Why cord cutting isn’t happening (and may never happen)

Reinventing TV

The last several years have seen huge innovation in the TV and video space, with a plethora of startups and larger companies transforming the television watching experience in a number of ways. Many are forecasting a future of cord cutting and online, over-the-top delivery, and yet that reality doesn’t seem to be panning out just yet. I wanted to examine why and in part to follow up on Ben’s Insiders post from a couple of weeks ago about why the TV industry and the associated business models seem so resistant to change. This is also something of a follow up on my earlier posts about the TV industry and Apple TV specifically.

TV on a detour

I like to say TV has been on a detour for the last several years. What I mean is that many of the trends we’ve seen can appear on the surface to be leading us off in a whole new direction but, in reality, I suspect we’ll find many of the behaviors we’ve witnessed will come to seem like more of a detour, as we eventually find ourselves rejoining the main road. What is the nature of this detour? Well, it’s best summarized as the phenomenon of significant viewing happening off platforms owned by the major pay TV providers. Let me be clear: some of this viewing will absolutely continue. But much of it has been driven by temporary limitations of the traditional pay TV model in meeting our basic needs, in contrast to newer models which have met those needs much more effectively. Think about the reasons why many of us first tried using YouTube, Netflix, Hulu, iTunes or even BitTorrent to watch content. They can probably be summarized as follows:

  • Content availability – the content I want to watch isn’t on TV
  • Content windows – the content I want to watch isn’t showing on TV right now
  • Consumption – the content I want to watch isn’t available on the device I want to use
  • Discovery – it’s too hard to find the content I want to watch in the programming guide.

Many of these needs were met by the superior content libraries, on demand offerings, mobile apps, and search and discovery mechanisms available on newer platforms, away from the traditional set top box. If we wanted to find and watch that specific content at that specific moment on that specific device of our choice, we had to go away from the cable or satellite provider.

However, since these services first sprang up, the pay TV industry has slowly awoken to a sense of the crisis it was facing and has plugged many of these gaps. The pay TV providers themselves and the system vendors who support them (such as Cisco, Ericsson and Arris) have developed set top box hardware and software which offers better discoverability, video-on-demand, DVR functionality, and mobile apps (e.g. through the TV Everywhere initiative in the US) for watching on non-TV devices. Today, almost all of the needs which were once only served by alternative providers are now fairly well met by the pay TV providers, especially the largest ones.

Cord cutters not in evidence just yet

As such, many of the reasons for people to explore alternatives to traditional pay TV have been eliminated. Although much viewing will continue to take place away from the TV in the home, much of this viewing will now take place in apps tied back to a cable or satellite subscription. If you look at the numbers reported by the major pay TV providers in the US, it becomes clear subscriptions haven’t dropped at all, despite all the talk about cord cutters:

Video net adds

However, people aren’t overwhelmingly happy with their pay TV providers. Whereas the earlier objections to the model revolved around content libraries and flexible access by time and place, today’s objections mostly center on price, business models and customer service. Customer service remains a perennial bugbear for this industry and the cable companies in particular, but as long as people have to deal with these companies for broadband anyway, it’s unlikely to drive any cord cutting on the TV side. That leaves price and business models, which are obviously closely connected.

An analogy: fixed/mobile voice substitution

In order to examine possible scenarios for where TV could go from here, it’s worth looking at a somewhat analogous situation: the phenomenon of fixed/mobile substitution in the voice telephony market, which began about 10-15 years ago and continues today. I was a telecoms analyst when this phenomenon was first observed, so I watched and analyzed developments closely. Two key phenomena eventually emerged from that analysis:

  • First, there’s a difference between usage substitution and subscription substitution – that is, people start shifting usage from one model (fixed or wireline voice) to another (mobile voice), even as they continue to subscribe to both services. Thus, substitution doesn’t have to mean abandonment, at least at first
  • Eventually, usage substitution reaches the point where it no longer makes sense to maintain both subscriptions, and the subscriber cuts the cord entirely and moves all usage to the new subscription.

The end result of all this is, if you focus on subscriptions, it appears as if nothing is happening at all for a very long time and then you suddenly get a very rapid decline as many subscribers begin to hit the usage tipping point all at once.

Two possible scenarios for TV’s future

There are two ways the TV market could go from here:

  • Either the analogy of fixed/mobile substitution applies and we’ll see very little movement in TV subscriber numbers for some time, even as significant usage shifts from pay TV platforms to newer platforms. But eventually there will be a rapid shift away from pay TV platforms once the tipping point is reached
  • Or the model stops applying because it’s simply not possible to go all in on newer platforms and still get the content people want to watch.

