Cord-shaving report causes irritation

The Big Three premium cable networks — HBO, Showtime, Starz Encore — have tried to play it cool in the face of reports of cord cutting and the rise of online competitors like Netflix and Amazon Prime Instant Video, assuring investors their business is healthy and that investments in original programming are paying off in terms of subscriber retention and growth. But all three got pretty hot under the collar this week after NPD Group issued a report purporting to show them losing subscribers while Netflix, Hulu and other over-the-top services made gains.

According to NPD’s “State of SVOD” report, based on surveys of 7,500 households, there has been a 6 percent overall decline in the number of U.S. households subscribing to premium TV channels over the past two years and a 4 percent increase in those subscribing to OTT channels. Although the report itself does not claim that the growth of one caused the decline of the other, a press release accompanying the report’s rollout (since removed from NPD’s website) quotes NPD senior VP Russ Crupnick strongly implying such causation:

“As SVOD services have gained momentum, it’s clear that some consumers are trimming their premium-TV subscriptions,” said Russ Crupnick, senior vice president of industry analysis for The NPD Group. “As SVOD increasingly strives to become a channel itself, viewers might consider it to be an adequate substitution for other premium channels, or perhaps they are switching to economize on their time and money spent.”

Crupnick went even further in some media interviews, telling the LA Times for instance, “It’s fair to say … that some of the shift that you’re seeing is probably caused by Netflix…Some of this could be caused by the economy. It could be people looking at their cable bills and saying, ‘I can’t afford this.”

That set off an explosion of push-back from the cable networks. “The research is simply incorrect,” HBO said through a spokesperson. “Both HBO and Cinemax services have shown significant domestic subscriber growth the past two years.”

A Showtime spokesperson said, “Showtime and every other premium network have increased both subscribers and penetrations over the last two years.” The NPD study, according to Showtime, “does not accurately reflect actual subscriber counts.”

It didn’t help the cable folks’ mood that the NPD report came out in the same week that Netflix reported huge fourth-quarter and full-year subscriber growth and crushed its Q4 earnings’ forecast.

The networks’ claims were bolstered by independent sources. In a blog post, BTIG Research analyst Rich Greenfield called NPD’s findings “100% false.” Greenfield then ran through the publicly released numbers from the three networks, all of which showed an increase in subscribers over the past two years.

Things got so hot that NPD felt compelled to partially retract its reported findings and walk-back the press release.

“The data used for the press release pertains to aggregate results for all premium TV channels and does indicate that the overall number of subscribers has declined, based on a representative sample of the U.S. population,” it said in a new statement (also not available on its web site). “However, upon further examination of the results, there is data supporting the conclusion that individual subscribers are either subscribing to more channels, or adding channels over time.”

The statement also said the press release, “should not have called out declines in subscribers for specific premium TV channels, HBO and Showtime.”

That may quiet things for a while as far as HBO and Showtime are concerned. But NPD still seems to be standing behind the study’s broader findings, which, if they have any validity, point to plenty of opportunities for conflict in the future.

What NPD basically is now saying is that the number of households subscribing to premium channels is falling, but those that still subscribe are subscribing to more channels than before.

“The universe of overall premium channel subscribers is shrinking, but the subscribers that are sticking with premium TV are taking on more channels,” Crupnick told The Huffington Post. “You do have a lot of consumers who are staying in premium TV and bulking up on the number of channels they’re subscribing to.”

How much longer that shrinking pool of households can go on bulking up, however, could turn out to be a critical question for the industry. Especially so since many of those same households also appear to be bulking up on paid-OTT subscriptions. As Netflix CEO Reed Hastings noted in his fourth-quarter letter to shareholders, the subscriber growth experienced by Netflix is being broadly shared across the OTT dial:

Our domestic growth is very strong, much of which should be attributed to the tailwind of Internet video growth in general. Hulu had 3 CEOs in 2013, and yet grew paid subscribers an impressive 65%. We think YouTube, Amazon Instant Video, iTunes video and BBC iPlayer are also growing fast.

It’s going to get pretty crowded in that shrinking pool before long. And somebody’s going to get stuck in the shallow end.