Mind the Gap: Broadcasters and the Growing Concern Around the “Subscriber Fee Gap” (Guest Post)





Cutting the cable connection to coax connector illustrating people cancelling cable TV service

Cutting the cable connection to coax connector illustrating people cancelling cable TV service

Today we have a guest post by Jim Long, CEO of Didja. Jim Long has over 25 years of experience in media industry. More recently he is the CEO of Didja the company behind LocalBTV. LocalBTV streams locals for free in several markets around the United States including Los Angeles (SoCalBTV), Phoenix (PhoenixBTV) and San Francisco (BayAreaBTV). Today Jim Long talks about the current state of cable subscribers numbers and cord cutting. 

We traditionally consider cord cutters to be the 8-9 million U.S. households who, since the end of 2015, have cut the cord or are new households without a cord (sometimes called cord-nevers). Of this group, a good chunk (around 4 million households) now have a “virtual cord” through online services like Sling TV and YouTube TV (vMVPDs). This groups is sometimes called “cord savers”. But what about the other 4-5 million U.S. households? They form a new group of households that do not subscribe to cable-channel-bundles or “subscriber fee gap households.”

Subscriber fee gap households are those not paying stations or networks fees through either traditional or online cable-bundle services.These households don’t fit consistently into the buckets that get most of the attention by the industry, largely because they can be difficult to define. Some of them have cut the cord, but some of them never had one in the first place. Some of them have TVs, some of them don’t. And some of them use antennas, some of them watch network programming on Netflix. Most have wired broadband, but some use mobile broadband exclusively.

What these households have in common is that they are not contributing subscriber (or “retrans”) revenue to broadcast networks and station affiliates.Some do contribute to ratings and therefore broadcast advertising revenues, but they are not paying subscriber fees. Over the past 15 years, these fees have become a major, if not dominant, source of revenue for both stations and networks.

Based on our research, including analysis of census home data, there were more than 31 million U.S. households in the subscriber fee gap at the end of 2017, up nearly 20% from 2015. Over the next five years, this number is projected to increase to over 40 million households.This means that networks and station groups are getting cable-bundle subscriber fees from only 75-77% of all homes today, down from 87% only a decade ago. In another four to five years, this could shrink to 60-65%.

So what are these 25% growing to 35% of US homes doing instead? Many are joining the growing number of homes receiving local broadcast TV via antennas, more than 20 million homes now. The third segment are homes that do not have home access to ‘live linear’ broadcast TV at all. And it is worth noting that all three segments, cable-bundle, antenna-TV and no-live-linear homes, may watch TV programs via internet video-on-demand services like Netflix or Hulu or network apps like HBO Now and CBS All Access.

The subscriber fee gap is a significant issue for broadcast networks and station groups. What was once close to 10 million homes not contributing fees to broadcast stations is now 30 million homes headed to 40+ million homes; a growing subscriber fee gap.

Why is there not more attention paid to this group? It’s not the dominant segment and the gap is masked by fee increases. As the network and station group earnings reports continually show, the cable-bundle subscriber total is down but broadcast revenues have mostly been up due to price increases to their V/MVPD distributors who are both passing on the fee increases to customers and suffering from shrinking margins. This good news for broadcasters is likely not sustainable in the shrinking cable-bundle market.

So what can networks and stations do to compensate for this lost revenue?

First, networks and station groups can take advantage of the increased use of antennas and local broadcast TV viewing, which is not only growing as a percentage of households but is also attracting younger new households at a much higher rate than 10 years ago. Second, networks and station groups must take advantage of social media platforms like Facebook, Snapchat and Twitter and try new ways to distribute and monetize both live and VOD programs. And third, networks and station groups should create both free ad-supported and subscription based direct-to-consumer apps.

Some people worry that new forms of distribution might conflict and potentially cannibalize higher revenue services but the data from the past two years does not support this worry. It is clearly a new era of consumer choice with TV programming more abundant than ever before.  Perhaps trying to control distribution too much is the riskier tactic, particularly for live linear investments. It may be better to get to consumers anyway possible rather than let them get accustomed to living without live linear TV.

And time is of the essence, the number of homes subscribing to “cable-bundles” is shrinking, down from a high of 87% of all homes 5-10 years ago to approximately 77% of all homes today. At this rate, the size of the subscriber fee gap is only going getting wider. And before it becomes so wide that it takes some networks down with it, or piracy looms larger, the major broadcast networks and stations need to seek out alternative sources for live linear TV distribution and revenue to attract this growing subscriber fee gap audience or risk losing some of them forever.

About Jim Long

Jim has 25+ years of experience building, funding and advising disruptive technologies in the media industry; notably, coining/inventing video streaming in the 90s and leading the team responsible for getting the five major recording labels to band together and embrace digital song downloads rather than be obliterated by sites like Napster in early 2000s.

As CEO of Didja, he launched BTV, which is already having a transformative effect on previously underserved audiences, which include bilingual homes and a rapidly growing number of cord-free homes across the U.S.

About Didja

Didja launched LocalBTV – the first and only app to bring access to local broadcast TV channels in one seamless mobile experience, along with DVR capabilities and a channel guide. The app is currently available in Los Angeles (SoCalBTV), Phoenix (PhoenixBTV) and San Francisco (BayAreaBTV)
As a broadcast industry and streaming video veteran, I look to the quarterly earnings from industry stalwarts like Comcast, FOX and Dish, not only as a barometer for the health of the industry, but also for trends on the horizon. Obviously the media trend getting the most attention these days is “cord cutting,” but that phenomenon is more complex – and much less benign – than it may seem.

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