The number of US homes that are forgoing a bundled pay TV service is at its highest level since 2007, according to analyst Craig Moffett with MoffettNathanson.
The decline in pay TV subscription can be largely put down to the increasing popularity of OTT (over-the-top) services, such as subscription video-on-demand, with nearly 15% of U.S. households deciding not to subscribe to a pay TV service.
Moffett says that shifting viewing patterns has forced the content industry, previously staunch supporters of the pay TV industry, to embrace digital distribution, on platforms such as Netflix and Hulu.
Time Warner's HBO's move in releasing a standalone OTT product sometime in 2015 can be seen as an example of the continuing "experiment" in digital distribution, with its success perhaps coming at the expense of previous staunch allies, the pay TV industry.
"But even this toe-in-the-water progress is a change from the content industry's previous unified stance in defense of the [traditional pay-TV food chain]," Moffett wrote in a Feb. 17 note.
Moffett also warns that unless ISPs take action, whether this means payments from digital providers (like in the Netflix, Comcast deal), or the acquisition of content providers (such as Comcast's proposed $45 billion acquisition of Time Warner Cable), ISPs could miss out on a piece of the revenue pie when it comes to the move towards OTT.
"Absent usage-based pricing and/or paid peering agreements that are orders of magnitude richer than those contemplated today [i.e. Netflix’s deal with Comcast], multichannel video program distributors will be bystanders in the inevitable uptake of OTT substitution," Moffett writes.