NEW YORK Are people really canceling cable to watch TV and movies from the Internet?
Its a question that has dogged the pay-TV industry for a year, and a spate of quarterly reports over the next few weeks, starting with Time Warner Cable Inc., could provide important clues.
Much lies in the balance. If online video really is taking TV service subscribers from cable, satellite and phone providers, its not just bad news for those companies. Analysts also see it leading to more restrictions and higher prices for online video and broadband access, a trend that has already started.
This month, Netflix Inc.s streaming video service went from being a freebie thrown in with its DVD-by-mail service to something the company charges for separately.
On Tuesday, News Corp.s Fox broadcasting company said that only paying subscribers of Hulu.com or satellite-TV company Dish Network Corp. will be able to watch new episodes of its shows, which include Glee and Family Guy, online the day after they air. Non-paying viewers can catch them online eight days later.
Hollywood studios and other content producers have so far seen online video as an addition to the revenue they get from cable and satellite companies, and they have charged less for it. Consumer surveys showed that people didnt watch less TV just because they went to Hulu.com or Youtube.com sometimes.
But in June, The Nielsen Co. said it found that Americans who watch the most video online tend to watch less TV. The ratings agency said it started noticing last fall that a segment of consumers were starting to make a trade-off between online video and regular TV. The activity was more pronounced among people ages 18-34, a slice of the population advertisers are particularly eager to target.
That doesnt necessarily mean that people are starting to think they can get by without conventional pay-TV. While sitcoms and movies are easy right now to get through online services, sports arent.
But if studios and TV networks start seeing online video as something thats siphoning off their flow of cash, then its in their interest to further restrict online viewing, like Fox did, or start charging for it.
It appears that Fox isnt waiting for second quarter Pay TV subscriber numbers to disappoint, wrote Sanford Bernstein analyst Craig Moffett.
Cable companies have their own way of replacing lost revenue: charging more for broadband Internet access, which is essential to online video. Internet service providers are starting to charge extra when subscribers go above a certain monthly traffic allotment. These charges that will hit households that guzzle online video before they hit people who use mainly the Web and email.
The pay-TV industry first lost paying subscribers in last years second quarter. The industry and most analysts concluded that the cord cutting was caused by the poor economy, which forced people to cut back on spending and combine households. The second quarter is also the years weakest quarter, because college students often cancel their service at the end of the semester.
The third quarter also showed a loss of subscribers. But then the seasonally strong fourth and first quarters showed growth, and fears subsided. Now, analysts believe the second quarter will show another decline. Cable companies lose subscribers every quarter, so the real question is whether satellite companies Dish and DirecTV Group Inc. and phone companies AT&T Inc. and Verizon Communications Inc. will make up for those losses. Thomas Eagan at Collins Stewart expects the industry as whole to show a loss of 31,000 subscribers, compared to an estimated of loss of 173,000 last year.