Cord cutters flocking to online TV at the expense of cable

Until recently TV viewers wanting to watch premium TV content had only one choice, they needed cable or satellite, period. But now things are changing and after years of obediently paying the subscriptions and swallowing the annual rate increases, viewers are fighting back and watching Online TVinstead.

Many are cancelling or even just downgrading the subscription to a basic level and watching the top quality premium stuff online and saving around $50 per month.

settopboxesBecause more TV is appearing on the internet and via set top boxes the urge to cut and run is gaining momentum.

During the last couple of years, streaming TV services have grown at an amazing rate with websites like Hulu, Fancast, Joost, Sling and YouTube at the forefront supplying free TV streams from the TV networks and cable companies like NBC, CBS and Fox. You can watch pretty much everything from CSI, 24 and 30 Rock and anything else that tickles your fancy.

Research has shown that younger adults are the most biggest users of online tv, but even that changes as the oldies figure out how simple watching TV from the web can be.

Although cable does not face any immediate threat from these ‘cord cutters‘, a term used for viewers who cancel or downgrade pay TV services and move to online TV. Cable and satellite companies are beginning to sit up and take notice in the growth of free online TV content. Time Warners chief exec,Glenn Britt has expressed concern during last months quarterly earnings discussion with analysts. TW Cable the second biggest US cable company, said it has lost 119,000 basic video subscribers during the last quarter 2008.

“We are starting to see the beginning of cord cutting,” Britt said. “People will choose not to buy subscription video if they can get the same stuff for free.”

Whilst firm figures are not available, the size of cord cutters is remaining pretty small, says Kurt Scherf, vice president at Parks Associates, a market research firm from Dallas. Some estimates claim it is just one percent of the existing television audience.

That is still partly down to the negatives of online TV. Viewing video on PC still is not quite as pleasurable as watching on the big TV and sitting on the couch. Plus the quality of online TV, whilst improving all the time, still needs some work.

However cable TV is not recession proof, and viewers feeling the pinch are cutting back on subscriptions.

And while everything coming from cable is pretty much available online for free, it is harder to justify the extra expense every month. Using websites like Hulu to watch prime time TV means it is not a great sacrifice as it once was.

Hulu, the joint venture between NBC and Fox that just celebrated its first birthday is the most popular aggregators of catch up TV shows and movies, showing 13.1 billion videos in February, according to comScore, an internet research company.

Hulu is already feeling pressurised by the content providers about its potential to disrupt their profits and recently blocked access to Boxee, a free service allowing users to stream online TV straight to their TV’s.

“I think new content aggregators like Hulu can step up and start to be very challenging to the cable operators’ longevity,” so says Susan Brazer, md of LionShare Strategies, a media research firm. “There might be opportunities for the individual networks to have an alternative distribution method other than the cable operators.”

It is also a fine line for the cable networks, who want to capitalize on the internet TV boom but also want to protect their assets, which rely on massive fees paid by the cable operators.

“Online video is a terrific way for our consumers to sample shows,” said Colleen Fahey Rush, executive vice president of research at MTV Networks. “Operators and content providers need to work together to figure it out.”

A raft of new developments are making TV that is able to access online TV easy. Netflix subscribers are able to buy a $99 settop box from Roku that streams movies straight to TV.

Vudu is selling a $299 settop box, allowing viewers to download TV shows for $1.99 per episode and movies for anywhere from 99 cents to $19.99. These new devices will make cutting the cord even easier for consumers.

Comcast, the biggest Cable TV provider in the US, says it isnt convinced that a large percentage of viewers are ready to cut the cord. But the company is still aggressively jumping onto the online TV bandwagon by offering free TV shows and movies via Fancast, which is a direct competitor to the Hulu website.

“We want to be wherever our consumers are,” spokeswoman Kate Noel said. “And we certainly saw a movement of customers who were interested in getting content both on their televisions and in an online capacity.”

But Bobby Tulsiani, senior analyst at Forrester Research in Cambridge, Mass., said pay TV providers and cable programmers need to do more to prepare for the growth of on-line video.

“Just because you know it’s coming, that doesn’t meant that you can get it right,” he said. “The intent is there now, but the execution remains to be seen.”

Also users still need fast internet broadband connections to stream online TV, this may be profitable for the broadband businesses at cable and telecommunications companies. AT&T.

“The key here is not television. It’s broadband,” said spokesman Mark Siegel. “If they’re choosing to watch TV on their PC, we have the ability to let them do that through broadband access.”

Brazer, a former senior vice president at Viacom, noted that consumers want to watch more and more video-on-demand, which she added was the driving force behind the online TVgrowth.

“Having access to what we want to watch, when we want to watch it is the nirvana that we’re all looking for,” she said. “And it may take some time to get to that point.”

And maybe not that long either. On a quick browse i could find pretty much any TV show or movie i wanted to watch at a time i wanted to watch. With increasing broadband speeds and quality of video, cord cutting is a trend that will grow and grow.

12 Comments

  1. Yuk
    Yuk April 6, 2009 at 3:37 pm

    The VUDU Box is now $149.

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