I suspect the reality is our future resembles the second scenario much more than the first. As Ben outlined in his piece, content rights are one of the thorniest issues when it comes to disrupting the TV space and the new platforms are having a tough time getting key rights to create what might be termed cable replacement packages. However, content rights aren’t the only issue. Advertising plays a massive role too, and while that’s something the Hulus of the world are very comfortable with, it’s alien to Netflix, Apple and others who might potentially build disruptive video services. In addition, even if a provider could combine the content rights and advertising in the right ways, they’d end up recreating the cable bundle, with few of the advantages earlier online TV providers enjoyed, thanks to the strides made by the pay TV industry in recent years.

That’s in some ways a grim future to look forward to. I think we’d all love for someone to come in and reinvent TV to make it cheaper, more flexible, and more appealing. Apple in particular seems ripe for disrupting the TV industry as it has others. But the reality is the pay TV industry has likely evolved just enough to maintain significant share of this space and much of the growth in online video services will be complementary rather than substitutional, with little impact on the total number of cable subscriptions. It may not be as exciting a future as what some of us have dreamed of, but it’s likely more realistic.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

37 thoughts on “Why cord cutting isn’t happening (and may never happen)”

    1. Lol. You seem to be very much in the minority. 🙂 I’ve no doubt it’s happening in small numbers – Lifehacker constantly runs pieces on cord-cutting – but it’s just not there in the reported metrics so it’s very small today.

      1. I call myself an almost cord cutter, 90% of our TV watching is done online (Hulu BBC and what ever I find of interest on apple TV) we keep cable only for movies. If it was up to me we’d drop cable. But we live in Germany so maybe that makes a difference.

        1. Yes, European and US TV markets are very different. Pay TV is used by the vast majority of households in the US, contrary to most of the rest of the world. Spending also much higher (around $100 per month).

  1. The landline to mobile phone shift doesn’t provide much guidance for analyzing the TV situation because when people went to mobile they didn’t lose any content, but when people cut the cord they may lose stuff they really care about. This is especially true of sports, and it’s why some or a lot of cord cutters have gone back to cable.

    I’m convinced that the overriding fact in this whole issue is that content is king. (I would like to put that in all caps.) The networks have lots of content that the public is eager to see, and that is why the networks can keep increasing what they charge the cable companies, and said cable companies are powerless if they try to fight it.

    I’ll say it again: content is king, and he who has the content makes the rules and sets the prices. If you’re hungry you’ll pay whatever food costs.

    1. There were tradeoffs with mobile voice too – no analogy is 100% applicable. But with mobile voice there were coverage issues, much poorer voice quality, higher prices and so on. There are always tradeoffs. But I absolutely agree with your point too – the only way to truly replace current pay TV services is to basically replicate them, at which point why bother?

  2. Seems to me Apple could expand the Apple TV into a better PVR-like device, something that plugs into and simplifies the existing system. That’s pretty much what they did with Apple Pay, made use of the existing systems and made it simpler.

    We have satellite TV and a PVR (made by Motorola), and the PVR is a piece of junk, we’re on the third one, they keep failing. The satellite TV software UI/guide (whatever you call it) is also junk. If the Apple TV could plug into that, act as the PVR *and* provide a better UI for choosing/scheduling programs, that would be great. Of course that would mean on board storage, or at least some kind of modular storage solution that plugs into the Apple TV.

    The content we get over satellite TV is fine, and the delivery of it is fine (except during a heavy snowstorm), it is the hardware/software that manages the content that sucks. Apple seems pretty good at solving that particular problem.

    1. The problem with this is that all these PVRs and UIs are always overlaid on the pay TV provider’s stuff – see Xbox One. It never replaces it, and the only way to truly replace it is to have the UI provider be the service provider too, which for the reasons I outlined above likely won’t happen. And UIs have improved immeasurably over the last 10 years. See Comcast’s current generation and what they have coming out soon. I shudder to think of the Cablevision UI I had to use briefly back in 2007… Worlds apart.

      1. “The problem with this is that all these PVRs and UIs are always overlaid on the pay TV provider’s stuff”

        I don’t see this as a problem, I see it as an opportunity. The pay TV provider’s stuff (the content) is fine, that’s not the problem. The terrible hardware/software that I have to use to access the stuff/content is the problem.

