What’s Next in the Volatile Pay-TV Services Market?

There has been an erosion in penetration of pay-TV subscriptions in the United States, traditionally one of the world’s most lucrative markets for pay TV. They have fallen from a high of 86 percent in 2014 to 83 percent in early 2017, based on Parks Associates recent consumer research.

Despite signs in late 2015 and early 2016 that the U.S. cable TV industry finally had reversed years of subscriber losses, the numbers declined again for most cable operators late that same year.

Over-the-top (OTT) video services often are viewed as the primary driver for the declining pay-TV subscriber trend, but the availability of alternative paid video options is only one of the factors driving the retreat. Many other factors also have been contributing to the decline.

Rising Prices vs. Perception of Value

Prices for pay-TV subscription increases have been driven in part by increased carriage fees.

In a recent survey, 43 percent of respondents who canceled their pay-TV service said that the primary reason for cancellation was that it was not worth the monthly cost.

Cord-Nevers on the Rise

Until recently, the expectation has been that many young people would adopt pay TV as a matter of course as they became older, started families, and acquired more disposable income.

However, the percentage of households that never have opted for pay-TV service is sizable in all under-45 age groups, and it has increased each year as more consumers have opted to stay away from traditional pay TV.

Overall, 5 percent of U.S. broadband households never have subscribed to a pay-TV service.

Cord-Cutter, Cord-Shaver Ranks Swelling

Cord-cutters are subscribers who have disconnected pay-TV services in favor of online video services as primary sources for TV programming and movie content. Twelve percent of U.S. Broadband households have cut the cord, compared to 7 percent of households in 2014, researchers found.

Cord Shavers are subscribers who reduce their spend on pay-TV services, replacing pay-TV options with OTT video services.

Approximately 8 percent of U.S. broadband households fall into the “cord shaver” category, based on the latest survey, roughly the same amount as in 2016.

At the same time, both U.S. cable and telco operators have been experiencing increased volatility in pay-TV subscriptions. Consumers have made more changes to their pay-TV service in the past year, compared to the same measurement a year ago.

While downgrading of pay-TV showed the greatest increase in activity, overall activity — making any changes — increased from 28 percent of pay-TV subscribers to 37 percent, according to the survey.

Several factors, all present in the current U.S. pay-TV market, drive greater volatility in pay-TV subscriptions:

• Lower satisfaction levels for their current provider or service — In early 2013, 10 percent of pay-TV subscribers indicated that they were dissatisfied with their pay-TV service, while 57 percent said they were highly satisfied. By mid-2016, 20 percent were dissatisfied and only 33 percent said they were highly satisfied.
• Increased pricing for current services — At the end of 2010, the average self-reported household spend for standalone pay-TV services was US$71 per month. By mid-2016, that figure had increased by 18 percent to $84 per month.
• Greater availability and awareness of alternatives — At the beginning of 2011, 25 OTT subscription video on demand (SVOD) services were available in the U.S. market. By the end of 2016, 117 OTT SVOD services were available. By early 2017, 65 percent of U.S. broadband households subscribed to one or more OTT SVOD service, and 33 percent subscribed to two or more.

Periods of greater volatility in subscriptions impact operators greatly, and shifts in subscriber uptake have led to a reconsideration of TV services overall — including features, pricing, bundling, packaging, partnerships, and new consumer adoption patterns. The result has been predicable, with both existing and new market players launching virtual multichannel video programming distributor (MVPD) services to capture those consumers who remain resistant to traditional offerings.

As operators move forward with reconsideration of distribution methods and services, a new dynamic in pricing, distribution, promotion, exclusive content, and carriage negotiations is now emerging among operators, networks and content producers.