Friday, October 10, 2014

Cord Shaving Hurting Expensive Networks

On March 11 2011 I wrote my first blog about cord shaving entitled It's Not Cord Cutting, It's Cord Shaving.   In it I wrote that "the rising costs of the cable subscription is resulting in purchase behavior changes."  Cable television continues to get more expensive and OTT services like Netflix continue to siphon funds that once went to cable TV. 

Fast forward three and half years and the topic of cord shaving may finally be taken more seriously.  In today's Wall Street Journal, the article titled Pay TV’s New Worry: ‘Shaving’ the Cord, discusses how "the top 40 most widely distributed channels in 2010—household names like CNN, ESPN and USA—have lost an average of 3.2 million subscribers, or more than 3% of their distribution, according to a Wall Street Journal analysis of data from measurement firm Nielsen."  Not really so new.  Customers have been cord shaving dropping their level of service to lower the price of their cable subscription.  The cost of packaging with too many of these cable nets have simply made the price of customer subscriptions cost prohibitive.  Step one, customers are cutting back or shaving nets off their subscription; but as costs continue to rise, step two will be to cut the cable cord entirely. 

Network license fee models generally require that not only are they placed on a channel line-up with the largest number of subscribers, but that their penetration of service against all customers is greater than 85 or 90%.  As subscribers continue to shave off nets with smaller packages of service, network penetration rates for that cable operator decreases. Consequently, the cable operator will have to either introduce these nets into the lower priced tiers or raise their cable rates to cover the penalty costs of not meeting the network subscriber penetration benchmarks.  The cycle is complete and customer cable costs will rise. 

Consumers can only shave off so much before the only recourse will be to cut the cable cord entirely.  Aereo tried to be that service that could inexpensively offer broadcast streaming programming.  The Supreme Court ruled against them.  Other customers are once again putting up antennas in their home to capture broadcast signals. 

The other great truth is that cable is no longer the number one priority for homeowners; broadband is.  Given all the content accessible via an internet connection, consumers would rather pay for their broadband subscription before paying for a cable subscription. Cord shaving today, cord cutting tomorrow.