Are Cord Cutters (Finally) Here?

The traditional pay TV market has taken a turn for the worse in the United States.

Cable TV operators continue to bleed subscribers, collectively shedding roughly half-a-million subscribers in the last quarter. Satellite operators, which had managed to hold and grow their subscriber base at the same time that cable was losing ground, have also faltered. DirecTV announced a loss of 84,000 customers in the second quarter. Rival DISH waved goodbye to 78,000 customers in its second quarter. (Relatedly, ESPN dipped to its lowest number of households since 2008.)

Amidst these gloomy trends, only IPTV operators showed signs of life. AT&T registered a pickup of 233,000 in the first quarter while Verizon notched 140,000 new subs for its FiOS service.

What gives?

The first and most obvious conclusion is that we’re finally seeing the wages of “cord cutting” and the related phenomena of “cord nevers” (i.e. households that never subscribe to a traditional TV service). The hype around cord cutting notwithstanding, it was always difficult to justify the idea that people were abandoning pay TV en-masse for streaming alternatives while satellite and IPTV were still growing. Now, with satellite subs falling, that case is easier to make.

What’s more, an analysis of census data suggests that new pay TV subscriptions are lagging new household formation, an ominous sign for traditional operators and some empirical support for the “cord never” thesis.

Still, if people truly are cutting the cord, why the continued growth of IPTV services? Some may argue that IPTV’s genuine triple play gives it a competitive advantage over satellite and its relative novelty gives it a leg over cable. With AT&T at least committed to expanding its UVerse footprint, there’s still a chance for IPTV to grow at cable’s expense.

Moreover, it’s too early yet to conclude that satellite has entered a cable TV-style spiral. Both DirecTV and DISH added U.S. subscribers in the first quarter of the year and the fourth quarter of 2012 — the recent quarterly losses may be an anomaly.

But even if they do, satellite and IPTV gains may not outpace losses from cable. Whether U.S. customers are fleeing to over the top or over the air (or, heaven forbid, the pages of a good book and peaceful solitude), those customers are going somewhere else. Which means the long awaited era of cord cutting may have begun.