Whether watching video or engaging in other online activities, Americans are spending more time on the Internet. 2010 marked the first year consumers spent as much time online as they did watching TV, according to Forrester Research. And it appears others are backing that opinion.

While SNL Kagan continues to play down the threat of cord cutting, its latest research estimates nearly 4 percent – or 4.5 million of the occupied U.S. households – will watch Internet video in lieu of subscribing to a multichannel video service by year’s end.

Kagan also predicts multichannel substitution via over-the-top (OTT) video will grow from 2.5 million households at the end of 2010 to 12.1 million homes by 2015, accounting for nearly 10 percent of the occupied homes in the United States in the five-year forecast.

"Internet delivery of television and movies, or OTT video, remains a relatively small, though not inconsequential, slice of the user base," the Kagan report adds.

Options for watching Internet video continue to grow as well. Following on the heels of Hulu’s popularity, viewers now have myriad OTT choices like Netflix, Apple TV, Google TV and Amazon. And start-ups are offering OTT, including Roku, Boxee, Bamboom and Zediva. (For more, see Smart-TV Contenders Duke It Out, But They Still Aren’t ‘Cable Killers’ and Amazon Streams More Video At No Extra Charge and Zediva Streams IP Video From Warehoused DVD Players).

In 2010, the multi-channel industry saw its first-ever declines in video subscribers, but it was able to reverse those second- and third-quarter downturns to produce a small overall increase for the full year.

Ian Olgeirson, senior analyst with SNL Kagan, said, "The cable industry has long been posting quarterly declines. It topped out in 2003. The big element in Q2 and Q3 of 2010 was those declines coupled with less aggressive growth from other service providers pushed total multi-channel subscribers down."

"Though we forecast continued absolute growth in subscribers, the pace is not expected to keep up with occupied household formation, leading to a long-term decline in penetrations for multichannel services. OTT substitution is the primary agent in the expected declines in traditional cable, DBS and telco video penetration," notes the Kagan report.

At the opening session of the Cable Show this past June, top executives didn’t seemed too concerned about pay TV being replaced by OTT video.

Comcast Cable President Neil Smit said, "We’re not seeing any evidence of cord cutting. Let’s never give the customer reason to want to cord cut. Let’s let them view it the way they want to view it."

Added Glenn Britt, president and CEO at TWC, "Right now, people disconnecting their big video packages and just doing things over the Internet is barely measurable. If there’s something that makes consumers not want to buy the big package that we all sell, we need to work collectively (to solve that)." (For more, see Cable Show Opening: Business Models vs.Technology).

-Linda Hardesty

The Daily

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