Reports See Generation Y, Poverty as Key Challenges for Pay TV Firms
Consultancy Ideas & Solutions! explores "What Gen Y Thinks About Pay TV and Cord Cutting," while Sanford C. Bernstein analyzes "the poverty problem."
NEW YORK - In the first quarter, the number of pay TV subscribers is believed to have continued the slight growth seen in the fourth quarter. But a couple of new reports are shining the spotlight on the risk of pay TV cord cutting among young consumers - due to alternatives that fit in with their priorities - and poor consumers - due purely to economic strain.
Pay TV operators risk losing young Generation Y subscribers to alternative viewing options, with about 60 percent of those young demos at risk, according to one survey.
The study entitled "Must Choose TV: What Gen Y Thinks About Pay TV and Cord Cutting," unveiled Tuesday by marketing consultancy Ideas & Solutions!, suggests that cable and satellite TV companies, as well as telecom players must develop more products, packages and marketing messages to target young consumers.
Meanwhile, Sanford C. Bernstein analyst Craig Moffett in a report eyes what he calls pay TV's "poverty problem." While the recession may be over, pay TV costs have continued to rise, while a portion of U.S. consumers remain under economic strain, he argued.
Members of Generation Y, also known as millennials born in the mid-1980s or alter, are less attached to traditional TV and look for a "greater cost-benefit equation with alternative viewing platforms," the first study found.
The survey of 500 people ages 18-29 who are current pay TV subscribers was conducted in February and March by an independent research group for Ideas & Solutions.
The survey found three groups - Loyalists, Leaners and At-Risk, with the first amounting to 40 percent. The rest was either leaning toward or seriously considering cutting the pay TV cord. The latter consumers were more likely to be early adopters of new technology, including online video services such as Hulu and Netflix, and had a strong desire to control their TV viewing by using a DVR and on-demand services.
"This is the demographic that completely transformed the music and the phone business and has already started to dramatically reshape the pay TV ecosystem,” said Glen Friedman, president and founder of Ideas & Solutions!
"Clearly, the population that is emerging - and it is a large and dynamic group of more than 70 million consumers - is going to be more receptive to alternatives and much less prone to automatically subscribing to cable."
He added: "It’s not that the sky is falling, but it certainly warrants a lot of attention, and the subscription-based pay-TV providers, along with the programmers who rely on them for distribution, should really invest the time and the resources to get to know this audience better."
More than 60 percent each of respondents potentially or likely to drop their pay TV service said that the least attractive aspect of pay TV is its cost-benefit equation.
Friedman suggested that marketers start segmenting their subscribers into behavioral segments and market to them accordingly. For example, those identified as “at-risk” showed less interest in watching scripted TV shows at their appointed times. To them, cost and service, as well as advanced DVR and on-demand features, were most important, the study found.
Meanwhile, Bernstein's Moffett focused not on the threat of alternative technologies for pay TV firms, but the issue of economic stress or, as he called it, "the poverty problem."
"At the low end, customers aren't just choosing between one provider and another," he argued. "They're often choosing between these services and a third meal."
The financial pressure on millions of U.S. consumers - 44 million live below the poverty line, and 50 million use food stamps - is not only a challenge for pay TV operators, but also entertainment giants, Moffett highlighted.
"Virtually all the big media companies are now cable channel houses - and virtually all of their major cable channels are fully distributed," he said. "It requires annual rate increases to feed the beast."
Between 2005 and 2010, the weighted average video revenue per user for cable and satellite operators has risen 29 percent to $77.43, up from $59.82, while real income hasn't moved anywhere near those levels, the analyst said.
His conclusion: "The disconnect between this increase and stagnant or falling incomes is striking."
While Netflix, Hulu, YouTube and the like don't offer video services comparable with pay TV, "when faced with a choice of pay TV or a third meal, will some customers choose to make do with a back catalog or off-the-run TV shows and movies?," asked Moffett. "Of course they will."
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