New TV Season, and Fewer Viewers

Now, on her own in a tough economy, the 25-year-old General Dynamics (GD) engineer in Groton, Conn., no longer pays. “When I had cable I followed a couple shows, but the rest was garbage to me,” Geddis says. “Online I can watch the few programs I actually care about.”

With more young adults tuning out this TV season, the industry is confronting a generation of viewers who say they won’t pay the typical $75 monthly cable or satellite bill.Nielsen (NLSN), whose TV ratings influence ad rates, in May cut the estimated number of U.S. TV households by 1 percent, to 114.7 million, the first drop since 1990. College towns such as Boston, Madison, Wisc., and Austin, Tex., posted some of the biggest declines, suggesting some fans of Family Guy are watching on Hulu Plus or Netflix (NFLX) for $7.99 a month, a fraction of a cable bill.

The impact of cord-cutting was masked earlier by rising cable-TV subscriptions, says Jeff Gaspin, former chairman of NBC Entertainment. No longer. “With a decrease in pay-TV subscribers and Nielsen’s reduction in households,” Gaspin says, “the effect is more pronounced.” The six largest publicly traded cable- and satellite-TV providers announced last month a combined loss of about 580,000 customers in the second quarter—the biggest decline in history. Industry analysts blame a weak job market and rising pay-TV bills.

It’s also because of the growing appetite for Internet-delivered TV programming among younger viewers. To many of them, there’s no difference between watching Gossip Girlonline or on the tube, says David F. Poltrack, chief research officer at CBS (CBS). College-age audiences are relying more on laptops than TVs to watch favorite shows, a function of TV prices and less help from Mom and Dad, Poltrack says. “College rooms are small, and TV sets are expensive,” he says. “A cable package can be a significant expense on a college budget.”

Programmers are responding by delaying free Web access to shows and, for the TV season that started in mid-September, piling more commercials into programs viewed online. When Hulu shows new episodes of Fox’s Raising Hope, ABC’s Modern Family, and other programs from the networks, for example, one more commercial will be added per half hour, a 20 percent jump. To discourage cord-cutting, News Corp.’s (NWS) Fox blocks Web viewers from seeing programs for eight days after their broadcast, unless they are verified pay-TV customers. Walt Disney-owned ABC is weighing a similar measure, people familiar with the network’s plans say. Cable programmers such as Disney’s (DIS) ESPN and Time Warner’s (TWX) CNN and HBO are working to keep subscribers by letting them watch online via computer or mobile device.

When students watch sports, however, increasingly they gather in common rooms with TVs, Poltrack says. Geddis meets friends at sports bars or uses unauthorized websites that stream ESPN and other sports networks. “Those sites are low-quality, but if you don’t want to go out, they’re available,” she says. “I’m a Chicago sports fan living on the East Coast, so I watch these sites at home a lot on my laptop.”

More online options are becoming available. Major League Baseball and the National Basketball Assn. offer subscriptions to out-of-market games, and this year’s U.S. Open tennis matches were shown online for free. If HBO’s True Blood or another show isn’t available for streaming, Geddis often buys the programs from Apple’s (AAPL) iTunes or another online media store. She links her laptop to her home TV to watch programs and plans to permanently connect her parents’ old computer. “I can’t imagine ever again being interested in cable TV,” Geddis says.

The bottom line: U.S. TV households have fallen this year by 1 percent, to 114.7 million. That’s the first drop since 1990 and a bad augur for cable providers.


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