Cord Cutting Threat Ain’t Over Yet

Are U.S. TV watchers cutting the cord or not? It depends on who you ask. New data from cable network ESPN (s dis) and research firm SNL Kagan might ease some cable network fears about subscribers leaving their pay TV subscriptions behind, as both show that any cable subscriber losses are being offset by gains elsewhere. But those numbers overlook growth in the housing market, which means that as a percentage, fewer households are subscribing to cable than a year earlier.

ESPN issued data this morning that downplays the cord cutting threat, reporting that the number of pay TV subscribers that chose to cut the cord and go broadband-only between last year’s fourth quarter and this year’s first quarter was just 0.18 percent of the overall market. And that number actually declined, from 0.28 percent in the prior quarter. Furthermore, ESPN notes that the number of households in the sample that became pay TV subscribers during the same period was also 0.18 percent, offsetting any losses. So pay TV subscriptions were essentially flat during the period.

As first reported by the Wall Street Journal (s nws), research firm SNL Kagan also reported its quarterly cable numbers this morning, showing that pay TV operators gained 65,000 new subscribers in the fourth quarter after two consecutive quarterly declines. Fourth-quarter subscription growth wasn’t enough to offset the loss of more than 330,000 subscribers during the second and third quarter. But combined with a seasonally strong first quarter showing, subscriber numbers were up about 0.3 percent for the full year. A small victory for cable, perhaps?

Maybe not. A research note on cord cutting issued this morning from financial services firm Stifel Nicolas Nicolaus threw some cold water on the idea that pay TV might be making a comeback over the longer term. Year-over-year subscriber growth was at just 0.3 percent during 2010 — the lowest year-over-year growth on record.

Perhaps more importantly, while the absolute number of pay TV households increased, according to Stifel Nicolas Nicolaus, the percentage of households that pay for TV declined in 2010. The firm reported that approximately 84.1 percent of households subscribed to pay TV services at the end of 2010, compared to 85 percent a year earlier. That’s because housing formation — which many cable operators point to as the bogeyman for recent declines — actually accelerated at the same time that the industry started losing subscribers.

“Cable operators have been quick to point to housing and the anniversary of the nationwide digital transition in 2009 as reasons for recent subscriber declines; however, our analysis suggests that growth in the pay T.V. market has underperformed household formation in recent quarters and the impact of the 2009 digital transition should no longer be an issue,” Stifel Nicolas Nicolaus analyst Christopher King wrote in the research report.

So what’s causing the decline? For one thing, the pay TV market is oversaturated. At more than 84 percent of households, it’s difficult for any market to continue to grow, even in the best of times. But the decline of the pay TV market is being helped along by high unemployment, higher food and transportation bills, and cheaper, if less convenient alternatives than traditional cable or satellite.

King notes that at the same time pay TV subscriptions languished, Netflix (s NFLX) added 2.4 million paying subscribers in the fourth quarter and 6.4 million subscribers throughout 2010. With 18.3 million people paying for its service, it would be the third-largest pay TV service behind Comcast (s CMCSA) and DirecTV. (s DTV)

With a constrained economy, King believes even more pay TV subscribers could choose to find their content elsewhere. About 30 percent of all household wages go to food and transportation, both of which continue to increase in price. As the cost of pay TV subscriptions also rises — sometimes upwards of 10 percent a year — consumers are starting to “further re-evaluate the value they place on traditional pay TV services which bodes well for the likes of Netflix, Amazon (s amzn) and Apple TV among others,” King wrote.

Photo courtesy of (CC-BY-SA) Flickr user Akarsh Simha.