A Funny Thing About Cord Cutters

Much has been written about the Nielsen position on cord cutting…that it is, in fact, happening, but among segments that are not of core importance to the TV industry.  A key paragraph from the June 2010 Nielsen press release below:

“….shifting to online video mainly appears to be happening in small pockets of the population, including young, emerging households.  Households with no cable subscriptions at all, but who subscribe to a broadband service, also reflect a younger population of college graduates and lower to middle income consumers who may not be fully convinced of the need to pay for digital cable.  However, Nielsen data shows that these individuals are typically light TV viewers who watch 40% less TV per day than the national average.   And while they stream about twice the average amount of video, they still only stream about 10 minutes per day, hardly an indication of a monumental shift to online-only viewing.”

The delicious irony of this position:  according the the theory of disruptive innovation (Clayton Christensen, The Innovator’s Dilemma, 2003) it is precisely among non-core audiences that disruptive innovations gain their initial foothold.   Check out this quote from The Innovator’s Dilemma:

“First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits.  Second, disruptive technologies are typically first commercialized in emerging or non-significant markets.   And third, leading firms’ most profitable customers don’t want, and indeed initially can’t use, products based on disruptive technologies.   By and large, a disruptive technology is initially embraced by the least profitable customers in a market…”

So…according to the Nielsen analysis, disruption of the TV business is proceeding more-or-less in textbook fashion.  Not what they intended I’m sure.

One niggle to applying the concept of disruptive innovation to cord cutting: disruptive innovations generally deliver a lower quality product (offset by other benefits).   At least at first.   While most cord cutters would likely argue that the quality of their viewing experience through their over-the-top devices is quite as good as they would get from multi-channel providers.

I’d argue, though, that cord cutters are sacrificing ease-of-use.  Not every mainstream consumer would know what over-the-top device to get or how to hook it up.  Lack of knowledge and a hassle factor keeps the disruption isolated among demographic pockets with greater economic need and some technological savvy…who are willing to go through a little trouble.

We’ll have to see, as going over-the-top gets easier for consumers, whether cord cutting expands beyond (and how far beyond) these initial demographic pockets:

  • Will exclusive content, only available through multi-channel subscriptions, become a critical barrier against the increased penetration of cord cutting?   Live sports, in particular, may be a key factor that keeps people from cutting the cord so long as there is no easy/legal way to get major sports events over-the-top.   If this is true we may see female-headed households and those who care less about sports become the next demographic frontier for cord cutting.
  • Is there a psychological barrier for a significant portion of TV viewers (particularly heavy viewers) against the on-demand only type of experience that cord cutting entails?   To the degree that there is an inherent need to surf channels…there may be an anti-cord cutting barrier for heavy viewers.
  • Will the TV Everywhere initiatives of the major TV players help forestall disruption of their business?

It will be fascinating how it all plays out…

But one thing we must not do is dismiss the phenonomenon based on its initial audience characteristics.   Quite the contrary.

 

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