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What Might an Economic Downturn Mean for Cord-Cutting?

By Stephen Lovely – Updated Nov 30, 2018 at 3:57PM

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The market's been on an epic bull run, and the Great Recession is far in the rearview mirror. The good times won't last forever. What will happen to cord-cutting when things go south?

The current bull market is the longest in history, and the Great Recession has faded to a memory for many people, but the good times won't last forever. They never do.

And when times get economically tough, people will look for ways to save money. Does that mean cord-cutting will surge when the economy goes south? Will people jump on board a movement that promises more control over what you watch for less cost?

Cord-cutting: Two phenomena in one

Predicting the future of cord-cutting in an economic downturn is a bit tricky because there are a couple of ways to view the phenomenon.

Scissors cut a cord in front of cash

Image source: Getty Images

People cut the cord to save money: Proponents are quick to call ditching your cable TV subscription a cost-saving measure. Cable is too expensive, they argue, and that's hard to deny: Cable is getting more expensive even as more consumers get rid of it. The average monthly cable bill broke $100 in 2015 and has continued to rise. And customers tend to cite cost as a major reason for cutting cable.

In this view, cord-cutting is a budgeting decision, one that is likely to be made more often -- not less -- when household budgets are tighter.

But signing up for streaming isn't necessarily about money: Signing up for streaming video is also a tech and lifestyle phenomenon. Streaming boxes and streaming services are high-tech items that can be considered luxuries, not necessities.

And streaming subscriptions are often added to expensive cable subscriptions, not used to replace them. By one count, 36% of Americans have both a streaming subscription and a cable package. And more and more Americans are reporting that they subscribe to multiple streaming services. According to the Video Advertising Bureau, the percentage of people with over-the-top video service who have three or more subscriptions rose form 4% in 2015 to 32% in 2017.

The number of streamers with multiple services and combinations of legacy pay TV and OTT subscriptions suggests that cord-cutting is not strictly a budgeting phenomenon.

Cord-cutting and the future

While cord-cutting isn't simply a monetary decision, ditching cable really does make economic sense for budget-conscious consumers. For instance, Netflix may not replace cable for all its users, but it's relatively cheap with its most popular plan costing $11.99 per month. This points to the likelihood of a bump in cord-cutting (and streaming) when the economy weakens.  

Cord-cutting also has inertia on its side. The march of technology that has made internet speeds faster, streaming services more ubiquitous, and streaming devices more powerful and affordable will continue at some pace no matter what the economy and stock market are doing. Slow or fast, cord-cutting is going to grow -- and legacy pay TV shrink -- for the foreseeable future. 

Of course, not all cord-cutting options will do as well in an economic downturn. If people are really tightening the purse strings, budget solutions will do better than pricey ones. And niche services, which are frequently used to supplement (rather than replace) big ones like Netflix, will look more expendable than their more comprehensive counterparts. An increase in budget-minded consumers could also be good for free ad-supported video on demand services like Tubi TV and Sony's Sony Crackle.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Amazon and Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.

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