Cable Companies Still Whistling Past The Cord-Cutting Graveyard

A collection of statistics released this month is creating doubts about the trend of "cord cutting" - when home viewers replace cable TV service with streaming video-over-Internet and over-the-air content. Cable companies are declaring victory, but when you dig deeper, there are signs that cable is still in trouble — and that what we're hearing are the sounds of denial.

In its Fourth-Quarter 2012 Cross-Platform Report, ratings service Nielsen reported that in the U.S., there were more than five million households in 2012 that fit its definition of "Zero TV" homes. Zero TV is Nielsen's neutral, but still kind of inaccurate, description of cable-cutting households that get video entertainment via computer, smartphones and tablets.

Five million homes seems like a lot, especially when you consider that this is up from two million homes in 2007. Indeed, there were a lot of headlines proclaiming "Cable Cutting Up 150%! Comcast in Flames! Time Warner Out of Time!"

Well, actually, nothing like that. Because in reality, that's just 5% of the total TV market. Hardly enough for the cable companies to get worked up about. Comcast CEO Brian Roberts has repeatedly made public comments dismissing the impact of cable cutting, and for now it appears that he's right. Cable's dominance would seem to reflect that there is not much to worry about with these cable companies.

Of course, that's what the Empire said about the Rebel Alliance.

Or, you know, what the telephone carriers once said about people who were giving up land-line phones in favor of wireless. The carriers used to insist the trend wasn't real, until better cell coverage and services like E911 accelerated it to the point that no one could deny it any more. Telco companies now offer TV and Internet service. Cable and satellite TV company may face a similar shift.

Pay TV Numbers Aren't So Hot, Either

Another set of statistics were released this month that point to a troubling sign for the cable and satellite companies: SNL Kagan reported that multichannel service providers (cable, satellite, and telco) managed to add just 46,000 customers in 2012, a lot of it in the fourth quarter, when 51,000 mew customers managed to reverse the shrinking number of subscribers in the second and third quarters of last year.

Forty-six thousand new users, out of a total of around 100.4 million, isn't even a statistical blip — 0.04% growth is by most definitions flatter than a pancake. The average year-over-year growth of Zero TV homes was pretty low, too - 0.59% since 2007 — but that's still a a factor better than paid TV subscriptions last year. You have to wonder if the television providers' claims that subscriptions were slow just because of the economic downturn were entirely accurate.

The U.S. is still in a slow recovery, so we will have to see if the upward trend of pay TV subscriptions continues before making any determination about pay TV's flatline growth being connected to the economy.

For all of the hand-waving about cord-cutting "not existing" or being unimportant, a key fact is being blissfully ignored: those 600,000 new Zero TV users each year have to come from somewhere. They are either existing cable TV customers or incoming customers who have decided to go to the Internet/streaming model instead. Either way, that's 5 million customers the pay TV providers don't have.

Last year, the NPD Group estimated that the average monthly cable bill would hit $100/month sometime this year or next. Using that estimate for some back-of-napkin math, that means $6 billion in annual revenue is not going to pay TV.

Is it any wonder, then, that Comcast recently introduced a free sampling of its premium on-demand content in order to pull in more ongoing subscriptions to that content? Speculation about this promotion ranged from Comcast trying to better penetrate non-coastal markets that have a lower rate of on-demand video use to Comcast looking to juice up its margin.

(See also: Comcast's Awesome Watchathon Reminds You It's Still the Boss)

Given flat growth, why not both reasons?

Watch Out For The Killer App

What the pay TV services need to watch out for is the killer app for cable cutters. In the transition from land lines to cell-only for my home phone, it was the E911 service that made the decision for us: making sure emergency services knew exactly where we were calling from was very important.

I suspect that a similar killer app for cable-cutters will be a way to get access to live sports content. Yes, you can get content from MLB, NHL or the NBA - but special events or sports that are not covered by these media packages can be a hassle to watch.

I myself am lamenting the ongoing coverage of the NCAA Women's Basketball tournament on the ESPN channels this month, because I can't watch Notre Dame progress through the tournament. Unless one of the over-the-air networks broadcasts a game, I'm out of luck. Unless, I get cable again.

Sports are perhaps the biggest reason (on the content side) holding people back from switching away from pay TV. If a network like ESPN or the new Fox Sports Channel were to take its oh-so-important broadcast rights and offer its content to Internet subscribers directly, that would probably be a nightmare scenario for pay TV companies.

It's hard to imagine a situation where that would happen today, but if sports networks see a chance to make more revenue without giving TV providers a cut, would they take the shot?

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