Report on Cord Cutting Unfairly Points Finger at Netflix

Blame Game for Cord Cutting


Cord-cutting refers to customers disconnecting their traditional pay-TV services in favor of free over-the-air broadcasting and/or Internet video services. The growth of Netflix (NASDAQ:NFLX), Hulu and others has raised concerns among traditional pay-TV service providers like Comcast ( CMCSA ) and Time Warner Cable (NYSE:TWC). In addition to this, the recent economic turmoil provided strong incentives for customers to cut their cable connections.

Latest Findings Suggest Netflix is a Culprit

Source: Wikimedia

A recent article from The New York Times essentially claims that Netflix is responsible for the recent increase in cord cutting, citing a latest study conducted by a media research firm called the Diffusion Group. The study claims that the fraction of Netflix subscribers planning to downgrade or cancel their cable TV services increased from about 16% in 2010 to 32% in 2011.

A Closer Look at Findings

Netflix on Xbox

Source: Wikipedia

At first this looks like a serious situation for cable providers. However, there are few factors that should moderate this discussion. Firstly, the study talks about 'plans to downgrade cable' and not the 'actual' number of Netflix customers that cut the cord last year. Second, only one-third of Netflix customers - implying about 11% of the of the subscribers surveyed - mentioned the primary cause was online video.

If we dig further, about two-thirds of those citing online video - or about 7% of those surveyed - actually mention the primary cause to be Netflix. If we apply this percentage to Netflix's subscriber base, these would constitute less than 2% of U.S. TV households.

Cord Cutting Concerns are Overdone

We question the strength of these findings. Given the blistering growth rate of Netflix this past year, comparing results between different sample sets over time could lead to different results. And the report openly states that the majority of those planning to cancel cited economic reasons, which could have nothing to do with Netflix altogether as these users could have cancelled cable anyway. The truth is, Netflix still can not be a substitute for TV and whether it can do this or not in future, may govern its subscriber growth in years that follow.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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