Parks Associates Blog

Tuesday, February 16, 2010

Measuring the True Threat of "Cord-Cutting"

The press release that we issued a couple of weeks ago on potential of cord-cutting has generated some good feedback. Most recently, Jim Louderback, the CEO of Revision3, wrote a column on the GigaOm site that offered some critique of the analysis that we presented from our recently-completed All Eyes on Video study. Jim's column covered topics such as the margin of error of our surveys and raised questions about whether we were able to include the viewpoint of consumers age 18-24 who, as Jim argues, are likely to be much less loyal to pay-TV providers. I thought that I would cover these topics in this post.

Jim is correct in in discussing the margin of error in surveys, and our studies do come with a margin of error of plus or minus 2%. So, yes, there can be movement from one side to the other of the data points that are presented. So, a 10% finding could mean a swing between 8-12%.

The important thing for us to be tracking is whether there is movement of that population of consumers likely to cancel their pay-TV services above that margin of error from one study to the next. So far, we haven't found it, but it’s a question that we are tracking consistently to see if movement is occurring from one study to the next.

Secondarily, we want to be trying as much as possible to find out why people are considering cancellation of their pay-TV services. One point that should be of high concern to pay-TV operators is that more than one-half of those who indicate a high likelihood of leaving their pay-TV provider indicate that the service is too expensive. This certainly echoes some of the other comments that have been posted here. If consumers don't feel that they are getting maximum value from their pay-TV service, then there is a higher likelihood of cancellation. In fact, among respondents who are dissatisfied with the cost of their pay-TV service are twice as likely as all respondents to consider cancelling their pay-TV service.

Other comments from Jim and those from other readers have also focused on consumers in the 18-24 age range. They were included in this study, and they’ve provided some interesting insights:

  • Consumers in this age range are just as likely to have a current pay-TV subscription as the other consumer age groups;
  • This group of consumers is more likely to express high satisfaction with the video-on-demand and high-definition features that they are receiving from their pay-TV provider;
  • They are no more likely to express dissatisfaction with the cost of their service;
  • When it comes to service churn and/or cord-cutting tendencies, they are more likely than the average respondent to consider churn to a different provider, and they are swayed more with offerings of expanded VoD and high-definition channels;
  • There is evidence that they are not as loyal to pay-TV as an older consumer, as their reported likelihood of cord-cutting is higher than other age groups (11% of respondents in this population); and
  • Respondents in this age range are more likely to agree with the statement that “If all of the video on the Internet was available on the TV, I would no longer subscribe to [pay-TV services].”

That last bullet point about the impact of online video’s availability for viewing on a TV is one that perhaps has generated some of the most-interesting findings within the All Eyes on Video study. This survey does help to validate the notion that once alternative methods of viewing over-the-top video content (connected game consoles, connected TVs and Blu-ray players, networked digital media set-top boxes such as the Roku Player or Apple TV, etc.) grow in larger numbers, then the inclination to consider cord cutting is significantly enhanced. Our study finds that consumers who have used a connected game console or a TV connected to a PC (these are significant chunks of households … more than 12 million) to watch online video are up to 3x more likely to consider cutting the cord. So, the theory that the game console could challenge the supremacy of pay-TV services is certainly validated with the results of this study.

So, how do pay-TV providers respond to this potential threat? The study results do point to the strengths of pay-TV services, which include the ever-growing libraries of video-on-demand content and expanded high-definition programming. It was these two features – and specifically the migration of high-definition content to 1080p resolution – that are two key arrows in the pay-TV providers’ quiver, as these features – if offered by an alternative provider – generate the most interest among consumers in considering a service provider switch. We even found a good percentage of consumers indicating a willingness to pay a premium for “TV Everywhere” kind of features, and we found higher interest in the 18-24 and 24-34 age ranges.

As I mentioned, we are continuing to track this space, looking at not only the likelihood of cord cutting, but also how pay-TV providers can strengthen their offerings in light of the threat of lost customers and revenues. We’ll also be looking in more depth at how consumers view the role of connected consumer electronics as potential media hubs.

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