ESPN buries its head in the sand on cord cutting and OTT delivery

Jim O'NeillESPN released a study this week that claims cord cutting is a minor issue, a fly in the ointment, so to speak, of an industry that's rolling forward with gusto.

Now, I'm not sure if execs at the sports programming giant really believe the numbers they put out, or if they're simply hoping the figures are accurate. Either way, the presumption that it's performed a definitive study that has proven cord cutting is moot is a little over the top itself.

The ESPN study uses Nielsen data--the very same data that the industry criticizes for not being accurate when it's setting ad rates for programming based on ratings--to craft a position that says just one-tenth of 1 percent of cable viewers are actually cutting the cord and going over the top for their entertainment viewing.

The rest of the 1,455,000 consumers who ditched their cable connections in the past two quarters? Glenn Enoch, ESPN's VP for integrated media research, said, generally weren't cord cutting, they were cord switching, jumping to IPTV, FiOS or satellite TV. And, he said, the ESPN study has debunked the stereotype of cord cutters as being young, affluent, highly educated and high-tech types. Instead, it said, it's found "they 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."

Enoch claims the study "adds critical intelligence to our understanding of the multichannel marketplace. We knew from other sources that cord cutting was a very minor behavior, but we now have the ability to quantify this group and monitor it in the future."

Even if you forget that ESPN has nothing to gain--and everything to lose--by acknowledging cord cutting is a problem for them, or forget that HBO, another subscriber-dependent programmer, says it expects to wind up 2010 short some 1.5 million subscribers, it has to be hard for them not to see that a market upheaval is occurring. That makes it hard for me to not look a tad askance at the ESPN study.

ESPN's assertion that the pay-TV market is vibrant and healthy ignores an awful lot of reality.

There are 17 million households that subscribe to Netflix--a business that is now worth more than $2 billion--as an alternative to traditional media delivery. They'd rather get DVDs in the mail or, increasingly, stream content. Just ask Blockbuster, Hollywood Video or any number of other brick and mortar businesses that learned that the hard way.

Hulu continues to grow, with users--and advertisers--increasingly comfortable using its replay service; while it won't share subscriber numbers, CEO Jason Kilar said Hulu Plus has outstripped the company's expectations, and reports Hulu has seen its ad revenue more than double this year.

A recent study from Needham & Company asked multichannel users which channels they needed to have online before they'dMust-have channels for viewers consider cutting the cord. Only CBS (35 percent), ABC (34 percent), Fox (31 percent) and NBC (31 percent) were named by close to a third of the users. ESPN was fourth at 27 percent, Discovery (19 percent), History (14 percent), HBO (11 percent), Comedy Central (10 percent) and Food Network (10 percent) rounded out the Top 10. Not very impressive, and it gives you, perhaps, a better idea of what the tipping point between cutting, and not cutting the cord is.

Business Insider, at its Ignition conference on media in New York City last week, said "new" media companies (Google, Facebook, Yahoo, Netflix, Twitter, iTunes and Hulu) had, essentially, the same market value as "old" media companies (Time Warner, Time Warner Cable, NBCU, CBS, Disney, Comcast, News Corp. and Viacom), some $289 billion compared to $296 billion. That doesn't mean old media is dead, but there's no doubt it's changing.

There's also no doubt that some of the new over-the-top delivery devices that are on the shelves this Christmas--Roku, TiVo, Orb Video, Boxee Box, Apple TV, Google TV and the like--won't be there next year. But others will replace them. Just like DVD players replaced VCRs--and TiVo changed the way TV was watched.

And, while ESPN may be digging in its heels (it's wildly successful World Cup experiment notwithstanding), as Boxee CEO Avner Ronen is wont to say when discussing the reluctance of programmers to make content available over the top: "Resistance is futile."

It's no secret consumers dislike--some might say despise--their pay-TV operators. They're upset about content packaging, upset about customer service and upset at the price they have to pay to get it. That's one reason churn is so high, and one reason that when a new service rolls into town--like IPTV--it can pretty much count on grabbing at least 5 percent of the market upon roll out.

I don't really think it's a stretch at all to say that if consumers could cut the cord and get everything they wanted easily, they would. So, what are you going to do about it? Are you digging a hole and burying your head? Or have you done, or, planned to do something about it?

In this fast-moving environment, are you going to be the bug? Or the windshield? -Jim

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