Sun, Aug 09, 2015 - Page 13 News List

‘Cord-cutting’ a growing risk for TV

AFP, SAN FRANCISCO

Is it time for big TV to start worrying about digital?

For years, the threats to traditional TV have been present, but the digital revolution now appears to be gathering momentum, raising the prospect of shifts in viewing habits that could devastate an industry that has been lucrative for years.

The decades-old model for the industry was built around cable and satellite TV offering high-priced “bundles” to consumers and sharing revenue with the operators of cable and broadcast channels.

However, viewers today have an increasing amount of choices through the Internet. They can subscribe to Netflix, Hulu or Amazon video, pick and choose subscriptions to individual channels like HBO or Showtime, or get slimmed-down packages of channels through new service providers.

Some viewers also watch free programs streamed over YouTube or other Web sites.

The big threat to the industry is from “cord-cutting,” which has been modest until now. If it accelerates, that could unravel the model that has worked for the industry for years.

After the latest quarterly updates from major TV groups, Wall Street investors appeared to be panicking over the future of the industry.

Walt Disney Co — which owns the broadcast ABC network and several cable channels including sports TV group ESPN, saw its shares take an unprecedented 9 percent dive after reporting earnings.

While Disney reported a “modest” number of subscriber losses, some investors saw red.

“Investors are reacting to a growing sense of the risk,” Pivotal Research Group analyst Brian Wieser said. “The negative perspective is suggesting that the whole bundle, the whole business model is falling apart.”

Wieser said these fears are “overstated,” but that did not stop a bloodbath in media stocks over the past week, with only a modest uptick at the end of the week.

Viacom Inc and 21st Century Fox Inc, which have prominent cable channels, each saw a 17 percent plunge over two days. Time Warner Inc, owner of cable channels like TBS and TNT, saw a 10 percent drop.

Neil Macker, of research firm Morningstar Inc, said it is not time to panic.

“While we share the concerns around cord-cutting, we note that 96 percent of sports viewing is done live, providing some defense to the linear channel,” Macker said in a note to clients.

The big question for the industry is how fast the landscape changes.

A study by Deloitte & Touche LLP found that more than half of US viewers watched films or TV programs on streaming video, but only 3 percent had canceled pay TV subscriptions over the past year and 7 percent were considering such a change.

While sports appears to be anchoring the pay TV model, other segments, such as children’s channels and programs, appear vulnerable.

“The challenges facing linear ad-supported kids networks are greater than in other network genres,” Morgan Stanley analysts said in a research note.

“Aggregating kids channels across Viacom, Disney, Time Warner and Discovery, we estimate relevant demo viewership is down 30 percent from mid-2013 to today, versus 12 percent for broader TV [ex-kids],” the note said.

Fears appear greatest for Viacom, which owns Nickelodeon, the channel known for kid programming like Dora the Explorer and Spongebob Squarepants.

“Viacom has long been considered one of the most exposed to risks around the future of the cable bundle,” BMO Capital Markets analyst Daniel Salmon said in a research note.

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