A recent report from Convergence Consulting Group states that by their estimates, 1.13 million TV households in the United States canceled pay TV services in 2015, which is about four times the pace of cancellations in 2014.
The report is somewhat humorously called “The Battle For The North America Couch Potato” and shows that even though pay TV subscription revenue increased by 3% in 2015 to $105B and is expected to tick up another 2% in 2016 to $107B, those percentages don’t match up to the rapid growth now being experienced with over-the-top (OTT) video services, like Netflix and Hulu.
Over the same time period, OTT subscription revenue increased by 29% to $5.1B in 2015, and is expected to grow another 20% this year to $6.1B. Now, that’s just 5.6% of the revenue forecast for conventional pay TV this year. But the growth rate of OTT is impressive and is mostly at the expense of conventional cable, fiber, and satellite TV subscriptions.
Convergence also reports that “cord never” and “cord cutter” households increased to 24.6M in 2015 from 22.5M in 2014. It’s expected that number will continue to increase to 26.7M households by the end of this year. (For some perspective, Comcast has a total of about 23 million broadband subscribers, which is more than their pay TV subscriber total.)
It’s no mystery why OTT continues to grow in popularity. Services like Netflix, Hulu, and Amazon Prime allow viewers to watch individual movies and episodes of TV shows on demand for reasonable prices, either as part of a mow monthly subscriber fee or an annual membership fee + small per-viewing charges.
In essence, what OTT viewers get is a la carte TV, instead of paying a hundred dollars or more for a service bundle that includes large blocks of TV channels that never get watched. (The average TV viewer watches about 17 different channels in a year.) And the key to making that possible is ever-faster broadband speeds, which (perhaps ironically) are being offered by cable TV companies to hold off the likes of Verizon’s FiOS, DirecTV, and Dish.
The analogy is of someone providing you the rope with which they will be hung. As Internet speeds increase along with cable bills, the first thing to get dumped is the pay TV channels. With many families, they’ve also dropped landline service in favor of mobile phones, so there’s no need for a “triple play” package (or even a “double play,” which in baseball means you’re out!)
There aren’t enough studies on hand to show how many of those cutters have picked up on watching free, over-the-air (OTA) digital TV broadcasts. And there continues to be disputes between different advocacy groups as to how much of the population actually watches OTA TV: I’ve seen estimates as low as 5-6% and as high as 20%.
Now, the second part of the story: Vizio, a leading TV brand, is now shipping a line of SmartCast Ultra HDTVs that will be “tuner-free.” You read that right; these TVs won’t have an on-board ATSC tuner for OTA broadcasts. An extra tuner would be required, along with an HDMI connection and indoor or outdoor antenna.
Technically speaking, a “TV” sold in the United States MUST have an ATSC tuner built-in, according to the FCC mandate that set a final compliance deadline of March 1, 2007. However, there is no reason why a company can’t sell a “monitor” or “display,” which would not be required to contain such a tuner. (The original FCC mandate exempted monitors that did not include analog tuners from having a digital tuner.)
According to a story on the TechHive Web site, the changes will apply to all of Vizio’s 4K Ultra HD TVs with SmartCast, including the new P-Series and upcoming E- and M-Series sets. In the story, a Vizio representative was quoted as saying that the company’s own surveys showed that less than 10 percent of their customers watched OTA broadcasts, and that a CEA (now CTA) study in 2013 claimed that just 7% of U.S. households used antennas to watch TV.
That figure is obviously low by an order of magnitude. In the 3rd quarter of 2015, the research firm Nielsen found that 12.8 million U.S. homes were relying solely on OTA TV reception, up from 12.2 the year before, and that this number didn’t include homes that are combining antenna broadcasts and streaming. All told, the percentage of homes that use an indoor or outdoor antenna in some way to watch TV probably falls between 10% and 12% – and could be even higher.
So why would Vizio drop the tuner? There’s certainly a cost savings associated with it, and not just for the hardware – there are also royalties associated with the underlying technology. But given that you can buy an outboard ATSC tuner for as little as $40, it can’t be a huge cost savings.
What’s funny about Vizio’s approach is that retailers are offering more antennas and even offering streaming media players and antennas as bundles. I’ve even noticed that the offerings of indoor TV antennas have increased at the local Best Buy (outdoor antennas are still a tough sell; only us hard-core OTA viewers will take the time to install them).
It doesn’t appear any other TV brands are following suit. However, there is a fly in the ointment: ATSC 3.0, which as a completely new standard would require an outboard set-top box or perhaps a USB stick to work with existing TVs. That’s because it supports different transmission modes that are incompatible with current ATSC tuners.
Another wrinkle – there’s no timeline for adoption of version 3.0. Right now, we’re in the middle of the first wave of FCC channel auctions, meaning that the UHF TV spectrum may be somewhat truncated after all is said and done – and many stations will have to relocate. So moving to a new terrestrial broadcast standard won’t be a priority for broadcasters any time soon.
Posted by Pete Putman, April 11, 2016 3:00 PM
About Pete PutmanPeter Putman is the president of ROAM Consulting L.L.C. His company provides training, marketing communications, and product testing/development services to manufacturers, dealers, and end-users of displays, display interfaces, and related products.
Pete edits and publishes HDTVexpert.com, a Web blog focused on digital TV, HDTV, and display technologies. He is also a columnist for Pro AV magazine, the leading trade publication for commercial AV systems integrators.