We know that Comcast is losing cable subscribers en masse. What we don’t know is what makes them cancel: Are these cord cutters ready to switch to Hulu? Or are we talking about victims of the recessions who just can’t afford HBO and Showtime anymore?
Need more evidence that cable subscribers are cutting the cord? Look no further than Comcast’s latest earnings report, in which it lost 275,000 subscribers during the third quarter. Want to know why they’re switching off cable? Check out Comcast’s ARPU, which jumped 10 percent, to $129.75.
This week on NewTeeVee’s first original web series, Janko tests the Xbox 360’s cable-replacing abilities, Ryan talks to a San Francisco cord-cutter who doesn’t miss Comcast, and Liz gets into the Halloween spirit with the Dailymotion-exclusive horror web series Camera Obscura.
We here at NewTeeVee love talking about the world of cord-cutting, because it’s where everything we’re passionate about converges. And that’s why we’re taking our passion for this phenomenon to the next level with the launch of Cord Cutters, our first original web series.
Many pay-TV subscribers, as well as policymakers, have complained for decades over what they view as a rip-off: being forced to order bundled tiers of TV channels instead of being able to select and pay for only the ones they want.
“Why should I have to pay for 100 channels,” the argument goes, “when I only watch a dozen or so regularly? Why can’t I just pay for the ones I watch?”
The notion of being able to pay for TV channels a la carte is certainly appealing in principle. But in reality, it overlooks the way the economics of the pay-TV business actually operate. Without the leverage of the bundler’s wholesale pricing model, networks would need to charge individual users far more for select channels than the per-subscriber fees they currently collect from pay-TV operators to generate the same amount of revenue. The total monthly bill for many, perhaps even most, subscribers would end up being as high or higher than with the bundled tier.
Many low-rated networks, moreover, might disappear because they would not be able to generate enough revenue from direct payments by consumers to sustain their programming costs. The net result would be less choice of channels for consumers.
But despite this, cracks may be starting to show in the traditional bundled pricing model. Ever-rising demands by the networks for higher carriage and retransmission feeds, coupled with shrinking subscriber counts, are driving pay-TV operators’ total per-subscriber programming costs to unprecedented levels that may prove unsustainable.
At the same time, the growing number of over-the-top a la carte alternatives available to consumers, coupled with the bad economy and greatly slowed household formation, is constraining operators’ ability to pass on those higher costs to subscribers.
The result is that the traditional pay-TV bundled programming tier may be approaching a tipping point beyond which it is no longer viable.
According to a recent report by Multichannel News, Time Warner Cable’s overall programming costs rose 6.5 percent in 2009 due to higher carriage and retransmission fees. But Time Warner lost a total of 210,000 subscribers last year, which meant that on a per-subscriber basis, programming costs rose by 8.3 percent. For 2010, it expects to lose 375,000 subscribers while total programming costs will rise another 6.5 percent. That works out to a per-subscriber cost increase of 9.7 percent.
The situation is the same at Comcast. Total programming costs rose 8.8 percent in 2009, while per-subscriber costs increased 11.6 percent. For 2010, total programming costs are expected again to rise by 8.8 percent while costs per-subscriber will accelerate by 12.3 percent.
As the gap between total programming costs and real per-subscriber costs increases for pay-TV operators, the gap between the wholesale price and the theoretical a la carte price of a network shrinks. While it’s hard to know precisely where those two lines will cross, the closer together they get the stronger the case for ala carte pricing.
Given those trends, it’s no surprise to see debate breaking out in the industry over the right price for a la carte access to content. Both Time Warner and NBC Universal, for instance, have rejected Apple’s entreaties to make their shows available to rent for 99 cents each on the new Apple TV OTT platform. Neither programmer objected in principle to making their shows available a la carte; they merely insisted that Apple’s proposed price was too low.
That, plus the fact that Apple has been able to sign up ABC and Fox for its rental service, suggests the major content owners are already assuming an a la carte pricing model for at least some of their TV programming.
The bundled pricing model won’t unravel over night, of course. It still mostly serves the purposes of both programmers and pay-TV operators. But if cord-cutting accelerates and subscriber counts continue to fall, it won’t much longer be able to provide the wholesale leverage needed to support increasing returns for programmers (to say nothing of the operators).
At that point, the bundle will start to fray.
Question of the week
Today on the Net: American cable subscribers dropped for the first time but execs say it’s due to the economy, Cisco’s Eos video platform is powering the London Olympics site and the BBC isn’t ready to back a 3-D technology quite yet.
26 percent of US consumers watch TV programming online more than once a week, according to a new report from In-Stat titled “OTT Video Platforms, Devices, and Consumer Expectations.” And more and more of these consumers watch online video in the living room, thanks to game consoles, Roku boxes and Internet-enabled TV sets. In-Stat estimates that there were 24 million web-enabled devices in operation in the U.S. by the end of 2009, and its analysts believe that this number will grow to 102 million by 2013.
In-Stat analyst Keith Nissen went on the record to say that cable companies don’t have to fear cord cutters just yet. “Nearly 40% of consumer broadband household respondents want a combination of linear TV and on-demand TV,” he said, adding that to date nearly three quarters get all their video from their pay TV provider.
Read More about Online TV Audience Reaches 26 Percent
JooJoo Revamps Interface Ahead of Launch, Adds Local Video Playback — and Changes Color; the device formerly known as the TechCrunch tablet plays back Flash video streams and local content stored on a thumb drive, supports H.264 HD and many other codecs. (Engadget)
New YouTube App for Windows Mobile and Nokia S60 Phones; the site’s new Mobile App version 2.4 adds a new interface that works well with larger screens, among other things. (YouTube Blog)
How to: Build Your Personal Brand on YouTube; changing a few settings can help you improve your branding. (Mashable)
ISPs, Publishers and Academics Voice Outrage at Digital Economy Bil; plan to disconnect file sharers from Internet causes backlash. (Out-Law.com)
Donkey-Politician Vid Keeps two Azerbaijani Bloggers in Jail; Adnan Hajizade and Emin Milli lost appeal against 2 and 2.5 year sentences that were motivated by them posting a satirical video online. (Ars Technica)
Your Interview with Prime Minister Stephen Harper; Canada’s prime minister follows Obama’s example by responding to YouTube questions. (YouTube Blog)
OnLive Streaming Video Game Service Launches in June With One Huge Catch; a $15 subscription per month on top of video game rental fees could turn many gamers off. (DVICE)
Can a Mouse Cut the Cable?; a New York Times piece on people ditching cable has analyst Bruce Leichtman musing that cord cutters are “really just a bizarre breed of people, usually in New York or San Francisco, who don’t watch a lot of television in the first place.” (New York Times)