Should Pay TV Providers 'Fear the Shears'?

This guest post was written by Jonathan Hurd, Director, and Brian Swift, Consultant, Altman Vilandrie & Company

With 60 percent of 18 to 34 year-olds now regularly watching movies and TV shows online, should pay TV providers fear the shears? Not quite yet, according to this year’s annual survey by Altman Vilandrie & Company and Research Now, conducted with 1000 consumers in July 2011.

Only 3 to 4 percent of consumers have “cut the cord,” cancelling their subscription service because online video meets their needs. While this statistic may be comforting to traditional TV providers, an underlying shift in consumer viewing trends suggests consumers are re-styling their use of video. Consumers are increasingly “cord shaving,” spending less on cable TV because of the convenience of online video. Twenty percent of consumers now say they are cord shavers, up from 15 percent only a year ago. What is driving this shift? Viewers more than ever want to watch what they want, when and where they want, for less—and online TV and movie services are increasingly meeting consumers’ needs.

Younger consumers are leading the cord shaving trend, with nearly 30 percent of 18 to 34 year olds watching TV shows and movies online daily. Similarly, nearly 30 percent of those under 35 also say they are cord shavers. They are watching content on mobile devices more often and, on the whole, value live programming (sports, news, etc.) less than older age groups. Additionally, they don’t confine their viewing habits to the traditional TV broadcast schedule. In fact, only 25 percent of 18 to 24 year olds watch TV shows at their normal broadcast time on a daily basis—down from 38 percent just last year.

Whatever, whenever, wherever…for less

The primary driver of cord shaving is easy access to content. Sixty-four percent of those who use paid online video services (like Netflix) did so because they can watch programs “according to my own timetable,” with half claiming they use the services because “I can easily get the content I want to watch.”

Perhaps surprisingly, most paid online video service adopters view these services as cost-savers. DVD substitution is one reason, with more than 60 percent of adopters claiming they pay less for movie rentals and purchases and avoid DVD/Blu-ray rental late fees. There is also the cord shaving factor: almost 40 percent of paid online video adopters claim they save money by ordering fewer pay-per-view movies or subscribing to fewer premium channels, and more than 20 percent claim they were able to subscribe to a lower tier package with their TV provider.

Cutting back the cord shaving

As it stands now, online video remains only a strong complement, rather than a direct threat to traditional TV providers. However, online services are closing the gap by offering better content on more devices, thus helping them become a viable substitute for some consumers. Traditional video providers will have to differentiate their services to stem the losses to online services, and clear opportunities exist:

· Our survey shows convincingly that consumers still prefer their traditional provider for TV and movie subscription services—whether live or on demand. Although preference for the cable brand diminishes with younger consumers, overall, it is cable’s game to lose.

· Many consumers have trouble finding programs to watch, and consumers use Netflix’s viewing suggestions more frequently than cable operators’. Traditional operators have a significant opportunity to improve their discovery and recommendation engines.

· Younger consumers are more likely than older consumers to watch video on mobile handsets and tablets, are more likely to multitask, and are more interested in alternative remotes and TV user interfaces. Traditional operators must continue to improve the “TV Everywhere” offers to close the user experience gap vs. Netflix and other online providers.

· Quality is still important. Younger consumers are even more likely than older consumers to say they are bothered when they can’t watch something in HD. Traditional service providers, who control more of the infrastructure delivering video to consumers, have an opportunity to ensure their services stay at the forefront of video quality.

Online services are here to stay, and cord shaving is a serious trend. Traditional video service providers must embrace online video, providing consumers with a viable alternative to cord-cutting and shaving.