        Isn’t the channel guide/PVR stuff already overlaid on the content, as a way of managing/viewing that content? So why couldn’t Apple offer an alternative overlay? I suppose because the current provider could prevent it in some way? But it’s just data, this show at this time, switching channels, and so on.

        I don’t see why the UI provider has to also be the service provider, what am I missing? Is there some value/money to be extracted from controlling the channel guide UI? I wouldn’t think so, but I don’t know enough about it.

        1. The problem is, whenever you change channels, the TV provider pops up an overlay with information about the show etc. Just go read some of the Xbox One reviews on this point and you’ll see what I mean.

          1. Sure, but isn’t that show info just more data in the channel guide? As long as the data is available, why can’t Apple provide it as part of their alternative overlay?

            I have no doubt that whatever Microsoft did was half-assed, I don’t see their effort with the Xbox as relevant. I expect Microsoft to deliver mediocre experiences, since that’s all I’ve ever gotten from them.

          2. The issue is that unless you replace the STB, you get both overlays. Microsoft’s solution isn’t bad at all, but the fundamental limitation is that it doesn’t replace the native STB interface from the cable company or whatever. Apple can provide it too, but it has no way to strip out what the cable STB provides, so you get this ugly duplication. This piece talks about it somewhat: http://www.theverge.com/2013/5/21/4352710/live-tv-on-the-xbox-one-microsoft-didnt-learn-from-google-tv

          3. “Apple can provide it too, but it has no way to strip out what the cable STB provides”

            Well, obviously that’s the opportunity I’m talking about. Sounds like no more than another technical hurdle. Or is it indeed impossible to get around this? I would think all that needs to be done is to make the Apple device the PVR/DVR as well as providing an overlay. I’m sure that’s enormously complex, but that’s the kind of thing Apple is good at. The TV provider’s UI doesn’t need to be stripped out, just hidden so you never have to use it.

          4. The problem is, in order to do this you need permission from the pay TV provider (or a system such as CableCard) to essentially replace the STB. You can’t hide the STB user interface unless you become the STB (or the cable company agrees to serve your device instead of just their own. Neither is terribly likely, and that’s the big challenge for Apple (and any other company trying to replace the pay TV providers).

          5. Ah, I get it. So I would think Apple is working on becoming the set top box. Surely there’s a way they could do it that would get the providers on board. Although by now any industry must be wary of letting Apple into any part of their business, I suppose that’ll figure into it.

            On the other hand, Apple is probably the only company that doesn’t need to ‘monetize’ the set top box in some way. Apple can actually put the needs of the user first. We saw this with Apple Pay. Done in the right way I would think this could be a win for the cable companies, etc. Do the cable/satellite providers really want to keep making and supporting their shitty set top boxes and updating their shitty interface guide crap? There can’t be much (or any) margin in that part of the business. You’d think they’d be happy to offload that portion to Apple.

          6. As you say, I think the cable companies would be very skeptical about this for historical reasons and because they see the UI and the other STB functionality such as VOD and DVR as a critical part of their value proposition going forward (along with mobile apps and so on). There’s some margin in the boxes, but it’s much more important from the perspective of the additional revenue opportunity and differentiation beyond price of service.

          7. Jan,

            Is Apple legally allowed to provide a settop box that ‘messes’ with the signal? Can they ‘photoshop’ the video signal and provide clean views of the show?

            If it’s legal, then this becomes a ‘simple’ wizard’s marketing and business model challenge.

            Apple could ‘Apple Pay’ this new video offer. “Install Apple TV and you, the consumer, get a much better TV experience.”

            (After that, our beloved Comcast, Verizon et al overlords quietly go away and die.)

          8. You can’t photoshop a signal in real time to strip out the UI and replace whatever it was covering up. Simply not possible. Legality doesn’t even come into it.

          9. Jan,

            From a technical viewpoint, the only reason I can see, why this would not be possible is that the signal from the cable company is encrypted with strong encryption that neither Apple nor anyone else is able to break. Is that correct?

          10. Okay, so we’re back to a new Apple TV being the device between the set top box and the TV perhaps. Technically there has to be a way to grab the necessary data as it comes in, and then do everything on the Apple TV with that UI.

  3. This seems to be at odds with another article, http://fairerplatform.com/2014/11/cord-cutting-accelerates-2014/ . Since I don’t know the details of either analysis, I have to depend on you to unpack that for me.

