cable TV cord-cutting is here to stay

That’s according to media consultant, SNL Kagan.

SNL Kagan is the firm that first called widespread attention to the phenomenon that significant numbers of subscribers to multi-channel entertainment service providers, like cable TV or satellite, are cancelling their service.  People are watching increasingly their favorite programs over the internet through services like Hulu.  And they’re using Netflix as a substitute for on-demand movie watching.

During the middle two quarters of last year, cable et al. in the US actually showed declines in subscriber numbers for the first time ever.  The fact that subscribership has since rallied back into the plus column has some observers concluding that internet-based “over the top” content distribution will remain a fringe phenomenon.  SNL Kagan disagrees.

The consultant points out that:

–while traditional cable/satellite is growing, its expansion is less than the rate of new household formation.  This means the older services are gradually losing market share;

–the number of OTT households will likely rise by 80% this year to 4.5 million, or about 4% of the market;

–for at least the next several years, the consultant expects OTT households to expand by a steady 2 million annually.  This means they’ll number 12 million or so by 2015, and represent 10% of the market.

Netflixing and Huluing are different

Neilson observes that, although they may be the same people, individuals behave quite differently while Netflixing from when they’re Huluing.

–Netflixers, as you’d suspect, primarily watch movies using the service.  A small majority view content on their TV screens, with a game console as their preferred connection device.  42% watch the movies directly on their computers.

–Huluers, as you’d also figure, watch almost nothing but TV shows.  They view their content almost exclusively on their computers, however, although sometimes they’ll hook the computer up to a TV screen.

One constant for both services:   almost no one uses Google TV or Apple TV.  More people watch on cellphones or tablets than on either.

my thoughts

Let’s assume that Huluing and Netflixing give us a peek into the future.  What are we seeing?

–a world where cable TV companies are valuable because they deliver internet access to customers, not entertainment content directly to a TV. Their rivals will principally be the wireless companies that are building their own mobile internet networks.

–a world where TV sets no longer play a prominent role.  Maybe you’ll have one in the house to watch sports events (the only kind of entertainment where people are willing to pay for picture quality), maybe not.  Viewing gets done on computers or tablets.

–a world where the low-end PC disappears.  Tablets are one successor, as the market already realizes.  Traditional PCs, laptop or desktop, with larger, better resolution screens and good audio may be another.   APPL is moving in this direction by eliminating the MacBook from its lineup and offering customers only the MacBook Air and the MacBook Pro as choices.  (This seems to me to open the door to Chromebooks in the education market, but time will tell.)

Implications for INTC are, at worst, mixed and maybe pretty favorable.  It may sell fewer chips, but its product mix will shift to higher value-added products.  Cloud computing becomes much more important.  And the performance bar is raised for ARMH’s much-discussed entry into the PC market.

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