'Cord nevers' will drive drop in pay TV subs, says analyst

By Cory Bergman 

The debate over cord-cutting reminds me of the DVR commercial-skipping debate several years ago. But now a respected analyst has weighed in with a new twist, cutting his projection of pay TV subscribers to a loss of 200,000 for next year, down from his earlier forecast of a gain of 250,000.

Credit Suisse analyst Stefan Anninger says it’s not about people cutting their service, but never signing up for it in the first place. “The real challenge to the pay TV business model are behaviorally-driven cord-nevers,” he said in a new report. “These are tomorrow’s householders that are in their teens (and younger) today. They are growing up in an Internet-based video culture, in which the mantra of ‘why pay for TV?’ and ‘pay TV is a rip-off,’ develop.”

While the economy is certainly a factor, Anninger says it’s not the only ingredient driving a decrease in new subscribers. “The problem is that the longer the economy remains weak, and if over-the-top options improve, the harder it will be to bring these subs back to pay TV,” he said.

In other words, as boxes like Roku and connected TV options continue to proliferate — in large part, powered by Netflix, Hulu and Amazon — then the “good enough” low-cost alternative we’ll begin to materially cut into the legacy pay TV business. Sound familiar? Yep, that’s a classic case of “Innovators Dilemma.” As pressure continues to mount, cable and satellite companies must do more than just push for authentication (which doesn’t solve the pricing problem): they need to face the music and offer more a-la-carte-like options to attract more cost-conscious, first-time subscribers.