People increasingly cut the cord for content, importance of cost decreases – analyst

The cost of pay TV services has been the leading factor for people cutting the cord and switching to streaming, but that reason is decreasing in importance, according to MoffettNathanson, with access to content becoming an increasing part of the rationale.

The cost of pay TV being too expensive still reigns as the top reason, but the second most important driver is “all the shows I currently watch are available on streaming services,” the firm outlined in its Q1 2022 U.S SVOD tracker. The report leverages HarrisX data on U.S. video consumption from over 22,800 respondents between January and March.

In Q1 30% of Hulu subscribers cited TV subscriptions being too expensive as their primary reason for streaming as a replacement to pay TV, a decrease of 2% quarter over quarter. For Amazon Prime, 34% cited cost, a 4% drop over the prior quarter, while the reason dropped 2% for Netflix to 31% in Q1.

The percentage of those saying the shows they want are on streaming is the reason for cord cutting rose 6% on Hulu quarter over quarter to 23% in Q1. Content as the rationale was up 3% compared to Q4 for Amazon Prime Video to reach 20% in the first quarter, with content being the primary reason to switch for 20% on Netflix, up 1% from the previous quarter.

The report also shows that cost as the primary concern driving cord cutting has dropped notably since a few years ago.

In 2019, 50% on Amazon Prime had switched from pay TV to streaming because of cost. By the first quarter of 2022 cost as the primary reason for cord cutting had dropped to 34%, with Hulu and Netflix following a similar trend, according to the firm.

Meanwhile, those on Hulu that switched from pay TV to streaming because of content rose from 15% in Q3 of 2019 to 23% in the first quarter of 2022.

MoffettNathanson detailed the changes in an April 18 report, which noted a backlog of content as production schedules were delayed during the pandemic, “and now as these new offerings are hitting streaming platforms, consumers are increasingly realizing that there is a content bounty on streaming,” wrote analyst Michael Nathanson.

That said, Nathanson believes the exit of original content on linear TV as network owners like Disney, Comcast, Paramount and now Warner Bros. Discovery move more onto streaming services “is a potential tragedy of the commons situation” where they end up collectively damaging the common good of the linear TV bundle.

“Linear network owners are individually moving more and more original content to streaming, which collectively weakens the viability of the bundle for all,” wrote Nathanson. “It is akin to the mistake made when linear network owners individually agreed to sell content to Netflix, which ultimately weakened the linear system that paid their bills.”

Separately, a recent Nielsen report showed that monthly streaming budgets remain fairly low, with almost two-thirds of survey participants spending at most $30 per month on streaming services

Streaming penetration reaches 80% as Peacock shines

Whatever the reason for switching, streaming adoption continued to rise, reaching a new quarterly milestone of 80% U.S. household penetration in Q1 as newer services like Peacock and Paramount+ saw a boost, according to MoffettNathanson.

The penetration growth is driven by streaming households that don’t have a pay TV subscription, which like overall streaming penetration increased by 100 basis points in Q1. The share of U.S. households that stream but don’t have a pay TV subscription was 38%, up from 37% in Q4 and up from 26% in Q1 2021.  

“The star of these charts is the rocket ship that is Peacock, whose 235 bps Q/Q growth places it nipping at the heels of Disney+,” wrote Nathanson, who noted that the survey data also captured its free advertising-based AVOD tier, which exaggerates the paid Peacock SVOD tier growth.

Peacock penetration reached 23% in the first quarter of 2022, putting it in range of popular Disney+, which was at 26%, and above HBO Max which stood at 19% penetration after growing 185 basis points.

Nathanson said that Peacock’s performance was lifted in part by live event sporting programming including the Winter Olympics and Super Bowl.

In the current quarter, Peacock also has more live events content coming its way as the platform became the exclusive home for new MLB games that will air for 18 consecutive weeks in a new Sunday morning game timeslot.

Paramount+ also had a great Q1, with penetration now at 14%, versus closer to 10% in Q4 and around 5% in Q1 2021. It contrasts to the larger streaming giants of Netflix and Amazon Prime Video which remained flat in the first quarter (at 56% and 42% respectively), and smaller streamers Discovery+ and Apple TV, which stood at 9% and 10% penetration, respectively.

“Discovery+ and Apple TV+ both continued to struggle to gain momentum, despite the latter carrying streaming’s first Best Picture winner at the Oscars,” wrote Nathanson. “Perhaps a Coda bump will materialize in Q2.”

Even though Discovery+ subscription didn’t see major gains, the firm highlighted that those who do use the SVOD service are tuning in often, as daily usage is behind only Netflix and Hulu. And while Peacock is upping is presence in U.S. households, daily and weekly usage among its users trails the rest of the SVODs, standing at 19% and 30%, respectively.