NPD Report Wrongheaded on Cord-Cutting Growth, BTIG Analyst Says

BTIG Research took issue with research that said the number of streaming video-on-demand (SVOD) subscribers was growing, while premium TV subscribership is declining. The SVOD survey results were released Tuesday by NPD, citing figures for the past two years. Noting the trend of “cord cutting,” NPD said there was a 6 percentage point overall decline in the number of U.S. households subscribing to premium TV channels over the past two years, while the number of households subscribing to SVOD grew 4 percentage points.

But the evidence from major premium TV content providers including HBO, Showtime, Cinemax, Starz, Encore and Epix indicates that NPD’s conclusion that subscribership is declining is “100 percent false,” said BTIG analyst Richard Greenfield. BTIG believes “premium growth has been quite healthy, with absolute premium subscribers now at an all-time high driven by improving quality of content,” Greenfield said.

According to NPD’s “The State of SVOD” report, 32 percent of U.S. households subscribed to premium-TV channels in August of 2013, compared to 27 percent of U.S. households that subscribed to SVOD services. Although Netflix is the “clear leader in SVOD,” Hulu Plus and Amazon Prime are posting the biggest growth gains “as consumers tack on secondary SVOD services,” NPD said. “As SVOD services have gained momentum, it’s clear that some consumers are trimming their premium-TV subscriptions,” said Russ Crupnick, senior vice president-industry analysis for NPD Group. “As SVOD increasingly strives to become a channel itself, viewers might consider it to be an adequate substitution for other premium channels, or perhaps they are switching to economize on their time and money spent."

Overall digital-video transactions rose 3 share points since 2012, reaching 70 percent of all home-video transactions in 2013, NPD said. NPD counts home-video transactions as purchases and individual paid rentals and doesn’t include free on-demand movies and TV shows included with a pay-TV subscription. In 2013 SVOD was 71 percent of all digital-video transactions, NPD said, and it continued to grow faster than all other digital acquisition types. NPD’s findings were based on data from its “VideoWatch Digital” consumer tracker covering 450,000 transactions and its “Video Omnibus Study” surveying 7,500 respondents.

But Greenfield said privately held Epix, owned by Viacom, Lionsgate and MGM, which launched to limited distribution just over four years ago, has been expanding its reach, including an agreement with Time Warner Cable in December. While Epix has never broken out subscriber info publicly, BTIG believes “there are more people capable of viewing Epix than ever before” and that Epix “should surge even higher in 2014” on the launch of original scripted programming.

Starz, which releases subscriber data for Starz and Encore channels, reported 22 million subscribers for Starz in Q3 and 35 million for Encore, Greenfield said. He compared that with figures from two years ago when Starz ended 2011 with 19.6 million subscribers and Encore with 33.2 million.

Greenfield cited the 2012 Time Warner annual report, in which CEO Jeff Bewkes said its HBO division had its biggest increase in domestic subscribers in a decade, and based on HBO management’s public commentary, BTIG believes the trend continued in 2013 due to better relations with multichannel video programming distributor partners, which he called “critical marketing engines for premium TV sub growth.” That contributed to “reversing the softness HBO/Cinemax did experience in 2010-2011,” Greenfield said. Showtime, meanwhile, reported higher affiliate revenue resulting from rate and subscription increases at Showtime and Smithsonian networks, he said.

On the streaming side, Greenfield said Netflix CEO Reed Hastings “still believes” Netflix and premium TV content services “can be complementary,” although the Netflix CEO has lately tweaked his earlier position that Netflix wasn’t competing with HBO and other premium networks for dollars. “The reality is that there is plenty of room for high-quality video content, whether it lives on the MVPD platform or over-the top (OTT),” Greenfield said. Citing the passion of OTT households for video content, Greenfield envisions a scenario where “you subscribe to HBO and Netflix, not HBO or Netflix."

Broadcast television ratings face the bigger question mark, he said, “as the quality of premium, OTT and even basic cable networks continues to rise.” Consumers’ time spent watching TV is “stagnating,” which could make broadcast networks “big losers” in ratings and ad dollars in the next few years, he said.