who's cutting the cord

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Who’s Cutting the Cord? Insights into the behavior of Cord Lovers, Cutters, Shavers and Nevers

FUTURE OF VIDEO #5 JANUARY 2014

–2– FYI: Who’s Cutting the Cord?

Ipsos MediaCT, © 2013

CORD LOVERMaintained or added to cable/ satellite service in past 6 months

CORD SHAVERCut back level of cable/ satellite service in past 6 months

CORD CUTTERCancelled cable/ satellite subscription in past 6 months

CORD NEVERDid not have a cable/satellite subscription in past 6 months

Introduction

The rise of the Cord Cutter is a recent phenomenon that has the TV industry abuzz about its possible implications on the existing business model. Indeed, two companies so far (DirecTV and Sony) have already announced plans for an online only subscription plan to try to tempt Cord Cutters and the more latent Cord Nevers into paying directly for some sort of TV service.

For the purposes of this paper, the following terms are defined as follows:

The Authors

Gavin Bridge – Gavin has been with Ipsos MediaCT since 2010 and quickly became a valued member of the Television Insights group. Working out of the New York City office, Gavin is the product manager for TV Dailies and has introduced innovative ways of looking at the data to benefit both internal analysis and clients. Prior to joining Ipsos, Gavin worked at Kantar Health’s Health Sciences Practice division as a Project Analyst. He spent three years working in London, first with Business Development Research Consultants as a Research Executive, then as a Senior Research Executive at Opinion Research Corporation.

Irene Manahan – A new addition, Irene joined the Ipsos MediaCT team in the Fall of 2013. Based in the Culver City office, Irene works primarily with TVDailies and custom studies. Prior to Ipsos, Irene worked for Lieberman Research Worldwide. She began her career in market research in 2010 while at NBCUniversal where she worked as an analyst for the E!, G4 and Style networks. Irene worked as on-air general reporter after she graduated from Syracuse University with a bachelor’s degree in Broadcast Journalism and Political Science.



Is Cord-Cutting an Epidemic?

The TV industry should not panic yet. Our research shows that the vast majority of individuals watching prime-time TV are currently subscribers to a cable or satellite service, with the vast majority of viewers Cord Lovers.

What is worth bearing in mind is that one quarter of prime-time viewers are Cord Shavers, and have cut back on their TV service subscriptions in the past six months. As will be seen later in this paper, this behavior extends into other areas for this group, but these would be the individuals with the potential to become Cord Cutters.

As for the Cord Cutters themselves, they account for only 2% of all prime-time viewers within the past six months. This suggests that cancelling cable or satellite subscriptions is not yet becoming a wide-spread behavior, but still accounts for 1 in every 50 individuals. However, if this trend continues, then the less than 1 in 10 who are currently Cord Nevers will continue to rise until we reach the saturation point of people who are fine watching content without a paid subscription (or indeed watching with another’s paid subscription—the infamous underground TV access bartering system where individuals exchange access for one service for another).

One other thing that is important to consider is that just because Cord Cutters and Cord Nevers don’t have a current cable subscription does not mean that they are not consuming TV or watching in prime-time. Around half of those without a current cable or satellite subscription have access to broadcast TV channels, with a similar proportion also having access to streaming or downloading TV services.

10%

0%

Cord Shavers Cord Nevers Cord Cutters

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70%

Cord Lovers

64%

27%

7%

2%

Which statement describes your current cable or satellite subscription?



Of interest is the fact that women are significantly more likely to be Cord Nevers than men. Additionally, there are no real differences in the proportion of those who are Cord Nevers among those with subscriptions to ‘TV replacement’ services such as Netflix, Hulu Plus and Amazon Prime, and those without subscriptions. With that said, Netflix subscribers are significantly more likely to be Cord Cutters than non-subs, even though that is a low 3% vs. 2%. This suggests that Netflix is not necessarily a gateway drug to cord cutting. Rather the vast majority of subscribers treat it as a complementary service alongside existing TV provider services.

