As more and more consumers have grown frustrated with paying high rates for cable and satellite bundles, content and service providers have stepped up to accommodate them. These outside offerings, that are typically consumed over the internet, have led to an increase in “cord-cutters,” or adult consumers who have abandoned traditional pay TV in favor of streaming services.
These streaming services offer some benefits to their subscribers such as significant cost savings, minimal advertising interruptions and fewer unwanted channels. This is a trend that should continue. In addition, the disruptive nature of streaming services should unlock value in companies set to capitalize. This is the thinking behind our Spector™ called “Cutting the Cord.”
Cord-cutting is not new. In fact, it has been around for a while. The term originated when people switched from land lines to mobile phones and has remained a popular term for people who ditch the cable or satellite “bundle” for streaming content.
We have seen the internet disrupt a lot of industries through the years, and the media industry may be at the top of the list. Companies like YouTube, Netflix and others have made us reconsider how we want to consume content. All this new competition has been wonderful for consumers as the cost to consume content has come down dramatically. Fortune just reported results this past week from a survey showing cord-cutters averaged $85 per month in savings.
Let’s face it, there is only a limited amount of media one can consume in a day. And with so much cheap content available why pay for what you don’t want.
This week eMarketer reported that the number of cord-cutters, will jump to 32.8% this year. This number translates to 33 million consumers and is a significant jump from the 22.0% growth rate (27.1 million) projected in July 2017. This is in spite of attempts by traditional pay TV providers to partner with rivals.
Media companies are starting to figure out how valuable their content truly is and have begun focusing on direct-to-consumer, streaming services of their own. Disney announced last August that it is pulling all of its movies from Netflix to start their own streaming service, which would become the exclusive home of Disney, Pixar, Marvel and Star Wars films. On top of that, Disney also launched an ESPN video streaming service as they take more “middlemen” out of the equation.
Last month, a judge also approved the AT&T-Time Warner merger, which represents another move by AT&T to gain valuable leverage in this current battleground for content.
I currently see no signs in this theme slowing down and neither does Mike Vorhaus, president of research and consulting group Magid Advisors. “This is unstoppable. People are going to cut the cord. The $100 pay TV package is going to be under deep distress,” as he presented last month.
Pay TV companies are continuing to work on ways to stop the bleeding but the model just may be broken.
In this Spector we know that content is truly king and the companies that produce the most valuable content will result in highest market values. Whether these corporations decide to go direct-to-consumer and stream their own content, or are acquired by larger players looking to bolster their offerings, I believe “Cutting the Cord” is a theme you should keep a close eye on.
If you are interested in “Cutting the Cord” or another Spector™, please let me know, and we can see if it is a good fit for your portfolio.