Thursday, February 4, 2010

Cord-cutters Are Hulu, Redbox and Netflix Junkies

The threat of cord-cutting is real, but not as big as one might expect, according to new research from Parks Associates. The Dallas-based market research company is estimating in its new “All Eyes on Video” report that less than 8 percent of U.S. households are thinking about canceling their pay-TV subscription in favor of online services. However, cable companies shouldn’t celebrate just yet: Cord-cutters seem to be trendsetters, who not only watch way more online video, but also rent a ton of DVDs.

The new findings from Parks Associates come only two days after Strategy Analytics released its own study about the value perception of cable TV, which painted a slightly different picture, stating that less than 22 percent of cable’s customers were thinking that they were getting their money’s worth from their subscriptions. Taken together, both studies seem to signal that the real winners of any move towards cord-cutting could be paid services like Netflix.

Parks Associates is estimating that about 5.5 million U.S. households are seriously considering cutting the cord, down from 2008, when that number stood at 11 percent. And the number of people who actually follow through seems to be even lower: Park believes that only 0.5 percent, or 350,000 homes, have cut the cord so far.

And households considering cutting the cord watch 10 hours of online video per week, which Parks calls “much higher than typical video consumers.” Potential cord-cutters also rented a median of 18 DVDs during the last six months, compared to two DVDs for customers willing to stick with cable.

What explains the discrepancy? Netflix, of course, a service with its high turnover rate for rentals, and possibly Redbox with its ultra-low rental prices, according to Parks Associates research director John Barrett. “Nobody is going to rely on online video alone — households likely to cancel their TV services are going to use a mixture of online video, free-to-air broadcasts, and DVDs,” he said, adding that the threat of cord-cutting was “real but misunderstood” because people tend to focus on online video alone and ignore DVD rentals.

The Strategy Analytics report released earlier this week suggested that two-thirds of cable customers wouldn’t think twice about saying bye-bye to their cableco if someone offered them a better deal. Park Associates is now reporting that potential cord-cutters are very interested in accessing pay-TV online, a sign that the company views as encouraging for TV Everywhere.

Of course, it’s also good news for Netflix. The company has been pushing hard to make its Watch Instantly feature more attractive to its customers, but Netflix CEO Reed Hastings has said it will likely continue to rent out physical discs for decades to come. DVD rentals plus a growing online library for a price point much below your average cable bill — sounds like a potential cord-cutter’s dream, doesn’t it?

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