TVREV

View Original

Cord Shaving Is The Real Reason Behind ESPN’s Decline, Not Cord Cutting

The media keeps incorrectly citing ESPN‘s subscriber decline as further evidence of the cord cutting phenonmenon.But that’s just not true.In Q1 2017,ESPN lost some 2.9 million subscribers, dropping from 89.8M households to 86.9M. A look at the 10 largest MVPDs reveals that in Q1 2017, they only lost 559K subscribers, or around 0.5% of the total universe of 94.7M pay TV households. That means there’s a gap of around 2.4 million households (2.5% of all pay TV households) who still have pay TV but don’t have ESPN.So what accounts for the delta?

Cord Shaving

Rather than completely cutting the cord, consumers seem to be “cord shaving,” scaling back to the lowest-priced, most basic packages (i.e., the ones that only have the local broadcast stations). If you look at what most MVPDs have on offer, this is really the only way to have a pay TV subscription and avoid ESPN.I’d posit that there are two main reasons so many people are keeping that very basic cable package rather than cutting the cord altogether.Over-the-air reception in the U.S. still sucks, which is why cable TV became so popular in the first place, and having a roof antenna is just not practical or desirable for many people.The MVPDs know the value of having a pay-TV customer and all the data that comes from their viewing habits, so when someones calls to cancel, they offer them the super basic package for free (or close to it.) That lets them keep the subscriber in their system, where they can then try and upgrade them for the rest of their natural born lives.

Cable subscribers are tired of paying Nordstrom prices for Kmart service

One the main reasons people are looking to get rid of their pay-TV service is the wide disparity between the service they’re getting and the price they’re paying. In other words, they’re paying Nordstrom prices for Kmart service.And so long as the multichannel video programming distributors (or MVPDs, more commonly referred to as “cable companies”) make no attempt to update their outdated user interfaces, don’t push for full-fledged TV Everywhere where their iPad app has all the same programming and functionality as the set top box, and refuse to make their VOD systems anything close to navigable, then they will continue to encourage cord shaving. As we can see from the above stats, the flow of viewers who realize they can fulfill all their TV needs from basic cable plus a handful of streaming apps like Netflix, Hulu and Amazon is growing rapidly.Proof of the importance of the user experience can be found by looking at Comcast, one of the few MVPDs to actually innovate in terms of interface. Comcast actually gained subscribers over the past quarter, adding 41K subscribers, a 0.7% gain from the same quarter in 2016. (That number is even more impressive when you consider that pay TV penetration is close to 90% and that Comcast’s gains are likely coming at the expense of other providers.)So is ESPN the proverbial canary in the coal mine? As the network most likely to be on every package other than super-basic cable, they are also most likely to take a significant hit as viewers switch from full-fledged cable packages to super slim ones.This is indeed a problem for consumers who don’t view the network as essential. While ESPN can likely win back many of its viewers via a standalone over the top (OTT) app, networks without that sort of built-in audience and exclusive content may face a grim future.

The Rise Of the VOD-Only Network

For many of those networks, the best case scenario plays out like this: as the industry gets its act together and moves from a time-based interface (one that starts with the question “What’s on now?”) to a library-based one (that starts with the question “What do you want to watch now?”), the need for 24/7 cable networks will disappear.Smaller networks will be able to produce 10-20 hours of original programming every week, available via video on demand (VOD) or subscription video on demand (SVOD). Since the new-and-improved interface will no longer distinguish between live and on-demand, finding the programming will not be an issue, as the recommendation algorithms will make sure the network’s fans are aware of it. The money those networks lose in ad revenue will be more than offset by the money they save by not having to keep the lights on 24/7 and not paying for programming to fill the hours between 2 and 6 AM when no one is watching and ad revenue is minimal.This will open the door to more variations in format, as VOD-only networks will no longer be tied down to half hour and hour-long formats. They can start producing short-form programming, quick ten or fifteen minute shows that are perfect for viewing on mobile devices. (For a present day example, think Crunchyroll.) Or they can go long and make two hour shows that allow them to go into greater depth. It will all depend on what their core audience finds appealing.The worst case scenario though, is pretty grim. If the MVPDs don’t do something about their interfaces and don’t introduce true TV Everywhere, then they will continue to see subscribers downgrading to the lowest priced packages or switching to virtual providers like Hulu with more user-friendly interfaces.Either way, many of the less popular networks won’t survive, as their subscriber numbers and ad revenue drop precipitously and it no longer makes financial sense for them to remain on air.That’s a grim scenario, indeed, one that hangs on the answer to this question: Can the industry wake up and makes the necessary changes before it’s too late? Originally published at Decider on July 20, 2017