Cable's deal with the devil is going about as well as expected. Trying to stem the number of customers who are cutting the cord, cable operators like Comcast started bundling streaming subscriptions into their packages to make it easier to sign up with services such as Netflix (NASDAQ:NFLX).
But rather than stemming the losses, customers are fleeing in ever great numbers. Industry observers at eMarketer expect cord-cutting to accelerate 33% in 2018, far faster than the 22% rise it predicted one year ago.
If only someone could have foreseen that making it easier to sign up with the competition would actually cause more people to switch to it.
Severing all ties
In theory, it seemed like a smart plan. If customers are given the chance to sign up for Netflix, Hulu, YouTube TV, or Amazon.com's Prime through their cable service, there ought to be no incentive to cancel their cable TV subscription. They get the streaming service and their pay TV, too. And analysts at the market research and consulting firm Park Associates have data to back up that thinking.
A recent report by the firm says that one-third of cord-cutters would have stayed with their service had it offered a streaming option like Netflix. It also points out that 52% of U.S. households have both pay TV and streaming subscriptions, and it believes providers can minimize the number of people canceling their service by becoming a one-stop shop for video.
Yet increasingly, actions are speaking louder than words. The problem seems to be that once customers see all that's available from on-demand streaming services, there's little reason to pay for overpriced cable packages that force them to get programming they don't want. In the end, they're keeping Hulu and YouTube while ditching their pay TV provider.
And it's not just cable that's experiencing customer flight, but satellite providers and telecoms as well. The eMarketer report says 186.7 million adults will watch pay TV this year, a 3.8% decline from 2017, higher than the 3.4% drop cable, satellite, and telecoms experienced last year. Yet cable is actually doing better than the competition, as satellite TV suffered the greatest exodus of customers, followed by the telecoms.
An original idea
Notwithstanding the stall Netflix experienced in the second quarter when it added only 5.2 million customers, only 670,000 of which were in the U.S., streaming services are seeing viewership soar, which eMarketer attributes to the profusion of original content.
Netflix has been notably eager to spend billions on original programming, and has topped HBO for the first time in Emmy nominations. Amazon.com has also amped up its content acquisition budget and is expected to spend $5 billion this year. By 2022, Netflix, Amazon, and Hulu are all forecast to be spending $10 billion annually on original content.
The eMarketer report says that content and a greater proliferation of live events online will cause the total number of cord-cutters to jump to 33 million by the end of the year, up from 24.9 million in 2017.
A close shave
Still, these partnerships are in the early phase of development, so it's to be expected they won't have much impact this year. As Comcast, Charter Communications, Dish Network and others further integrate Netflix and other streaming platform into their bundles in some fashion, it could help ameliorate customer churn, resulting in what Park Associates calls "cord-shavers," or subscribers who downgrade their pay TV service and supplement it with other video options.
That's echoed by the eMarketer report, where senior forecasting analyst Christopher Bendtsen highlights the risk to pay TV services, saying, "With more pay TV and [over-the-top] partnerships expected in the future, combined with other strategies, providers could eventually slow -- but not stop -- the losses."
And there's the problem: Cable, satellite, and the telecoms will continue bleeding customers. Their biggest hope may be that the streaming services increase their rates (as they're doing now) until the value proposition of streaming is no longer so wide. But for now, pay TV is finding that simply keeping your enemies closer still brings them within striking distance.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Netflix. The Motley Fool has a disclosure policy.