Is Cord Cutting Really Happening?

    March 29, 2012

With consumers continuing to be unhappy with cable providers, a trend known as “cord cutting” has quickly risen up. The concept has gained a lot of attention over the past couple of years especially since more Internet alternatives have become available.

Is cord cutting actually a trend or is it simply a threat that consumers are sending to cable companies? What’s your take? Please share.

According to a report from ISI Group, cable went from having more than 53 percent of the video market in 2010 to less than 50 percent in 2011:

While it appears that cord cutting is a growing trend, a couple of other reports actually indicate the opposite. Bernstein Research found that pay-TV subscribers grew last quarter. Although the increase (0.2 percent) wasn’t significant, it’s enough to raise some questions about the so-called trend of cord cutting.

What’s more, Business Insider Intelligence found that there was “no meaningful evidence to bolster the much-heralded ‘decline of TV.'” (Emphasis not added.) Alex Cocotas explained that, while cable has lost some subscribers, bundled Internet, telephone, and TV packages have grown.

Bryan Gonzalez, Director of Social Entertainment Labs at the Entertainment Technology Center at USC It’s clear that a lot of consumers are unhappy with cable options, but these recent reports can’t help but make one wonder what is actually happening. According to Bryan Gonzalez, the Director of Social Entertainment Labs at the Entertainment Technology Center at USC, there are many challenges to cord cutting.

Services such as Netflix, Hulu, and Apple TV can be very effective, but there is a downside to some Internet options. For instance, with March Madness in full swing, basketball lovers may not be able to find all their favorite games online. In addition, a lot of the Internet services don’t have current content, which is a problem for some consumers.

As Gonzalez explained, many consumers are trying to get away from cable and are looking to Internet and satellite options instead. However, some appear, as the above charts suggest, to be going back to traditional content even though they aren’t completely happy with their choice.

Time Warner’s CEO Glenn Britt, in a move to counter some of the negativity from consumers, recently laid out a plan for a low-cost package of channels to offer. This experiment has yet to be implemented but some, including Gonzalez, believe that it could be effective.

“By creating these smaller, cheaper packages, you’re really gonna bring back some of the folks who might have gone away for a little bit,” he said.

Another challenge to cord cutting is bandwidth issues. Unfortunately, this is a problem that is expected to increase as more devices such as the new iPad come out. With these types of devices combined with growing families, consumers are going to need more bandwidth.

Britt also discussed a second experiment that Time Warner is working on that addresses bandwidth issues. According to him, Time Warner is testing a metered-usage Internet subscription plan in Texas, which means that tiered data cap could be proposed in the future.

“As soon as you start to limit that, I think that they’re gonna run into that wall pretty quickly,” said Gonzalez.

“You’re gonna see a lot of consumer pushback on that,” he added.

Over on InverstorPlace, Anthony John Agnello issued a warning to Time Warner in regards to this experiment:

“Time Warner needs to tread very carefully, though, or it will lose more than just cable subscribers. For years now, Web users have been vocal opponents of usage-based billing and attempts to cap data. Time Warner attempted to introduce usage-based billing in 2009, but consumer outrage prompted the company to abandon its plans. The same thing happened to competitor Comcast (NASDAQ:CMCSA) when rumors swirled that it intended to start billing based on usage, but Comcast gave up those plans by December 2010. As reported by Stop the Cap, a consumer advocacy group devoted to blocking usage-based data plans and data caps, Comcast applauded Time Warner’s announcement but shied away from saying whether or not it would follow suit in the future.”

In an effort to solve some of these challenges and bring cable and Internet streaming together, Netflix attempted to partner with Comcast but was rejected. According to FierceCable, Comcast issued this response to the offer:

“We have no plans to offer access to Netflix to our customers through our Xfinity TV service, no matter what device,” said Comcast spokeswoman Alana Davis.

The marriage of the companies was a puzzle to many since Netflix has, for a long time, distinguished itself as an alternative to cable. Gonzalez told us that, even though the companies did not reach an agreement, it was encouraging that an attempt was made. Furthermore, without Netflix’s existence, products such as TV Everywhere would probably not be around either.

“Before Netflix, Comcast and Time Warner would have never offered that or thought about that,” he said.

In other words, the advent of Internet alternatives has brought more choices to consumers. While the issue of cord cutting is still being debated, it is clear that these services will play a large role in the future of pay TV. In fact, Avner Ronen, the CEO of Boxee, told WebProNews that the trend toward viewing content online would increase going forward.

“The transition toward more video over the top that’s coming over the Internet such as Netflix and Hulu and iTunes is inevitable,” he said.

(Here’s the full interview:)

Gonzalez agrees that Internet options will be significant but believes that consumers will ultimately gravitate toward some sort of combination of online and traditional services.

“In the short term, I think cable and satellite and broadcast are still… the most effective way and efficient way to distribute video,” he said. “However, I see the future more as a hybrid.”

What would you like to see going forward? Are online services the answer, or, do you still need what cable and satellite operators offer? Let us know your thoughts in the comments.