Severe decline in pay-TV subscribers supports ‘cord cutting’ premise

Some analysts have dismissed the long-term impact of online streaming services and Internet video on traditional pay TV businesses. A new report from research group IHS iSuppli, however, revealed a startling number of consumers cut the cord on cable and satellite services in the past four months.

Source: IHS iSuppli

According to IHS’ Screen Digest group, U.S. pay TV households went from 101.4 million to 100.9 million during the second quarter of 2011. The loss of around 378,000 customers follows gains of 806,000 households that added some form of pay TV over the previous two quarters, revealed Erik Bannon, IHS analyst.

Bannon added that while both cable and satellite companies lost customers (635,000 and 109,000, respectively), Internet Protocol TV (IPTV) actually gained them – a bright spot to the otherwise gloomy news:

The only sector to post gains was the IPTV space, thanks to Verizon FiOS and AT&T Uverse, whose subscriber numbers collectively reached 7.9 million, a net addition of 366,000. Underpenetrated at the moment, the IPTV segment is in the strongest position among the three TV sectors, with IHS Screen Digest predicting a 7.2 percent compound annual growth rate until 2015.

Both the lingering economic crisis and cheaper subscription-based offerings from companies such as Netflix and Hulu were cited by IHS as key motivators for the exodus.

Analysts have previously warned cable companies that the threat of cord cutting should not be ignored. Jason Blackwell, ABI Research director, said in July that pay TV is still “the best means to get the widest range of content,” but that streaming services had “room for growth.” A report last week from Parks Associates found that 13 percent of 4 million U.S. residents with broadband access admitted they cut back on their TV bills in the last year.

Ironically, IHS declared just last month that there was “no cause for panic” for pay TV companies. Richard Broughton, Senior Analyst at IHS Screen Digest, pointed to a lack of consistency among non-linear content providers as a boon for traditional linear programming providers.

“Alongside the evolution of Internet video and DVR technology, broadcasters have introduced HD channels, now received by more than 40 percent of U.S. households,” said Broughton. “In contrast, the Internet in many markets still struggles to cope with HD content and the high bandwidths required for its delivery. Streaming HD remains relatively rare, and downloading takes time, diminishing the appeal for consumers.”

IHS did not remark on whether or not it believes Netflix’s recent price increase will drive angry subscribers back into the arms of pay TV companies.