Netflix Growing, But Cords Not Being Cut, Researcher Says

Netflix continues to gobble up bandwidth, but the company’s explosive growth still hasn’t threatened cable, said a study released Tuesday by analyst Bruce Leichtman.

Nearly 30 percent of survey respondents watched online video at least once per week through Netflix, Leichtman said. Three percent of non-Netflix subscribers reported that they were watching streaming video, he said. While Netflix is growing exponentially, over-the-top streaming is growing only incrementally: 12 percent of the adults surveyed told Leichtman that they watched TV shows online once a week, up a percentage point from last year and up from 10 percent in 2009. “People watching TV online has barely moved,” Leichtman told us. “The reality is, in this over the-top emerging video world, there’s only two winners: Netflix and YouTube. Everyone else is losing out."

At least one-fifth of cable subscribers surveyed reported that they were thinking of cutting their spending on that service in the next six months, but Leichtman said he didn’t think cable companies are threatened by Netflix. The company’s subscribers were just as likely to cut costs in the near term as were cable subscribers, Leichtman wrote. “Despite a highly saturated market, coupled with slow housing growth, the multi-channel video market in the U.S. still grew by over 500,000 subscribers in 2010. This survey found few ‘cord cutters’ over the past year, and little difference in the intent to switch or disconnect service from prior years.”

Leichtman’s conclusions contradict Credit Suisse, which late last year analyzed usage-based pricing trends in Canada and argued that Netflix and companies like it were a threat to traditional pay television. Leichtman said he surveyed nearly 1,300 customers by phone and weighted his data to reflect the gender and age trends of the U.S., making it more representative than Credit Suisse’s efforts. Leichtman acknowledged that the hang-up rate for his survey was “typical” for phone polls, declining to discuss details. Credit Suisse’s data was suspect because some 30 percent of its survey respondents didn’t have cable subscriptions, Leichtman said. “How they got that sample, I don’t know."

None of this means that Netflix won’t someday threaten traditional TV, Leichtman said. “It hasn’t happened yet, as much as people want it to happen,” he said. “While the multichannel industry is slowing, that slowing in growth is more a function of slowdown of housing growth than it is of cord-cutting.” Netflix sees itself as “a complement to cable,” company spokesman Steve Swasey said in an email.

Netflix is destabilizing ISP networks, National Telecommunications Cooperative Association CEO Shirley Bloomfield said. “Let’s be real clear that this is a trend that’s only going to grow.” Earlier studies have reported that Netflix customers are chewing up to 20 percent of American bandwidth during peak hours. Bloomfield said that anecdotal evidence suggests that Netflix’s impact is even more dramatic. She said a North Dakota telco executive recently took a sick day and watched Spider-Man on Netflix. The executive called one of his staff and asked how much the movie had cost the telco to stream. It was nearly $30, Bloomfield said, saying that Netflix should pay into the Universal Service Fund.

"They're benefiting from USF, but they're not paying into it,” Bloomfield said. “Their business model is built on our guys having the bandwidth capacity.” FCC Chairman Julius Genachowski is overhauling the USF distribution and intercarrier compensation regimes and has promised to move to orders by the end of the summer. Bloomfield said she hopes that the commission doesn’t “lose momentum” needed to fix contribution problems. And she said that tiered ISP pricing plans won’t work in rural parts of the U.S., where there are fewer broadband subscribers.