Netflix today reported 23.6 million subscribers in Q1’11, surpassing Comcast, the number one Cable operator in the US. This represents a major turning point for so-called “Over the Top” (OTT) distribution of content—services that allow consumers to bypass the Cable or Satellite company to grab their shows via the Internet. Long accustomed to underplaying and dismissing OTT, Service Providers can no longer afford to bury their heads in the sand. 

US Cable TV providers witnessed over two million video customers evaporate from their rolls in 2010—losses not seen in other competing platforms such as Satellite and Telco/IPTV. Until very recently, the industry was in a state of denial, dismissing any semblance of a problem.

It’s not me. It’s you

Does Cable TV have a Charlie Sheen problem? Can they really claim to be “winning,” while at the same time losing customers at the rate of roughly 500,000 per quarter?

The  industry at large has come up with various and sundry explanations for the losses, none of which holds up to close scrutiny. In fact, a report  we've just published looks closely at the role of macroeconomic factors on Cable’s subscriber losses. In short, the piece finds that neither the economy nor the housing market is to blame for Cable’s losses.

In addition,” cord cutting,” whereby customers drop their Pay TV subscription altogether in favor of Internet- based or free to air television, is rearing its ugly head again. Even though Cable would like nothing more than to change the subject, the evidence is clear that it’s not going away.

That’s one way of putting it

Even Cable’s favorite talking head has been forced to change his tune. Not even one year ago, we heard that cord-cutting was “perhaps the most over-hyped and over-anticipated phenomenon in tech history.” Last week, the same analyst told Ad Age “it's hard to pretend that cord cutting simply isn't happening."’

I couldn’t agree more.

We have always maintained that cord cutting is real, and that it does pose a threat to traditional Pay TV providers. Research we published in late 2010 found that 13% of Americans intended to “cut the cord” in the upcoming 12 months. While the numbers are not extraordinarily large today, they are indicative of a trend. Our research has shown that the profile of a cord cutter is far from the deadbeat some would suggest, and are the rising demographic Cable needs to keep its eyes on.

As the technical sophistication required to get content from the Internet becomes less and less onerous, we anticipate a shift from the “early adopter” cord cutters to a segment of convenience and value-motivated consumers.

Check Engine Light

The hyperbole has been quite fantastic on both sides of the cord cutting debate—and while we’re not forecasting a falling sky any time in the near future, nor do we believe that Service Providers can simply continue on status quo.  Though the numbers might not be jaw dropping today, cord cutting is a reality.  Service Providers need to keep their eyes on the issue, before it balloons into something unmanageable.