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10%

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49% 47%

Streaming/downloading TV services Broadcast TV channels

Which statement describes your current cable or satellite subscription?



Does Online Content Replace Traditional TV?

The common assumption is that people who are cutting back or cancelling their pay TV subscriptions are doing so in favor of online services such as Netflix, Hulu or iTunes. Our research suggests that this may not be the case, with these services often being used as complementary to the TV experience, rather than replacing it.

Contrary to how it may seem, the Cord Shaver behavior of cutting back on cable/satellite subscriptions is not unique. Cord Shavers are the most likely group to have cut back on paid online streaming services within the past six months. This suggests that the reduction of cable services is part of a larger behavior for Cord Shavers as they are cutting down on services across the board.

In particular, Cord Shavers are significantly more likely to have cancelled subscriptions to services such as Netflix or Amazon Prime than both Cord Lovers and Cord Nevers, furthering the idea that Cord Shavers are decreasing their financial spend on entertainment across a wide spectrum of mediums.

Moving on from the services subscribed to, 4 in 5 adults 18-49 have streamed TV shows in the past month, with just under a third saying that they downloaded a show. Once this is broken down by the cord behavior groups, it is found that Cord Lovers and Cord Cutters are most likely to either download or stream shows. Cord Shavers are the least likely to have never done so in the past six months (significantly more likely to have not than Lovers and Cutters).

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33%

72%

28%

76%

18%

26%

88%

60%

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90%

Cord Lovers Cord Shavers Cord Nevers Cord Cutters

DownloadedStreamed

Have you used any service to stream or download TV shows in the past 6 months?



Each group has different needs when it comes to TV. Cord Lovers are keen TV consumers, demonstrated by their high levels of streaming and downloading across all listed services, and they effectively love the content. Cord Cutters boast the highest overall streaming activity, which is due to having no alternatives to watch TV content that is not on broadcast. Cord Nevers, for whom there may be a financial implication to their behavior based on their low average household income versus other groups, are significantly least likely to download shows from paid websites.

In an interesting finding, 9 out of 10 subscribers to both Netflix and Hulu Plus said that they had streamed content on these services in the past 6 months, but only two-thirds of Amazon Prime subscribers had done so. This study took place prior to the release of Alpha House and Betas on that service, but it suggests that unlike the other purely video services, video may not be the main reason for subscribing to Amazon Prime currently.

Finally, electronic sell-through, or paying to download shows via iTunes or Amazon Instant Video, is not a cord cutting behavior. Rather, Cord Lovers are significantly more likely than Cord Shavers, Cord Cutters and Cord Nevers to download or stream via iTunes, which implies that Cord Lovers really do appreciate TV content and that the use of iTunes to watch TV shows is a supplementary rather than replacement viewing behavior.



What Does the Cord Cutter Look Like?

Cord Cutters tend to have a lower average household income than Cord Lovers and Cord Shavers, which could go part of the way to explain why they have cut their cable subscriptions. They also earn more than Cord Nevers which helps explain why Cord Cutters are significantly more likely to pay to download TV shows than Cord Nevers. Cord Nevers themselves have a significantly lower household income than other groups, hence not having a cable or satellite subscription.

In terms of prime-time TV viewing, Cord Lovers are significantly more likely to watch prime-time TV on weekdays than all other cord behavior groups, including Cord Cutters. On those weekday evenings that Cord Cutters do watch TV, they are significantly less likely than Cord Lovers and Cord Shavers to watch for 2–3 hours a night, so they are consuming less content in traditional content windows.

When asked their interest in a basic concept of à la carte cable, described as “instead of the current model of buying a bundle of set networks, you could pick and select the networks in your package”, Cord Cutters and Cord Lovers were the most intrigued by the concept, with nearly 6 in 10 interested. This implies that there is potential to convert Cord Cutters back to Cord Lovers; they are not a lost cause.

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84%

61%

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52%

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37% 38%

69%

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90%

Cord Lovers Cord Shavers Cord Nevers Cord Cutters

Watch 2-3 hours of prime-timeWatch prime-time weekdays

Which of the following time periods do you watch TV? How many hours per evening do you watch?



