Internet Video Distribution Will Not Displace Cable TV: “Cord Cutting” Is Hype
I know I am not the only one who thinks there is way too much hype within some segments of the online video industry and none more than the subject of "cord cutting". Far too many writers, bloggers and analysts are preaching about consumers dropping their cable service in favor of getting video content from the Internet when in reality, that's not happening in any large scale and shows no signs of doing so. I get the sense that many are simply writing for headlines and want to use scare tactics like cord cutting to create a false sense of panic amongst those who don't know better.
As the economy starts to show small signs of improving, it seems more people want to try to build this industry back up with hype rather than with cold hard facts. The online video industry has been through a lot of bubbles in the past and any vendor in this space will tell you they stink for business. Part of the bursting of those bubbles is due to many preaching about things taking place in this industry that simply aren't happening and as a result, are setting wrong expectations.
That's not to say the topic of cord cutting should not be discussed, but when many people use
the phrase, they make it sound like it's impacting the market, when it
isn't. In fact, the cable companies continue to grow their subscriptions
to TV year after year and more than 90% of U.S. households subscribe to some kind of pay TV service. Anyone who thinks the cable companies are dying
or that online video based content offerings even come close to what
cable offers in terms of reach, inventory and quality, is fooling
themselves and hurting the industry by implying it.
The cord cutting phrase could turn out to be the single biggest downfall in this industry, simply to do the fact, that's it's not taking place in volume. In fact, to even imply it, without mentioned that it's an isolated case is simply wrong. When some want to imply, suggest or predict that the cable industry is going to be taken over by an online video based offering, they setting up a lot of companies in this market to fail. Based on those wild predictions, vendors change their entire strategies, raise new capital for a market that does not exist and lose focus on the real business opportunities in the market today. Companies start believing the hype and get so focused on what they think is the "holy grail" of the online video industry that they lose their way. All we have to do is look at "TV Everywhere" as an example of this.
When Comcast first announced their TV everywhere service, now called Xfinity, the vast majority of bloggers and analysts fell all over themselves to talk about how good it was going to be and how it was the start of a new "TV Everywhere" revolution. The service was not even live in the market and blog post after blog post hyped the service like never before. Yet, now that the service has been out for five months, where are all those analysts who said it was the start of a whole new TV Everywhere revolution? When was the last time you saw anyone write anything about Xfinity? So far, it's has had absolutely zero impact on the market, yet how much hype surrounded it before it even launched? And now that it's in the market, where are those same writers and analysts who said it was going to change the landscape for pay TV? And I'm not picking on Comcast because three years before Xfinity, all the hype was around Joost and the impact it would have on cord cutting. How well did that work out?
Every month is seems like a new report is coming out that wants to imply that cord cutting is taking place and is going to ramp up over the next few years. A recent report from the Yankee Group predicts that 1 in 8 consumers plans to cut their TV service this year in favor of Internet options but rightfully points out that, "the decision to cut off pay TV services is an economic one." I know of many folks who have cut their cable service simply due to the fact that they don't watch a lot of TV to begin with and are simply trying to save money. But that has nothing to do with getting video online.
And by survey standards, even I would be classified as one of those eight users who the Yankee Group says, "will reduce their pay TV services" since I recently canceled my HBO service as I watch more cable shows than I do movies. But I didn't cancel HBO because I can get their content online, I can't. I reduced my pay TV services simply because I wasn't watching movies. Consumers do cancel services for other reasons besides just replacing them with a different distribution medium. I do like the fact that in the report, the Yankee Group does say that cord cutting is a, "small phenomenon now" which puts things properly in perspective, but sends quite a different message than the title of the press release which is, "New report finds consumers reducing or eliminating pay TV services in favor of Internet options." That's a bit of a mixed message.
Another report by Strategy Analytics estimates that, "the number of so-called "cord cutters" could reach more than 10% of US television households by the end of the year." What they don't say is why these consumers will supposedly cut the cord and whether the cord cutting is a result of a poor economy with people trying to save money, or because they are replacing that video consumption in some other way. This is just one example but there are lots of reports out in the market that use language that's very generic, yet also seems to want to alarm readers.
At the Cable Show last month, executives from multiple cable companies said so far, "there’s not any real evidence" of cord cutting and mentioned that telephone companies that reported earnings in May added about 500,000 net new subscribers combined in the first quarter. Or course, you can't always believe what a cable executive may tell you when it comes to online video, since they have a vested interest in not seeing more content move to the web, but it's hard to argue with the number of new subscribers for pay TV. Not to mention, if even 10% of all the current TV subscribers went to the web to get video at the same time, delivering that video on the Internet would not scale with a guaranteed quality of service (QoS).
Of course, just like the print business, we know the pay TV business is
being disrupted thanks to the Internet, that I am not debating. But instead of many thinking of
online video as a replacement for TV, it should really be thought of as a
compliment to it. While we each have our own opinions on pay TV
services, frankly I'm happy paying $95 a month for a 25Mbps FiOS
connection, tons of channels I actually watch, video quality I can't get
online and unlimited phone calls. Clearly some won't agree with me but
that's simply a difference in video usage, content tastes and perceived
value of the service. But to imply that any large volume of people are cutting their cable TV service in favor of online video, or that there is any data to show this is a major trend moving forward, simply would not be accurate.