Online Video Will Replace Pay TV in 4.5 Million Homes by Year-End (Report)
SNL Kagan estimates that nearly 4 percent of occupied U.S. homes will opt for Internet video options, with those numbers likely to grow to 12.1 million and nearly 10 percent in 2015.
NEW YORK - The cord cutting debate may move back into the spotlight.
Research firm SNL Kagan in its latest U.S. multichannel TV report on Wednesday predicted that while absolute pay TV subscriber numbers will continue to grow slightly, those gains will not keep up with household formation as "over-the-top," or broadband, substitution options will erode pay TV subscriber penetration. It estimated that 4 percent of occupied U.S. homes, or 4.5 million households, will opt for Internet video as a replacement for pay TV packages by the end of 2011.
SNL Kagan projected that homes that rely on Internet-based distribution to view professionally produced content in lieu of a traditional pay TV subscription will grow from 2.5 million at the end of 2010 to 8.6 million in 2013 and 12.1 million in 2015. Those estimates amount to 2 percent of occupied U.S. homes in 2010, about 7 percent in 2013 and nearly 10 percent in 2015.
Pay TV subscribers returned to slight subscriber growth in the fourth quarter of 2010 and the opening quarter of 2011 after two consecutive quarters of decline last year, which marked the first-ever drops driven by cable TV sub losses, which were only partially offset by satellite TV and telecom gains.
Wall Street observers have suggested that subscriber momentum will remain choppy over the mid-term, but some have highlighted that the cord cutting concerns of investors seemed to have subsided in recent months.
BTIG analyst Richard Greenfield, for example, recently said that online video services "increasingly appear complementary rather than competitive to the existing multichannel video industry."
"The evident subscriber plateau posted by multichannel service providers supports the moderate emergence of over-the-top substitution," SNL Kagan said. "The industry reversed the first-ever declines in the second and third quarters of 2010 to produce a small overall increase for the full year. The modest subscriber gain was neither convincing enough to dispatch the threat of cord cutting nor dismiss the impact of over-the-top substitution."
The company estimated that at the end of 2010, about 84.9 percent of the occupied U.S. households subscribed to a multichannel TV package when eliminating the overlap of customers with multiple subscriptions. That was down from nearly 86 percent at the end of 2009, which SNL Kagan argued "illustrates the potential peak in multichannel penetration."
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