Netflix Growing, Cords Not Being Cut, Researcher Says

At least one-fifth of cable subscribers surveyed said 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 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 “is a complement to cable,” company spokesman Steve Swasey said.

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 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 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 the commission doesn’t “lose momentum” needed to fix contribution problems. And she said tiered ISP pricing plans won’t work in rural parts of the U.S., where there are fewer broadband subscribers.

Netflix meanwhile promised its Canadian customers that it’s trying to scale back its data demands “with minimal impact to video quality.” The company is now offering Canadians three different video settings -- “good,” “better,” and “best” -- to regulate data usage. Under the new tiering plan, 30 hours of streaming will only eat up 9 Gbps of data under the “good” toggle, Chief Product Officer Neil Hunt said. “We made these changes because many Canadian Internet service providers unfortunately enforce monthly caps on the total amount of data consumed,” he said. “We will continue to test and innovate to improve the Netflix experience without high data use.”