The Future for TV Providers

Rather than trying to combat the threat that is Cord Cutters, TV providers should shift focus to the groups which offer the most opportunity: Cord Nevers and Cord Shavers.

While the current trend is to focus solely on Cord Cutters, TV providers primarily ought to include Cord Nevers into their consideration set. Cord Nevers are a more sizeable group than Cord Cutters (1 in 10 A18-49 are Cord Nevers; 1 in 50 are Cord Cutters), with both groups possessing similar viewing behavior and consumption of prime-time TV.

Next, Cord Shavers also constitute a large enough proportion of current service subscribers to cause concern to TV Providers. These are the group most at risk of becoming Cord Cutters, and they are financially motivated, as evidenced by their behavior in shaving subscriptions to services across the spectrum.

However, their reasons for shaving also present a straightforward approach to winning this group back. As unpalatable as it may currently be, some sort of à la carte cable bundle could offer a way back for some Cord Cutters and Cord Nevers, and prevent further bleeding from the financially prudent Cord Shavers. DirecTV, for instance, may be opening the door with their recent online-only option announcement, but those providers who stubbornly resist this alternative may find their hands forced at some point. If à la carte cable on any level truly is disagreeable to providers, the creation of more affordable or competitive packages to compete with services such as Netflix or Hulu Plus may help stem the tide of Cord Cutters and prevent the numbers of Cord Nevers from increasing.

With that said, Netflix, iTunes, etc. are not replacement services for TV in general. Though their availability does appeal to those without a current TV service subscription, there is not much difference between cable subscribers and non-subs in those subscribing to online VOD services like Hulu Plus or Netflix, and in overall terms, current cable subscribers make up a greater proportion of subscribers to these services than Cord Cutters and Cord Nevers. With Cord Lovers significantly more likely to pay for content via services such as iTunes, this suggests that they provide outlets for TV Lovers to watch content in non-traditional places, and do not compete with traditional cable providers.



Though the current proportion of Cord Cutters among TV viewers is low, there is the potential for this group to grow at the expense of the Cord Shaver group, and ultimately for Cord Nevers to continue to rise. Cord cutting as a behavior appears to be financially motivated, which presents opportunities for the forward thinking cable or satellite provider to seize the initiative and come up with offerings to tempt these groups back into paying for TV content.

With the recent announcement at CES from Sony regarding testing an Internet-based television service in the U.S. this year and the increasing spread of Aereo, it is clear that companies from outside the traditional cable and satellite set are viewing Cord Shavers, Cord Cutters and Cord Nevers as potential markets for new products. The rise of these groups therefore offers non-traditional service providers a way to enter the market, and it would not be surprising to see other companies from complementary industries such as cell-phone carriers, TV set manufacturers and even TV networks explore the possibilities of their own online networks in the next few months.

As the likelihood of a more fragmented market in the years to come is high, it would appear that now is the time for traditional TV providers to act and pre-emptively come up with solutions to engage the Cord Shavers before the new entrants do so. Cord Shavers are still paying subscribers, and the forward thinking MSO should engage with them to understand the potential for their leaving and do what they can to strengthen their consumer loyalty. If they don’t, these subscribers are prime targets for upstart companies, especially if they compete on price and/or customer service. When all is said and done, it is probably that the TV market of five years’ time will look very different to the one that we currently enjoy.



Methodology

Ipsos MediaCT’s TV Dailies study asked 2,015 adults aged between 18 and 49 several questions on cord cutting in the study fielded between October 21st and October 27th, 2013. Respondents must view prime-time TV (between 8pm and 11pm EST/PST and between 7pm and 10pm Central) at least twice a week in order to take part, and not work in any sensitive industries.

For more information on how Ipsos MediaCT can help your business prepare for the future of video, please contact:

Gavin BridgeDirector of Media InsightsIpsos [email protected]

Irene ManahanResearch Manager, Media InsightsIpsos [email protected]

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