    Personally I think it is a generational thing. If you look at Bob’s previous articles you see the 18-24(?) age TV usage compared to other screens is very low, with a general rise as you get to older groups. TV as a delivery mechanism for programming just ins’t that big a thing to younger audiences. The younger audiences are watching TV, but on other devices. Now how much of that stays with that group and advances forward with them is yet to be seen.

    I don’t think cable will go away, but it will become similar to what Windows is to the bigger computing picture, an important segment where a lot of important things still happen, but no longer the central force it once was. I believe that trend will occur over the timelines of the age groups in Bob’s analysis.


    1. I think it’s dangerous to extrapolate too much from this stuff. Just because someone doesn’t buy cable at 18-24 doesn’t mean they won’t when they move up to the next age bracket (or, more relevantly, when they graduate from college and get a job and start a family).

      1. I can afford to live dangerously about things like this. If I’m wrong, no one gets hurt. To be fair, though, I did say how much of this tracks is still TBD. And my own, informal, unscientific sample shows TV (the screen) not being all that important to older 20 and 30 somethings. As you say, that doesn’t mean that _everyone_ in those groups will stay that way, but it seems enough to be a trend.

        But, what do I know?


        1. The other thing is that smaller screens are fine for solitary viewing (and there’s certainly been a rise in that in recent years too) but doesn’t really work for social viewing (e.g. with spouse, friends, family).

          1. You say something here that I would never have thought of about cable, that it is a cyclical market. What drives the cycles? Are there really households that think the holidays is a great time to give the family or household the gift of cable? I believe you, I just can’t for the life of me figure out what would make cable cyclical (which is probably why I don’t do your job for a living).


          2. There are several factors, as I understand it. One is the end of the school year, when college kids who’ve had cable at university cancel the sub for the summer (or because they’re graduating). The summertime is also the biggest house-moving season, so there may be disconnects that don’t become re-connects until people move in and get settled. I haven’t looked into the whys and wherefores that much, but the cyclicality is very clear in the data – e.g. in the deck I linked to above.

        2. I’ll provide anecdotal support. My spouse and I are in our 40’s, we just bought a T.V. for the first time for each of us in 2008. We both grew up in houses without T.V. Mostly books, projects and other activities. We both attended college at a young age; my wife at 16 and I finished my doc. at 22. I guess, since there was no T.V. show available as a distraction, we became ‘geeky’ and ‘studious’.

          Our T.V. that we purchased is used only for watching a movie once a week with our children. It’s 90 – 120+ minutes of family numbing experience. It’s our candy. The funny thing is our sons care less for the television. I had expected them to seek it out since we limit its’ use voluntarily. The boys prefer their mobile devices for everything; reading, games, shows etc… I suspect, they like their friends whose family are ravenous T.V. viewers prefer smaller screens because it is easier to share on the couch, across the room, beyond the blocks and miles. And, the sharing of content is a multi-lane highway going in all directions with no one person controlling the script.

    2. The issue though with using age cohorts to make your argument is that people in that 18-24 age group have always had lower TV viewing times and subscribing rates. The trend you point out is not new. People in that age range generally have less disposable income, move more often, and have lifestyles that take them out of the house more often.

      As Jan points out, prime time for subscribing to pay TV comes when people settle down, buy a house, and don’t go out every night. I didn’t own a TV until I turned 27, and the main reason for that was so that I could watch sports at home, instead of having to go out to sports bars to watch my favorite teams (add up the cost of drinks and food, and that monthly cable bill didn’t look so expensive after all). And sports is really the big beachhead that keeps the most lucrative customers tied to pay TV.

      1. Well, I don’t know a lot of that 18-24 range, not as much as I used to. I do know a lot of the next group, the upper 20s to 30 somethings. I will (always have) qualify that my “sample” group, though large is a very specific demographic—mostly artists or people directly associated with artists, but I still know a large number in this range and their non-artist friends, more so than most people. This group usually has a lot of other options of activities than watching TV. Even with the recent World Cup, they got their sports news exclusively via the internet.

        But there are some things that are different for everyone in these age groups these days. In the past, no matter economic constraints, there was only one-ish way to get non-sports programming. That is now different not just because of DVD sets of past seasons, but also Netflix, Hulu, and other OTT services. That is where most of the non-sports social watching is occurring with the groups I work with. And for most of them, it is still just as social on someone’s laptop or desktop as it is on a TV.

