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MSOs Need a Pay-TV Market Segmentation Study

In the U.S. market, video entertainment "cord cutting" refers to the disconnection and replacement of high-cost pay-TV services. Video cord shaving refers to the elimination of premium channels, or the migration to lower-cost pay-TV service offerings.

Total U.S. pay-TV subscribers remained flat, growing by only some 148,000 during 2010, that's a 0.15 percent annual growth rate -- indicating no significant trend toward video cord cutting/shaving, according to the latest market study by In-Stat.

"A substantial portion of pay-TV subscribers, however, exhibit similar characteristics to video cord cutting households," says Keith Nissen, Principal Analyst at In-Stat.

In-Stat believes that it's important to track these at-risk subscribers, rather than the pay-TV subscriber base as a whole -- because they're the early-adopters that would lead a new trend that could quickly gain momentum. In-Stat says that 30 percent of U.S. MSO customer base would qualify as at-risk subscribers.

In general, In-Stat's latest market data confirms that adoption of online video is growing. But, except for Netflix, the frequency of use is not expanding.

This is largely because consumers are going to online portals to view specific TV and movie content. The frequency of viewing online video will probably not increase until must-see original online programming is introduced.

I believe that there's a window of opportunity for Cable MSOs to study the market segmentation implications of their accelerating subscriber losses. Migration to lower-cost alternatives to traditional pay-TV is the primary motivation for many people who disconnect service, but it's not the only reason.

Now is the time to uncover the other key market drivers, before the trend gains new momentum -- as customer word-of-mouth attracts even more converts to the Netflix subscription offering. As an example, once people choose to supplement cable TV with Netflix, what percentage later disconnect cable service, and why do they do it?

In-Stat's latest market study found the following:

- Cable operators lost 2.5 million subscribers, but satellite and telco operators made up most of the difference.

- Neither age nor household income appear to impact pay-TV service cord cutting.

- More households added premium channels during 2010 than dropped premium channels.

- Cable sports is valued significantly less than on-demand access to TV content or premium TV channels; more sports will not protect against cord cutting.

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