In an industry already saturated with more than its share of buzzwords, “cord-cutting” has quickly risen to prominence in recent months. We’ve run several stories in the last few weeks here on Inside Redbox discussing this phenomenon, and thought it might be interesting to discuss cord-cutting in a bit more detail.
What is cord-cutting?
Simply put, cord-cutting is a choice made by consumers to disconnect themselves from cable and other pay-TV providers in favor of other alternatives. This is upsetting decades of tradition in which a large percentage of consumers pay a monthly fee for a bundle of channels, often with telephone service and internet thrown in as well.
It should be noted, however, that according to some in the industry, cord-cutting isn’t troubling or doesn’t even exist. During his company’s recent Q3 conference call with analysts, Time Warner CEO Jeff Bewkes was asked about the potential damage cord-cutting could do to Warner-owned HBO and Turner. Bewkes’ response:
“On the cord-cutting, we’re not seeing it — we doubt that we’re going to see it . . . although we’ll all watch for it. If you look at TV viewing across all the different networks, it’s a very healthy picture, ratings, programming quality, the strength of these brands.”
Verizon CEO Ivan Seidenberg, on the other hand, has acknowledged that the phenomenon not only exists, but also stated that future consumers are not likely to tolerate the costly service bundles being pitched to them by providers. Said Seidenberg:
“Young people are pretty smart. They’re not going to pay for something they don’t need to,”
Who is cutting the cord?
A fair few consumers, it would seem. NewTeeVee recently reported that subscriber losses for four of the top five cable providers totaled more than 500,000 in the last quarter alone. And, in a new development, many of these lost subscribers are not necessarily signing up for alternatives such as satellite or IPTV. They are, in effect, cutting the cord to paid TV in all its guises.
Why are they doing it?
Cost and choice, in a nutshell. In its most recent earnings report, Comcast divulged an average revenue per user of around $130 per month. Other major cable providers come in at similar numbers. 130 bucks would pay for a lot of Netflix subscriptions, Redbox rentals and Hulu Plus sign-ups, let alone all of the free, ad-supported content that can be found online.
As for choice, remember the 90′s? Record labels and music retailers grew bloated and complacent by charging customers $18.99 for a CD with two or three tracks that were actually worth owning. Then along came (illegal) options such as Napster and Kazaa and (legal) ones such as iTunes that allowed consumers to break free of label-induced tyranny and only get the songs that they actually wanted. The labels freaked out, failed to adapt, and are now paying the price for their greed and reluctance to evolve along with consumer preferences.
The same thing is happening with pay-TV. Consumers are tired of writing a huge check every month for a massive, set-in-stone bundle of channels, only a few of which usually offer appealing content. Just like the rise of LimeWire and iTunes in the music industry, options such as Redbox, Netflix, Roku, Hulu, etc. have popped up to offer consumers (less costly) alternatives to the traditional pay-TV monolith. And most terrifying for traditional service providers is the fact that once the cord has been cut, many are finding that they don’t miss it.
So now what?
By all appearances, cord-cutting is here to stay and will continue to gain momentum with consumers. As media becomes more fragmented and niche-oriented, the traditional pay-TV model will increasingly come to be seen as a curious relic of another age, just like that $19 Ace of Base CD you bought at Sam Goody in eighth grade.
Your turn, Insiders. Is a cutting of the cord in your past or future? What do you think will happen to the pay-TV industry over the next few years? Is cutting the cord worth the relative inconveniences of delayed viewing and content gaps? Leave your rants, insights and predictions in the comments.