first, sailing ships were outfitted with boilers, and used both methods of propulsion. Only later did virtually all ships convert to steam-only propulsion.

That's probably going to happen with entertainment video as well.

Verizon's "Flex View for FiOS" is one example, as is "TV Everywhere." FiOS subscribers can rent or purchase on-demand content and watch it on up to five devices.

Netflix takes a somewhat similar approach, allowing consumers to rent either DVDs or stream content, all as part of a single subscription.

One suspects that is going to be a dominant pattern, for the time being. Content owners and networks will not want to move too quickly to essentially cannibalize one existing revenue stream while trying to grow the new one.

Yankee Group :: Research Report

Global Broadband and Video Revenue to Grow Robustly

Spending on wired and mobile Internet access will rise from $228 billion in 2009 to $351 billion in 2014, PriceWaterhouseCoopers now predicts, representing growth of about 54 percent. Video subscriptions will grow as well.

The global television subscription and license fee market will increase from $185.9 billion in 2009 to $258.1 billion in 2014, a compount annual growth rate of 6.8 per cent. This will outpace TV advertising, which will grow at a CAGR of 5.7 per cent.

The biggest component of this market is subscription spending and this will increase at 7.5 per cent CAGR to $210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10 per cent compund annual increase rising to $47.1 billion in 2014 from $29.2 billion in 2009.

Total global spending on consumer magazines fell by 10.6 percent in 2009, PwC says. The firm projects an additional 2.7 per cent decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7 percent compounded annually from $71.5 billion in 2009.

Electronic educational books will grow at a CAGR of 36.5 per cent globally throughout the forecast period yet will still only account for less than six per cent of global spend on educational books in 2014.

As a whole, the media and entertainment market will grow by five percent compounded annually for the entire forecast period to 2014 reaching $1.7 trillion, up from $1.3 trillion in 2009. The fastest-growing region throughout the forecast period is Latin America growing at 8.8 per cent compound annual rate during the next five years to $77 billion in 2014.

Asia Pacific is next at 6.4 per cent CAR through to 2014 to US$475 billion. Europe, Middle East and Africa (EMEA) follows at 4.6 per cent to US$581 billion in 2014. The largest, but slowest growing market is North America growing at 3.9 per cent CAR taking it from $460 billion in 2009 to $558 billion in 2014.

Canadian Video Providers Test Partial "A La Carte" Buying of Video Channels

In an important test of market demand, Canadian cable and telco multi-channel video providers are beginning to test market demand for more-flexible ways of selling cable channels. It isn't a full-blown switch to à la carte television, but will provide an important test of how well consumers like the ability to buy service in ways that might offer more targeted buying of channels they actually watch.

Bell Canada now is offering a more-granular approach to buying multi-channel TV service. The service is being introduced in Bell Canada's Quebec service territory.

The company says it will allow television customers to subscribe to individual channels, rather than the standard bundles that have been the mainstay of the multi-channel video business.

Customers must first take a basic $25 package that includes standard channels such as Global, CTV, CityTV and CBC, and can then choose 15 channels for $15, 20 for $19 or 30 for $22. Bell is also offering individual channels for $2 each.

"TV just got better for subscribers in Quebec, who now have the ultimate control and flexibility to get the channels they want," says Kevin Crull, Bell's president of residential services.

Vidéotron already offers similar options, with basic service and 15 extra channels starting at $37 a month.

Quebec has been one of the most competitive regions for telecommunications, with some of the lowest prices in the country, says the Canadian Broadcasting Corporation.

Bell Canada apparently is not offering à la carte channels in Ontario, its other main television territory.

Rogers, Bell's chief TV rival in Ontario, does offer individual channels on top of basic service at a typical cost of $2.79 each. Basic television services in Ontario from both Bell and Rogers start at around $35 and $30, respectively.

So far, no U.S. provider has taken this route, but consumer demand will be watched closely for any signs the practice might be useful in the U.S. market as a way of providing service differentiation.

Video Cord Cutting Threat is Overestimated, Parks Associates Says

Despite the growing amount of video available online, less than eight percent of U.S. broadband households, or about 5.5 million households, are considering canceling their multi-channel subscription services in favor of online video, according to Parks Associates. You may interpret that as good or bad news.

The 2008 study found 11 percent of U.S. broadband households were considering canceling pay-TV services, and in an earlier 2009 survey, the number was 10 percent. The upside is that people might be finding it is harder than they thought to replace their current multi-channel video experience with alternative sources.

Where there clearly seems to be more danger is in the area of churn. As many as 2.75 million of those households report they are considering a switch to a new service provider. That's the bigger danger, as consumers do not have to change behavior or lose any of the value when switching providers, but might save some money, or even increase perceived value for equivalent levels of spending.

Online viewing is correlated with switching propensity, though. Parks found that households saying they are likely to switch or cancel their services watch 10 hours of online video each week, much higher than typical video consumers.

They express strong interest in having online access to pay-TV channels as well. Such video-intensive customers also use offline video, such as DVD rentals, at higher rates than typical consumers do.

Their median number of DVD rentals from the last six months is 18, compared to two rentals among other households.

“Just 0.5 percent of broadband households appear to have cancelled their video subscriptions, according to  John Barrett, director, research, Parks Associates.

In fact, the profile of a "switcher" is someone who does not watch much TV. That makes sense. Though conventional wisdom is that "heavy" users are more likely to "cut the cord," in reality it is light users who are most prone to cancel their service, simply because the value-for-price equation is not so high.