While the idea that people will drop pricey cable subscriptions in favor of cheaper streaming services seems logical, in reality that trend has yet to take hold.
In the past two years the top pay television providers have only lost about 0.2% of their customers, according to a new report from Leichtman Research Group.
That's a trickle, not a flood, and it shows that while cord cutting may happen at some point, it's not happening yet on a widespread basis. Cable costs a lot more thanNetflix, Hulu Plus, orAmazon Prime Instant Video, but clearly consumers still see value in having access to a complete package of channels through one service.
Exactly how many people left cableLRG found that the 13 largest pay-TV providers in the US -- representing about 95% of the market -- lost about 125,000 net video subscribers in 2014. That's a similar number to to 2013, when the same providers lost about 95,000 subscribers.
The top 13 pay-TV providers account for 95.2 million subscribers. A little more than half of that -- 49.3 million comes from the top nine cable companies. DirectTV andDISH Network have 34.3 million subscribers, while the two top telephone companies,AT&T and Verizon, account for 11.6 million subscribers.
"2014 marked the second consecutive year for pay-TV industry net losses, but the losses remained modest again this year," saidBruce Leichtman, president and principal analyst for LRG. "Despite a relatively saturated market, and increasing alternatives for consumers to watch video, the top pay-TV providers have only lost about 0.2% of all subscribers over the past two years."
Cord cutting is still a threat
FormerSanford Bernstein analyst Craig Moffett. who now heads his own firm, was one of the key researchers who felt cord cutting was overblown, but he changed his tune in June 2013.
"Pay TV is unmistakably declining and the rate of penetration decline is accelerating," he wrote, Varietyreported. "The very fact that there have recently been more new households being minted each year than there have been new pay-TV households is proof positive that cord cutting is real."
Essentially Moffett is explaining that while the losses have been small, pay television should have been gaining subscribers because the number of homes has increased. He blamed this on two factors:
- The lower-income households that he believes comprise the biggest part of the cord-cutting audience are getting priced out of pay TV by rising subscription rates.
- The digital alternatives from Netflix to Hulu that are meant to be supplements to cable end up being substitutes.
Moffett may have changed his mind but not all analysts agree that cord cutting is a threat to pay TV as it currently exists. Analyst Jonathan Chaplin, from New Street Research does not buy into the idea that cord cutters will cause major problems for pay television companies.
"In our view, concerns over cord cutting and regulation are overblown and cable assets are among the most compelling opportunities we see globally," Chaplin wrote in an email, FierceWireless reported.
Where there's smoke there's fire
Cord cutting may be a small time phenomenon right now, but signs point to its increasing. Millenials are more likely to cut the cord or never have a cord in the first place than people used to having a cable subscription.
It's also possible that cord cutting has not accelerated because there were too many popular entertainment options which were not available in pure digital format. That is rapidly changing as products like DISH's digital subscription service Sling TV are bringing cord cutters access to some live sports through ESPN. In addition HBO is preparing to launch a digital product that does not require a cable subscription.
As these options increase, cord cutting should grow. The concept may not have reached a tipping point, but it's likely to. The industry has just not reached a balance of cost savings plus entertainment options offered which has tipped the scale.
It almost certainly will and that will make a 125,000 subscriber loss look like the good old days for pay-TV providers.
The article Cable TV Not Dead Yet: Cord Cutting Stalled in 2014 originally appeared on Fool.com.
Daniel Kline has no position in any stocks mentioned. He has not cut the cord, but he has tripped over it onoccasion.The Motley Fool recommends Amazon.com, Netflix, and Verizon Communications. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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