Why Cord Cutters Are Favoring Cheaper Online Options Over Cable-Like Bundles

April 22, 2019, 7:08 PM UTC

The growing trend of people canceling their cable or satellite TV service may not be enough to sustain interest in the recent crop of Internet services trying to replicate the multi-channel cable world online.

The ranks of cord cutters and so-called cord never’s, who never subscribed to pay TV in the first place, jumped to 30% of all households in 2018 from 26% a year earlier, market tracking firm Convergence Research said in its annual “Coach Potato” report released on Monday. And the group will reach 34% of households in 2019.

But when those entertainment-hungry consumers look for Internet alternatives, Convergence found that they were much more likely to opt for more straightforward services like Netflix (NFLX), Hulu, and Amazon’s Prime Video rather than the multi-channel online services like AT&T’s (T) DirecTV Now, Sony’s Playstation Vue, and Google’s (GOOGL) YouTube TV.

The problem is that the cable-like online services, known in the industry as “over the top” or OTT services, have some of the same annoying features that drove consumers away from traditional cable offerings in the first place, Convergence notes. The services cost four or more times as much per month as Netflix and its peers and still interrupt shows with numerous commercials.

And while Netflix increased prices a few dollars per month recently, higher programming costs forced the cable-like services to hike their rates by $10 to $15 per month over the past year.

“We believe a number of OTT plays, including large and niche, will fail due to insufficient subscriber traction, cost, and competition,” the firm concluded in the report.

Competition is increasing in the online space, as well. Both Disney (DIS) and Apple (AAPL) are expected to come out with inexpensive, Netflix-like services later this year.

The amount of revenue brought in by traditional cable and satellite TV from providers like Comcast (CMCSA) and Dish Network (DISH) still dwarfs the Internet video industry, though it is starting to shrink, according to the report. Pay TV subscription sales declined 3% to $103.4 billion in 2018, while revenue for Internet video streaming services increased 37% to $16.3 billion.

Still, the cord cutting phenomenon has not been a total loss for the cable industry because it is also the leading provider of broadband Internet connections. Revenue for consumer broadband service rose 7% to $61.6 billion, Convergence said.

The Convergence results are similar to data on cord cutting from other sources. More people paid for Internet video services than cable or satellite TV for the first time ever, in a survey released by consulting firm Deloitte last month, by a margin of 69% to 65%.

In the fourth quarter of 2018 alone, almost 1 million people dropped cable or satellite, marking a record rate of cord cutting, according to MoffettNathanson Research.

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