February 4, 2015
HBO is expected to offer its Web-only subscription service this spring. According to Parks Associates, the move could have an impact on the pay TV business since 17 percent of homes with high-speed Internet indicate plans to subscribe to the OTT service. And while 88 million U.S. households currently have broadband, that percentage potentially represents nearly 15 million subscribers. Following a strong media reaction, Parks followed up by clarifying that the data is a measure of sentiment and placing numbers on potential cord cutters may be premature.
The Parks research notes that about half of the broadband users who are currently pay TV subscribers and plan to subscribe to the new HBO online offering say they would consider canceling their pay TV subscriptions.
“To be clear: Parks doesn’t come out and use the words ‘take a huge chunk out of the pay TV business’ in the summary of its research,” reports Re/code. “But if Parks’ research is accurate — and, crucially, if the people who respond to Parks’ survey actually follow through on their plans — then HBO’s new ‘over the top’ service will end up costing the pay TV business around 7 million subscribers.”
While some analysts see the HBO service as a necessary approach to reaching the coveted millennial demographic, others suggest it could be the beginning of the end for today’s pay TV model.
In response to the Parks survey results, the news media was quick to jump on the story. The response was so strong that Park Associates published additional context for its findings, pointing out the popularity of the HBO brand and demand for its content, while noting that it is too early to tell what the impact would be on pay TV since there are a number of unknowns (pricing, availability, other services) and the current data is largely a measure of sentiment.
“The possibility of pay TV losing ~8 percent of its customers is an obvious concern for the pay TV market; however, there are a few reasons why we do not believe this translates to a loss of 7 million pay TV subscribers the day after HBO’s OTT service is open for business,” explains Parks Associates, citing the following specifics:
- This isn’t just about HBO. The survey question asked consumers about their likelihood to subscribe to an HBO OTT service and other OTT services. Respondents were also asked about intention to subscribe to CBS All Access, as well as hypothetical OTT services from Cinemax, Starz, Encore, and Movieplex. Consumers were then asked which services they would cancel as a result of subscribing to one of these services. Although half of those that would take HBO’s service stated that they would also cut the cord, only a small portion would exclusively take HBO and then cancel pay TV. Many respondents stated that they would be likely to take the other OTT options provided as well. So, HBO is not the sole driver for the approximately 8 percent of consumers to cut the cord. It is, however, one factor in consumers’ decisions to keep or cut their pay TV service.
- Past data supports a disparity between intention and behavior. Previous surveys from Parks Associates tell a similar story of intention vs. behavior. Intention to cancel pay TV service has increased slowly among respondents over the past two years, reaching 7 percent in 2014. Importantly, the previous survey questions were asked to all pay TV subscribers without reference to HBO or other OTT services. Yet, pay TV service subscription penetration among broadband homes in the U.S. has remained stable. So, while many claim that they will cut the cord, few have actually done so.
- The data is a measure of sentiment. A survey of 10,000 households is a compelling sample. Clearly, a significant number of consumers are frustrated with the current pay TV model and are open to other options. Still, consumers are responding to proposed services (excepting CBS All Access, which is currently available) rather than ones that are actually present in the market. The actual pricing, content, features, and experience of these services, and cord cutting overall, will likely temper actual activity among consumers.