Some cable analysts think that as many as 10 percent of existing American cable subscribers will give up their subscriptions in favor of alternative television platforms by 2011. Now, a more conservative firm’s said they think it’ll be 4 percent by the end of the year and 10 percent by the end of 2015. And while the number of cable subscriptions may keep growing, it won’t be proportional to the overall growth of the potential market
The industry reversed the first-ever declines in the second and third quarters of 2010 to produce a small overall increase for the full year. The modest subscriber gain was neither convincing enough to dispatch the threat of cord cutting nor dismiss the impact of over-the-top substitution. At the end of 2010, we estimate 84.9% of the occupied U.S. households subscribed to a multichannel package after eliminating the overlap of customers with multiple subscriptions. The year-over-year dip from nearly 86% at the end of 2009 illustrates the potential peak in multichannel penetration.
Though we forecast continued absolute growth in subscribers, the pace is not expected to keep up with occupied household formation, leading to a long-term decline in penetrations for multichannel services. OTT substitution is the primary agent in the expected declines in traditional cable, DBS and telco video penetration. SNL Kagan estimates multichannel substitution via OTT delivery will grow from 2.5 million households at the end of 2010 to 12.1 million homes by 2015. The OTT substitution estimates account for nearly 10% of the occupied homes in the U.S. in the five-year forecast.
We’re at a moment of upheaval. The Parents Television Council’s filing briefs in cases challenging cable bundling. Even as alternatives to cable like Netflix get more popular, folks are complaining about the price increases that the company needs to support the contracts for content it’s renegotiating and attempting to expand, and we’re seeing the emergence of an actual competitive market in the alternatives to cable, as Amazon starts signing non-exclusive content contracts. I don’t know what the new landscape’s going to look like, or what company and technologies are going to win out, or where prices for content are going to land, which is part of what’s both exciting and frustrating about the moment that we’re living in. But if I were a cable company, I’d be very, very interested in giving my customers the impression that I was attentive to their concerns about price, customer service, and technological innovation to buy myself as much time as possible before cord-cutting hits hard and accelerates further.