Data for the last quarter shows that cable and satellite TV providers lost a significant number of customers, and while the media is declaring this to be a victory for OTT video I think that’s an oversimplification. There are major changes in video consumption, some driven by technology, some by economics, and some by population demographics. We need to look at all of them to understand what’s happening, and then we need to explore the consequences.
TV subscribership is a household affair; people buy subscriptions for independent households and particularly for families with children. Every year we create new households as youth becomes independent, people separate, and through immigration. Every year, marriage, death, and other factors will destroy households. The total household count is dynamic, but more significant is how that count is divided among viewing segments, particularly the population between 18 and 25.
Our surveys and our modeling of industry data have showed that TV behavior is fairly static in the over-25 population area, meaning that the percentage of households with TV subscription is fairly consistent. We see a slight dip post-2008 to reflect economic impact on those with marginal financial resources, but in general TV is so important as an entertainment vehicle that most people will skimp elsewhere to sustain their access.
The one place where we do see a shift is in what we could call “transitional” households. The households headed by the 18-25 age group are normally the most economically stressed, and they have also had less time to develop a “TV dependency”. For the period when young adults sustain their own households, single or married, and before children arrive, they are four times as likely NOT to have a TV subscription as the normal population. While that’s alarming to cable and satellite companies, even that number hasn’t changed all that much.
What HAS changed? First, young graduates are far less likely to live independently now, so we’re creating fewer households. Second, people have children later in life and households without children are less likely to have a TV subscription. Finally, the mobile broadband generation has learned a different kind of entertainment, one driven first by social interaction and second by viewing. In their entertainment model, they share and talk about clips on YouTube and not about TV shows. That behavior carries over, and as long as they’re not using the TV to babysit, they are 20% less likely to subscribe to TV than their non-broadband-generation predecessors.
What I’m saying here is that cord-cutting is a great story, but there’s still no hard data to show that it’s having a significant impact on television consumption. If it were, one symptom would be an increased reliance on VoD versus scheduled TV viewing, and the cable companies report that’s not happening.
While the notion of a cord-cutting generation creating an explosion in streaming video warms the hearts of network equipment vendor CFOs, the truth is that any major shift toward that sort of thing would likely be a disaster. We already see that usage pricing is coming, but so far it’s being limited to the 5-8% of users who really DO consume a lot of streaming video. For most Internet users, broadband is still usage-free, and as long as that’s the case the Internet will continue to grow pretty much as before. If TV keeps its role as the primary video entertainment media, then the Internet can keep its role as the framework for social and entertainment innovation.