Pay TV may not be as recession resistant as had been thought, according to Burt Flickinger III, managing director of Strategic Resource Group, in an MSNBC report. “The first thing to go is pay-TV, the second thing to go is the phone, the third thing to go is the second car and then the fourth thing to go is the house,” he said. “The things that have been recession-proof in the past are proving to be punished by this recession.”
Flickinger said his research is showing that premium television is one of the first items people are cutting back on in parts of the country that have been hard-hit by layoffs or other economic strife. We have not seen any surveys that show where Internet access would rank on a consumer list of ‘must haves.’
It perhaps makes sense, as the Strategic Resource Group analysis says, that premium channels will be among the first monthly expenses to be cut. On the other hand, consumers may opt to give up going out for food and entertainment and “reward” themselves with those premium channels.
Internet access is different – like electricity and water, it’s necessary for running a family. Online shopping saves time and money. Finding a job without e-mail and an Internet connection becomes very difficult.
The economic situation may force consumers to look for less expensive broadband. It would benefit the telcos with their DSL broadband, which is generally less expensive than what the cable TV companies charge.
We’d make the “first to go” list as follows:
1. Telephone. Cancelling traditional phone service is a trend that is already well under way. In the US alone, well over 2 million telephone company subscribers cancelled their phone service in the third quarter.
2. Premium channels. 21st century consumers are addicted to entertainment, but most would probably opt to cancel the premium channels and try to keep the basic channels.
3. Pay-TV. If consumers really do cut down on eating out and going out for entertainment, they’re likely to rationalize that keeping pay TV is a good replacement.
4. Broadband. It’s a must for shopping, job-seeking, e-mailing and keeping up with the news. Broadband can also be used for entertainment and VoIP telephone calls. There are pricier VoIP services like Vonage, less expensive services like Skype and near free ones like MagicJack, which charges $40 for the first year and $20 per year afterwards for unlimited phone calls in the US and Canada. Our experience with the four phone services, traditional telcos, Vonage, Skype and MagicJack is that dependability and reliability go down with the price.
5. Mobile phone. It’s pricier but more useful than traditional residential phone service. An added benefit is that mobiles, especially smartphones, can be used to access the Net almost as well as PCs.
Other monthly subscription services that would be subject to cancellation include newspapers, Netflix, Blockbuster, Xbox Live and satellite radio.
Even without the current economic troubles, broadband growth rates would begin to level off because the penetration rate is well over 50% in most first-world countries. The recession may slow the growth a bit more than otherwise but we expect it to continue to increase. We also expect broadband penetration rates to approach 100% of residences in time.