Friday, July 10, 2015

Cable Networks Hurt By Cord Cutting

Consumers are shaving down their cable tiers or dropping their cable service altogether.  And today's Wall Street Journal shares how the leak in the dam is showing a measurable loss in basic subscriptions across a number of the most popular cable channels.  As the graph below shows, over the last 4 years, subscription levels have dropped 4-11%, with some of the more expensive networks, including ESPN, facing the larger losses. 

As cable networks are paid a monthly license fee on basic subs, each drop gets multiplied month after month, year after year, causing larger and larger losses.  For ESPN, it means dropping some talent, rethinking studio moves, and finding further cost efficiencies.  Given the rising costs of license fees that cable nets charge, further losses will be felt, For some networks the higher fees, coupled with lower subs, can create a revenue plateau.  But over time, sub drop increases will over take any license fee increase to result in a total revenue loss.  And fee increases will only drive a larger number of drops.  Nets are in fact killing the golden goose, slowly and methodically, with annual increases. 

Networks that have seen this trend are already embracing streaming as a means to recapture customers lost through cord cutting.  HBO Now is a perfect example of embracing new distribution platforms.  Others are also following in those footsteps.  When we look at this snapshot again in a couple years, it will become more evident that the speed of cord shaving and cord cutting  has quickened.  That is the trend we are facing. 

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