Analyst: 15% of U.S. Households Shun Pay-TV





MoffettNathanson’s Craig Moffett contends OTT video and pending FCC regulation could undermine cable television

With Time Warner Cable losing of 408,000 video subscribers in 2014, and Comcast shedding 200,000 video subs through the third quarter, the traditional cable TV ecosystem continues to be challenged.

In fact, nearly 15% of U.S. households have opted against the bundled channel service offering — the highest non-participation percentage since 2007, according to analyst Craig Moffett with MoffettNathanson. Indeed, penetration of pay-TV service is down more than 220 basis points from its 2010 peak.

The ongoing declines have coincided with rollout of direct-to-consumer revenue options such over-the-top video, including subscription video-on-demand. In turn, content holders — eager for new revenue sources — are embracing digital distribution, which Moffett contends remains at the “experimental” stage.

“But even this toe-in-the-water progress is a change from the content industry’s previous unified stance in defense of the [traditional pay-TV food chain],” Moffett wrote in a Feb. 17 note.

The analyst contends that double-digit primetime TV rating declines among the major networks reflect both an inability by Nielsen to properly measure on-demand viewing habits and alternative forms of entertainment distribution, which include cord-shaving and cord-cutting. The former includes consumers opting for lower-priced basic cable packages.

“Whether the declines are due to behavior or measurement shortcomings may be irrelevant. Either way, the pressure this suggests on content provider revenue is unambiguous,” Moffett wrote.

As a result, a lot rides on the Federal Communications Commission’s pending decision on whether to classify ISPs as utilities under Title II of the Communications Act of 1934. Doing so would subject broadband distribution under greater regulation, among other issues.

The analyst is also less certain the FCC will greenlight Comcast’s $45 billion acquisition of Time Warner Cable.

When combining cord-cutting, cord-shaving and Title II, the specter of OTT video becomes a double-edged sword to ISPs, including cable, if they cannot charge appropriately for usage, according to Moffett.

“Absent usage-based pricing and/or paid peering agreements that are orders of magnitude richer than those contemplated today [i.e. Netflix’s deal with Comcast], multichannel video program distributors will be bystanders in the inevitable uptake of OTT substitution,” he wrote.