Tuesday, April 5, 2011

Hulu Plus Could Cause More Cord Shaving

As we discuss the cable operator's concern with downgrades and other cord shaving tactics, let's not forget the success that Hulu is having. Hard to believe, but its subscription service is attracting consumers and is poised to exceed one million subscribers this year. And with a two tier revenue stream of subscriber fees and advertising, Hulu is turning those digital pennies into digital dollars quicker than anyone might have predicted. "Mr. Kilar (Hulu's CEO) also reiterated that the company is on track to approach $500 million in revenue in 2011, up from $263 million in 2010. Its first-quarter revenue grew 90% from 2010."

The warning signs are there for the cable operators to act and to act loudly. What starts out as a small leak in the dam could quickly become a serious problem as more consumers switch to online only for their video consumption. Cable operators must do more to establish themselves as the communication aggregator in the home. Bring on mobility; develop a video security business; build out a national WIFI consortium with the other cable operators; become the indispensable link to the home and its inhabitants. Otherwise, consumers will keep shaving and cutting their service.

Consumer Reports Supports Cord Shaving

In this May's issue of Consumer Reports, the cable operators are ranked for service with FIOS and AT&T U-Verse coming out on top. In addition, the magazine reports a growing trend toward cord cutting and cord shaving. "While only 1.4% of consumers have cut the cord in the last two years, 7% of current pay-television subscribers are considering canceling their service, according to a Consumer Reports survey."

In fact, Consumer Reports provides suggestions to help consumers lower their monthly cable bills, "including dropping premium channels such as HBO and Showtime; canceling TV service in favor of free, over-to-air broadcast supplemented by a service such as Netflix; and downgrading to a lower-speed broadband tier."

It is precisely this trend that is pushing the cable operators to build mobile apps to augment their delivery of programming and extend the reach of their platform. It is why programmers who fight these mobile apps may find their revenues from license fees begin to drop as consumers shave services to lower their bills. Unless programmers are getting the same license fee from these alternate distribution platforms, they may be in fact getting Netflix pennies for cable dollars.

For now, the premium networks have a far greater chance to be hurt by Netflix and Amazon then the basic networks. For cable subscriptions, consumers are switching providers in their neighborhoods to the lower cost service. So while cable basic subscription drops, telco and satellite subscription is still rising. But as the trend to downgrade accelerates, even those providers will eventually see drops in their base. Adding value to the cable subscription with access to the linear line-up, DVR, and on demand channels remotely can help slow down or perhaps even reverse cord cutting and cord shaving.