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Thursday, February 26, 2015

Cord-Cutting Exaggeration

There is much chatter these days about “cord-cutting.” This is simply eliminating one’s TV cable or satellite service. Over the last two years, I have tried to track it very closely. The many people whom I have spoken with or exchanged e-mails with tend to place cord-cutting at about 75,000-80,000 households in the U.S each month. Losing 900,000 subscribers a year to pulling the plug is not a death knell to the industry as many new households come on board each year. It certainly does impact Pay TV growth, however.

In recent weeks, I have received significant mail from ad agency media people or principals discussing cord-cutting. Candidly, I find it a bit disturbing. Here are some of the comments that I have received:

--“Something is happening out there. Cord-cutting is really building up momentum. Cable and satellite are toast.”

--“I just have a feeling talking to people that cord-cutting is really taking off.  My shop needs to cut back on using TV.”

--“It seems everyone that I talk to is cutting the cable cord.”

Okay, people often make statements based on anecdotal evidence. I am sure that I am guilty as well. But, these characters should know better. The first rule of a marketer is to step outside of yourself and look at facts. The comments made above are made by people who are masquerading as marketers. If that sounds harsh, so be it. In a society with 319 million people, 80,000 households per month is not “everyone.”

The cable industry itself does not dodge the issue. I have read interviews where cable executives basically said cord-cutting is done by those who cannot afford the service plus those who do not see enough value in a subscription. It is hard to argue with that.

My experience with cord-cutters is as follows: the cord-cutters that I have met have tended to be very well educated millennials who, in most cases, could afford cable or satelllite. They lead busy personal and professional lives and many live in places where there is a lot to do outside of business hours such as New York, Boston, Washington, DC or San Francisco. TV is simply not that important to them. At the same time, I have not met or spoken with a rural person of any age who has cut the cord. TV is likely a serious part of their entertainment so they would loathe to give it up.

So, the mistake the ad professionals make is by listening to young people in the somewhat rarified air of their social network or even well paid staff. Recently, I asked a classroom full of students, many from rural areas, if they had cut the cord. I was met with stares and a bit of laughter. Two young men approached me after the lecture and asked how could anyone give up ESPN? I smiled and told them about the ESPN proposal to charge $30 per month for a streaming service. They both perked up and then sheepishly admitted that their parents picked up the tab for cable in their off-campus apartments.

In recent months, as a test, my wife and I cut the cord for the second time in six years. By using Netflix, Hulu, YouTube and many other on line options, we are doing fine without a subscription. Didn’t we miss the Super Bowl? Nope. We watched it streaming and it was fine. The Oscars? I went to You Tube and caught acceptance speeches 15-20 minutes after the announcement. We are looking in to Apple TV and may try that for a few months to see what it does for us. If we do that we would be “cord-shaving” meaning we downsize our Pay TV commitment to a one time only fee with Apple. Generally, cord-shaving means going from a premium service to a basic cable approach. The $20 per month Sling TV streaming service may be a better example yet of cord-shaving.

Despite efforts, I can find no evidence of many people coming back to Pay TV after they cut the cord. One person wrote to me and said his neighborhood resembles his childhood hometown in the 1960’s as TV antennas are now sprouting up all over the block. This may be true in his case but there is little evidence that this is sweeping the nation.

So, people need to be cautious about the impact of cord-cutting. We all know that TV goes not work as well as it did years ago. Commercial avoidance is soaring but largely due to DVR penetration growth and the strong emergence of the two-fisted viewer who is looking at another device or two especially when a commercial break is running. Those issues are affecting the effectiveness of TV advertising far more than cord-cutting.

Were I a cable or satellite executive, I would be nervous about cord-cutting and try to come up with some pre-emptive strike to slow it down.  Right now, I would say that the problem will only pick up real momentum if the economy tanks badly again (let us hope not) and many people see that eliminating paying for TV is a way to cut expenses. A second factor is that the millennials, saddled with a $1.3 trillion student debt, realize while they are out on their own for the first time, cutting the cord could instantly put $100-150 each month in their pockets for fun or maybe speed up payments on the millstone of student debt that is weighing them down.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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