Cord-cutting is not just for millennials anymore.
Fed up with high prices and bloated packages, millions of Americans cut the cord on cable TV last year, finding refuge with a growing number of streaming services, which deliver lower prices and a competitive channel lineup over the internet.
Craig Moffett, a senior analyst at the research firm MoffettNathanson, said 2017 “was really the year that cord-cutting went mainstream. It was mostly based on the availability of compelling services.”
Internet television, also known as over the top, bypasses cable and delivers video directly to viewers through a broadband connection. Major players include subscription video-on-demand services such as Netflix, Amazon Video and Hulu as well as livestreaming services such as Sling TV and DirecTV Now, which air dozens of cable channels in real time.
Once an idle threat customers used to squeeze a few free months of HBO out of cable providers, cord-cutting accelerated last year as disruption in the pay-TV industry reached critical mass. New streaming services launched, subscriber growth skyrocketed and more media companies took the plunge to ensure their programming found viewers online.
“The genie is out of the bottle, and it’s not going to be put back in,” Moffett said. “The media companies are now dependent on the (over-the-top) providers to sustain their distribution, so they have no choice but to steam forward and make their content available.”
Pace is accelerating
Traditional pay-TV providers — cable, satellite and telephone companies — lost 1.7 million subscribers in 2016, and the pace is accelerating, with more than 2.6 million cutting the cord through September of 2017, according to MoffettNathanson.
At the same time, virtual distributors gained more than 1.7 million subscribers this year through September.
While their ranks are shrinking, there were nearly 94 million traditional pay-TV subscribers in the U.S. through September, according to MoffettNathanson, versus about 3.5 million subscribers for fast-growing virtual services.
Michael Napier, 29, a market researcher who lives in Chicago’s Loop, is one of them. He cut the cord during the summer and isn’t looking back.
“I had Comcast for a long time, and the bill just kept rising on me, so I switched to Hulu Live TV,” he said.
Napier still gets internet from Comcast, but he is saving about $15 over his $160-per-month cable and broadband bundle with the nascent Hulu Live streaming service. He supplements his service with Netflix, Amazon Prime and a TV antenna to watch the Cubs on WGN-Ch.9 over the air for free.
Sling TV broke new ground when Dish Network launched the service in early 2015 as a slimmed-down streaming alternative to satellite and cable services. Last fall, competing satellite provider DirecTV, owned by AT&T, launched its own streaming service, called DirecTV Now.
PlayStation Vue also was early to the game, launching its live streaming service more than two years ago, but the livestreaming category blew up in 2017 with new offerings from Hulu and YouTube joining a suddenly crowded field.
YouTube TV went live in April in five markets and has since rolled out to dozens of cities across the country. Hulu Live launched in May.
Lower price drives change
Streaming devices such as Apple TV, Google’s Chromecast and Roku make streaming services feel very much like cable, easing the transition for cord cutters.
But for many, the biggest reason for taking the plunge into streaming is price. The average cost to subscribe to traditional pay TV is more than $100 per month, while the average bill for a streaming TV service runs $35 to $40, on top of the cost of an internet connection.
A report published this month by digital video recorder manufacturer TiVo found that 85 percent of cord cutters cited bills that were too expensive as the primary reason for canceling their traditional TV subscription.
“There was never any question that if a customer could get their pay TV subscription for $35 instead of $100 that there would be a lot of people who would want to do that,” Moffett said. “Now it’s an available option, and so you’re seeing a lot of the pent-up demand finally being met.”
Netflix topped 100 million subscribers worldwide this year, while its original series “Stranger Things” drew nearly 16 million U.S. viewers during the second season’s opening weekend in October, according to Nielsen, rivaling major cable hits such as AMC’s “The Walking Dead.”
Derek Higa, a media analyst at equity research firm William O’Neil, is bearish on traditional pay-TV providers and bullish on new media companies such as Netflix.
“Netflix is spending a lot on content,” Higa said. “We feel this is what is needed ... to limit the churn of subscribers and maintain leadership in this space.”
With video subscribers falling, the cable industry increasingly has staked its future on building out high-speed internet networks, driving much of the growth as U.S. broadband subscribers topped 94.5 million at the end of the third quarter, according to Leichtman Research.
Owning the pipeline to streaming TV services may be even more valuable in the wake of the Dec. 14 decision by the Federal Communications Commission to roll back Obama-era net neutrality regulations ensuring equal access to the internet. The regulatory approach adopted by the FCC gives broadband providers latitude to charge more and limit access to certain websites.