TiVo Survey Aptly Conveys The Current Sentiment In The Pay-TV Landscape

by Trefis Team
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TiVo (NASDAQ:TIVO) subsidiary Digitalsmiths recently released a white paper which seeks to uncover the current trends in the pay-TV landscape. The white paper makes certain observations about the dissatisfaction flt by pay-TV subscribers and concludes that this frustration could lead to 1.5 million users pulling the plug on their pay-TV service. Such a scenario could be very damaging to the top lines of many pay-TV providers such as Time Warner Cable (NYSE:TWC), Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV).

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What The White Paper Said

Digitalsmiths, a data research company owned by TiVo (NASDAQ:TIVO), has put out a white paper which provides details regarding the current sentiment among pay-TV subscribers. The white paper includes a survey in which the research company questioned 3,048 adults in the United States and Canada in order to gauge the mood of the consumers. The biggest take-away from the white paper is that it suggests that around 1.5 million users plan to cut the cord while another 38.1 million are dissatisfied with the service they receive. The white paper reported that 4.2 percent of the people surveyed had plans to terminate their pay-TV service within the next six months, while another 7.9 percent plan to alter their service in some way. A reported 8.9 percent of respondents also said that they had changed their pay-TV provider within the last three months.

We have to note that such surveys gauge the intention and the sentiment of the sample size (3048 respondents) and then apply the findings to the whole universe of U.S. Pay-TV subscribers. There is no guarantee that the sample size is representative of the universe or that the people will follow through on what they said.

What It Means For The Pay-TV Providers

Pay-TV market has become  saturated over the past few years. Even though total TV households in the U.S. have inched upwards, increasing from 114.2 million [1] in 2012-13 to 116.3 million [2] in 2014-15, the pay-TV subscriber number has remained stagnant at around 100 million for the past few years. [3] Top pay-TV providers are currently losing a combined 100,000+ subscribers per year, having lost around 105,000 [4] and 125,000 [3] subscribers in 2013 and 2014, respectively. This rate of erosion in their subscriber base has allowed the pay-TV providers to remain profitable as the loss of subscribers is compensated by raising the subscription fee. However, the white paper mentions that an estimated 1.5 million customers plan to cut the cord of their pay-TV service. Such a mass exodus could lead to a decline in revenues as a price hike will not be able to compensate for the loss of so many subscribers.

Of the estimated 38.1 million unsatisfied customers, 67% are unhappy with the cost of their service. This puts the pay-TV providers in a catch-22 situation. They have to increase the subscription fee in order to make up for the loss in revenue due to subscriber exits. However, the rising fees increases the level of dissatisfaction among the remaining subscribers, potentially leading to more subscriber exits. Another observation worth mentioning is that 78.7% of respondents said they usually watch only 1 to 10 channels. This raises the question as to why the subscriber would pay $80-100 a month for effectively consuming only 10 channels. This question is partly responsible for the emergence of multiple streaming services such as the ones from Dish, Sony, HBO, CBS, and Showtime etc. These services have been designed in order to cater to the specific preferences of the end user so that they do not have to pay extra. All these observations state the obvious fact that large factions in the general public are unhappy with the current state of the pay-TV services. The pay-TV providers have to come up with a plan to provide satisfactory service or they will continue to lose subscribers at existing rates or faster.

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Notes:
  1. NIELSEN ESTIMATES 115.6 MILLION TV HOMES IN THE U.S., UP 1.2%, May 7, 2013, Nielsen []
  2. NIELSEN ESTIMATES 116.3 MILLION TV HOMES IN THE U.S., UP 0.4%, May 5, 2014, Nielsen []
  3. MAJOR PAY-TV PROVIDERS LOST ABOUT 125,000 SUBSCRIBERS IN 2014, March 3, 2015, Leichtman Research Group [] []
  4. Major Multi-Channel Video Providers Lost About 105,000 Subscribers in 2013, March 14, 2014, Leichtman Research Group []
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