Cutting the Cable: Pay TV Subscribers Turn to Internet

by Mark Friedman  on Monday, Jul. 16, 2012 12:00 am  

Between 2008 and 2011, an estimated 2.65 million people, or 2.6 percent of U.S. pay TV subscribers, cut their TV subscriptions to rely solely on online content or watch broadcast television with the use of an antenna. (Photo by Shutterstock)

Windstream offers customers a Roku streaming box to deliver the Internet entertainment services, such as Hulu or Netflix, directly into a television set.

"We want to offer customers the ability to get all the video content that they want to consume, but we want to give it to them in a different way than they're used to today," Redmond said. The Merge service, which is included in the monthly high-speed Internet fee, will give customers "the ability to select what they want to watch when they want to watch it and, frankly, where they want to watch it."

Rise of Netflix
One sign that people are moving away from pay TV service is the growth of Netflix. For the month of June, Netflix reported a milestone of 1 billion hours of streaming video content - all without commercials, according to Michael Pachter, an analyst who covers Netflix for Wedbush Securities of Los Angeles. For the quarter that ended in December, Netflix reported a total of 2 billion hours streamed.

Netflix's June numbers mean that its approximately 28 million subscribers spent about 35 hours watching streamed video content that month, which is about 25 percent of a person's overall television viewing, Pachter said in an email to Arkansas Business.

"This ABSOLUTELY cannibalizes conventional television viewing, as it is highly unlikely that Netflix customers are watching combined TV plus streaming for 188 hours per month," he wrote. "While it is true that we have not yet seen dramatic ‘cord-cutting' for cable TV subscriptions as a result of Netflix usage, cord cutting is likely going to grow in popularity as Netflix usage continues to grow."

With viewers watching Netflix instead of commercial-sponsored television, overall ratings for commercial television will - and likely have - suffered, Pachter said.

"This, in turn, will lower the advertising rates commercial advertisers are willing to pay to the television networks, cutting into their television profits," he wrote.

Between 2000 and 2009, the annual number of TV subscribers added was about 2 million a year, according to the report by the Convergence Consulting Group of Toronto.

But as the Great Recession dragged on, people started examining their bills and discovered they could live without their cable television subscription, said Brahm Eiley, the president of Convergence.

That's what happened to Zach Neel of Conway.

Neel, a 26-year-old agent with Sandstone Real Estate Group of Conway, said he wasn't a big television watcher in the first place, but he and his roommate, who is his brother, decided to cancel their cable bill around 2009 to save about $40 a month.

He already had the streaming Netflix service, which he continues to use. And if Neel wants to watch a show within hours of it being broadcast on television, he said, he can buy a season or the episode from Apple's iTunes store and watch it on his laptop. He's currently using iTunes to watch "Walking Dead," AMC's show about the zombie apocalypse.



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