If cord cutting is a myth, why is Wall Street so jittery?

Jim O'NeillIt seems that every week or two there's new data detailing the latest cord-cutting threat to pay-TV operators. And, shortly after it hits, there are industry wags questioning the impact, source, or causative factors cited.

A current refrain among cable types, for instance, is that the 710,000 subscribers lost in the second quarter this year--the worst quarter the industry has ever had--was due to (pick one):

(A) The poor state of the economy
(B) The impact of the analog to digital switchover
(C) A small, rogue element of malcontents
(D) All of the above

What they don't mention--or address--is the consumers' overall lack of satisfaction with the perceived value of pay-TV offerings and an increasing desire for a la carte programming choices. And, so, the numbers keep rolling out.

Strategy Analytics last week said it surveyed 2,000 American households and found that 13 percent are "very likely" to cut the cord in the next 18 months and, when Apple TV, Google TV and connected TVs are added to the equation, that number tickles 20 percent. Among younger viewers, analyst Jia Wu said, the trend is strongly away from pay-TV. "While older viewers might be slow to change their habits," he said, "younger users already are getting their content from other places than traditional pay-TV."

In May, the Yankee Group reported similar numbers, saying 12.5 percent of consumers would cut the cord this year, a number it, too, predicted as likely to climb as connected TVs and other devices that made it easier to get content over the top rolled out.

But the latest numbers, numbers that made Wall Street sit up and take notice, came from a Credit Suisse report that said some 37 percent of Netflix users between the ages of 25 and 34 use that streaming service instead of pay-TV, and that another 30 percent of 18- to 24-year-olds also have cut the cord and find their content over the top.

Granted, Wall Street isn't always on top of things--can you say derivatives, short selling and mortgage markets in one breath without breaking out in a sweat and checking your 401k?--but when it comes to media and technology it has a slightly better track record.

Credit Suisse said because of erosion in pay-TV subscribers, and an expected acceleration in that metric, it was downgrading a number of media stocks, including Disney, Time Warner, Viacom and News Corp. The company said pay-TV operators would have to cut their rates (GASP!) in order to keep subscribers, leading to a smaller payout to networks and content producers.

The winners? Credit Suisse is betting on, among others, Netflix, which it upgraded. There's little doubt that Apple, Samsung, Sony and a number of other OTT delivery initiatives also will have success in the market as content owner begin looking for better returns.

And, there's an opportunity in all of that turmoil for IPTV operators who have the ability to expand and control their over-the-top offerings, create a la carte pricing and bring the services that consumers want to their living room. The question is, will the industry be forward looking, or will it go to ground? - Jim

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