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Ongoing Fragmentation of U.S. Video Entertainment

What happened to the legacy video entertainment market in America, and why has HBO announced that they will -- for the first time -- choose to bypass the traditional pay-TV distribution channel to reach new customers?

While residential broadband internet access will soon reach 100 million households in the U.S. market, legacy pay-TV subscription services have already peaked and are in a slow decline.

According to the latest market study by The Diffusion Group (TDG), during the next few months, and for the first time in history, the number of home broadband subscriptions will surpass the number of home pay-TV subscriptions.

In September 2014, TDG surveyed 500 adult broadband users that did not subscribe to a traditional home pay-TV service -- such as those offered by cable, satellite or telco network operators.

Based upon the TDG market assessment, they uncovered that 14 percent of adult broadband users do not use a legacy pay-TV service -- that's up from 9 percent in 2011, the 36-month period during which home pay-TV subscriptions began to decline.


"Today, residential broadband services are used in 75 percent of U.S. households, meaning 13 million broadband households are currently doing without a traditional pay-TV service," said Michael Greeson, president and director of research at TDG.

TDG believes that while these consumers pose an obvious and growing challenge for incumbent pay-TV service providers, they provide an excellent opportunity for new video purveyors, whether pure-play online ventures like Netflix or the growing list of television networks going direct-to-consumer.

However, as Greeson notes, "Minimizing damage and maximizing opportunity presupposes an understanding of who these consumers are, what drives their decisions, and what they expect from a pay-TV service, be it legacy or online."

TDG calls this growing untapped customer segment "Pay-TV Refugees" -- they're comprised of two distinct sub-segments, Cord Cutters and Cord Nevers, each exhibiting widely varying demographic and video-viewing characteristics.

The differences, according to Greeson, are so pronounced that any video entertainment company targeting these consumers must think in terms of two distinct packaging and pricing strategies.

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