Not content to sit by and watch the headlines claiming significant cord-cutting is underway, ESPN is wading into the cord-cutting research fray, releasing a new analysis of its own, which it asserts that the activity has been totally overblown.
By analyzing Nielsen data, ESPN says that in the past 3 months, .28 percent of U.S. households have cut the cord, though mitigating this decrease is that .17 percent of households that had been subscribing to the lowest tier of pay-TV service (dubbed "broadcast-only") upgraded to pay-TV and broadband Internet services. With approximately 110 million households in the U.S., ESPN is saying around 308,000 homes cut the cord, with 187,000 upgrading from broadcast-only, for a net loss due to cord-cutting of 121,000 households. Interestingly, that 121,000 households is quite close to the 119,000 subscribers that SNL Kagan said that U.S. pay-TV operators lost in Q3 '10.
To be fair, some will suggest that as a key industry player, research from ESPN is hardly neutral. From my perspective, given the closeness of the ESPN and Kagan numbers, the ESPN analysis doesn't so much as debunk the cord-cutting theme, as it helps validate its sizing. At these rates, the gross level of cord-cutting in the U.S. may well be running in the 1-1.5 million subscribers per year range at this point. With over 90 million homes subscribing to pay-TV service, that's not the mass exodus some like to portray, but certainly losing 1-1.5% of subscribers each year due to low cost alternatives should be above the bar to cause concern. How the industry responds to this threat - through initiatives like TV Everywhere, lower-priced tiers, integration with new devices, etc. - will have a huge influence over whether the 1-1.5 million level grows or contracts going forward. Trends in cord-cutting plays will have a huge impact on ESPN in particular since it is by far the most expensive channel on a per subscriber basis for pay-TV distributors to carry (widely understood to be more than $4/mo/subscriber). ESPN further noted that among medium and heavy sports viewers, there was "zero cord-cutting." That doesn't surprise me, but as I recently suggested in "Are Live Sports Pay-TV's Firewall or Its Albatross?" the issue is that light sports fans and non-fans have been effectively subsidizing the pricey sports channels for years, and now, given cheaper over-the-top entertainment-only options, they could well flee the subscription model. That's why efforts like Time Warner Cable's "TV Essentials," which excludes sports could become more important, to pay-TV retention.
In 2011, as each quarter's results bring mounting losses of pay-TV subscribers, the debate over how real cord-cutting is will further intensify. For cord-cutting's enthusiasts, pay-TV Armageddon is just ahead; for others the industry is still very much in control of its destiny. We'll see.