Technology | Media | Telecommunications

Tuesday, February 02, 2010

Why Subscribers Downgrade Pay-TV Service

Pay-TV service providers have reached a crossroad -- either way, business as usual is not an option. Over two-thirds of American pay television subscribers would be willing to switch providers if offered a price discount of 20 percent, according to the latest market study by Strategy Analytics.

While Cable TV customers were the most likely to churn, only half as many (33 percent) of Telco IPTV subscribers are eager to change providers. Their report, "Digital TV Customer Satisfaction: U.S. Survey Results 2H'09," is the result of polling 856 digital pay television subscribers within the U.S. marketplace.

Overall, respondents reported satisfaction with their current digital television provider, with 71 percent claiming to be "somewhat" or "very" satisfied. There was a marked difference, however, among access platforms. Telco IPTV customers reported 95 percent overall satisfaction, compared to 78 percent for Satellite, and 67 percent for Cable.

Highly Volatile Market Dynamics
That said, fewer than 22 percent of subscribers -- irrespective of the pay-TV platform -- believe they were receiving "value for money". Meaning, the vast majority believe they're paying too much for what they receive -- with the price typically rising, as the experience continues to decline (due mostly to the frequency and irrelevance of TV advertising).

"The value-for-money result was perhaps the most important finding of this study," noted Ben Piper, Director of the Strategy Analytics Multiplay Market Dynamics service. "It underscores a trend we have been seeing for the past 18 months -- a growing number of customers are beginning to question the value of a traditional pay-TV subscription in light of expanded over-the-top offerings, such as Hulu and Netflix."

While Telco IPTV is expected to make strides in the upcoming years, the platform's success is certainly not a foregone conclusion, according to Piper's assessment. In a highly penetrated market such as the United States, growth will not be organic. In fact, the market is destined for a major shift, once consumers discover the low-cost alternatives .

Moving Beyond Myopic Market Segmentation
Meanwhile, I believe that industry analysts now must move beyond measuring the cord-cutting phenomenon -- where traditional pay-TV subscribers totally terminate services -- and instead start to acknowledge the growing market segment(s) of service down-graders.

A growing number of traditional pay-TV subscribers are dropping premium channels and downgrading to basic service tiers. They do this after subscribing to alternative sources of movies and premium TV series (Netflix in particular), then they discover the free over-the-top (OTT) "Instant Play" video streaming offerings, and the ease of creating a personalized video play-list (Netflix queue).

Granted, some Netflix subscribers will quickly evolve to unsubscribing from pay-TV basic service tiers, after they install an external or attic-mounted antenna to receive high-quality digital broadcast TV signals for local programming. But, this segment is currently at the extreme end of the spectrum.

We need a comprehensive segmentation study that will uncover why subscribers downgrade pay-TV service, and the various stages of their progression to abandon traditional pay-TV. Then, we'll have a full understanding of this disruptive transition to OTT service offerings.