        Now, I don’t kid myself in thinking this is seriously indicative of that age group at large. That’s why I find articles like Jan’s and Bob’s worth reading, to get the larger picture. I do think it is a symptom worth noticing. And I do think the landscape for TV programming is undergoing radical shifts, especially if you consider a large portion of the artistic staff responsible for much of the quality TV programming aired today are from non-TV backgrounds, like movies, theatre, even gaming. They are already thinking beyond the “boob-tube” from their own experiences. Content is still king and always will be.

        Thats what I think. I could be wrong. Interestingly, I am the tech geek in the family, but I am the only one who prefers watching on a TV. The rest of my family watches on their laptops and tablets. Go figure. I’m just old. [We cut the cord back in 2005].


  4. Looking at the same data you are, I see the cable industry’s position as incredibly fragile and tenuous. They are depending heavily on coercive and restrictive methods to keep their customers subscribed (bundling deals, monopolistic practices, etc). Nobody likes their cable company. Nearly everyone resents the prices they have to pay for cable.

    Content is king, but there are lots of options for watching shows, and there are lots of shows — it’s not a huge sacrifice to give up on certain shows, or to choose to see certain shows after they become available on Itunes instead of the minute they are broadcast. Especially if giving up on seeing shows right away would save a non-trivial amount of money. So, the only type of content that is solidly *anchoring* people to their cable subscriptions is sports, which the traditional TV distribution system has a solid lock on.

    But you can get quite a bit of sports off OTA broadcast channels, so really, the one thing keeping people chained to their deeply resented and despised cable subscriptions is familiarity, the way that cable TV is a known, familiar way to get entertainment compared to these newfangled systems which are newer, less effortless, and more patchworky.

    As apple and other non-cable providers continue to chip away at the problem, adding more and more content, adding more and more customers who use their solutions, the familiarity anchor will eventually dissolve, and so long as sports continue to be available via OTA channels, I think the cable companies will start suffering badly.

    Here’s a question, though — where are the young cohort who don’t subscribe to cable getting their sports entertainment? If they’re simply less interested in watching sports, or are settling for OTA sports, then the cable companies are screwed. If they’re watching sports together in groups (e.g, at sports bars, or other venues where they can watch cable sports without being subscribers), then as they start raising kids and stop being able to go to game parties at whim, that generation may start buying cable.

    1. I think your last paragraph is the key here – there’s a cohort effect that will change as the cohort ages. There are few cord cutters, but plenty of “cord nevers” – people who haven’t *yet* paid for cable but may yet do so. OTA broadcasts aren’t very user friendly (and there are areas where there’s no signal – e.g. my house). That’s not a perfect substitute, and with the demise of Aereo there are even fewer options.

  5. As others have pointed out, the big wild card here is sports programming. This is the big bulkhead that keeps the most lucrative portion of the audience tied to pay TV.

    There’s a reason why pay TV providers have invested billions of dollars in forming their own regional sports network partnerships with local pro teams, often with terms that stretch out over a decade or longer. And why those same carriers are willing to pay carriage fees for sports that are way outsized relative to the number of viewers.

    Sports is just a different animal, because they are live events and sports fans insist on watching the games live. The value proposition virtually disappears once the event concludes and everybody knows the outcome, which makes sports programming unique from scripted shows or movies. A scripted TV show still has viewing value after the initial broadcast, which is why online services like Hulu can serve as an effective substitute for delivering that content. Sports has no equivalent substitute, unless the stream is live. As long as the pay TV providers maintain a stranglehold on sports content, they’ve effectively walled off a huge chunk of the audience from any kind of cord cutting.

    This is similar to why broadcasters have tilted their schedules sharply towards event programming, and serialized scripted and reality shows. Shows that maximize value during the initial broadcast window, and don’t retain as much viewing value as an on-demand library product, also keep more leverage in the hands of the broadcasters (and indirectly, the pay TV carriers).

  6. I’m wondering if Apple shouldn’t buy a US cable or DSL operator:
    1- They’ve got the money to do it
    2- it provides crazy lock-in, which is what Apple is looking for above all. Both in terms of foot-in-the-door and of synergy: your cable box becomes an Apple TV, a Time Machine, a PVR; your iPhone/iPad becomes your remote… that’s already possible today, but with extras worth several hundreds.
    3- Google is doing a tentative bit of ISP business, and Apple do have a tendency to ape Google
    4- Apple are willing to get ridiculous margins and revenue from Payments in the same of Strategy. This falls in the same category – though with a much higher initial cost.
    5- In the US (only), they’ve got the share to do it.

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