For Video Subscription Providers, No 2014 Predictions Required

By Gary Kim December 20, 2013

No prediction is required where it comes to expected 2014 price levels for video subscription services. They will rise. They always do.

Nor is any real predictive insight required to forecast that overall subscriber counts will decline, modestly, in 2014. That trend also is in place. The only issue is what the actual rate of decline will be. Something in the one percent to 1.5 percent range would be in keeping with the past couple of years.

Some will rightly note that price resistance, something subscribers have complained about for decades, is starting to translate into action, namely product abandonment. The trend is modest so far, despite all the talk of video cord cutting.

But the demographics work against video entertainment subscription providers, for the same reason that demographics once worked in favor of video suppliers.

There was a time when people questioned why consumers would pay for a product they could obtain for free (no incremental cost over the air TV compared to cable TV subscriptions). In the early decades of its half century of its existence, there was a simple answer: customers who could not get over the air reception provided the market for cable TV. They bought because the choice was “no TV at all.”

All that changed with the advent of satellite-delivered TV channels, beginning with HBO and TBS, in the late 1970s. At that point, cable TV changed. In rural areas, cable might still have had the “antenna reception” revenue model, bringing over the air TV to rural areas.

But the bigger part of the business was “more choice,” allowing cable subscribers to see content not available over the air from TV broadcasters. That has remained the driving revenue model ever since, even though some subscribers also rely on cable to get over the air broadcast signals they cannot otherwise obtain.

As with many new products, adoption was higher in mid-age demographics, with the lowest adoption among the oldest demographics. Unlike some other products, cable TV was purchased by households, not individual people, so adoption by children was a non-issue.

For some time, that pattern continued, until finally the oldest demographic groups were displaced by formerly younger or middle-aged buyers who had become firmly attached to the subscription video habit.

That pattern now is in danger of working in reverse, as younger viewers are most likely not to desire the product, the result being adoption rates that are highest among the older demographics, and lowest amongst new households largely headed by younger people.

That does not mean drastic and sudden changes in consumption. But should the pattern continue, and possibly intensify, we will see the cable TV adoption pattern in reverse.

Cable TV adoption gradually grew as younger users with the habit displaced older consumers without the habit or demand. The big potential change now is that if younger viewers have markedly lower propensity to want the product, those attitudes gradually will move across the age spectrum, reducing demand across the board, eventually.

As with all demographic changes, it will take time. Some might say it is just the other side of the product life cycle. 

Edited by Cassandra Tucker

Contributing Editor

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