2010 Year in Review: Cord cutting takes center stage

For the first time in the industry's history, pay-TV saw a net loss of subscribers, not just in one quarter, but two consecutive ones. Some analysts say it's not out of the question to expect similar results in the final quarter of 2010.

Cable operators took the brunt of the hit, losing some 1.4 million subscribers in the second and third quarters.

Despite significant subscriber gains by Verizon and AT&T, as well as net gains by Dish Network and DirecTV, losses still outpaced gains.

The cable industry explained away the defections as the product of a struggling economy, as strapped homeowners opted to reduce bills by returning to over the air options.

ESPN, in a study using Nielsen data, said that only a fraction of subscribers actually abandoned pay TV overall, stressing that it believed most who abandoned cable simply switched to other pay-TV services. The study, it said showed that most users who actually cut the cord were "mainly middle-aged, middle-income households and persons who are light or non-streamers. In short, cord cutters are more likely to be recession-challenged householders making hard choices about their expenses."

Not everyone agrees.

SNL Kagan senior analyst Ian Olgeirson said, "It is becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance. Particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains due to seasonal shifts back to television viewing and subscription packages."

Strategy Analytics analyst Jia Wu said SA surveyed 2,000 U.S. households recently and "found that the perceived value of pay-TV is very low."

"In fact," he said, "only 20 percent said their service exceeds or greatly exceeds their expectations."

And, he said, new connected TVs and devices are making going without a pay-TV option more appealing.

"With something like a Sony TV, you don't have to have a set-top box, you don't have to make any confusing connections, it's all right there," he said. "Younger users already are getting their content from other places than traditional pay-TV. It's just another shake out of the pay-TV industry."

Verizon CEO Ivan Seidenberg, who knows something about losing younger customers to emerging technology, at a conference in September said OTT delivery was a major threat to the pay-TV industry, one that could lead to more substantial subscriber losses.

"I've seen the movie," he said. "If you remain static too long, the technology is going to nibble at you on the edges, and you have to be prepared for it."

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