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The Globe and Mail

TV cord cutting on the rise? Not according to Netflix CEO

Reed Hastings, CEO of Netflix makes a keynote speech at the Canada 3.0 conference in Toronto on Tuesday, May 14, 2013.

michelle siu The Globe and Mail

Most conversations about television in 2013 inevitably end when someone points out they recently cancelled their subscription and have been doing just fine without a monthly bill.

But despite the frequent articles and loud proclamations from the guy down the road who has three antennas on his roof and never misses an episode of anything ever, the cord cutters (those who cancel their subscriptions in favour of alternative services) are still largely a fringe group on the edges of television.

Says who? Says Reed Hastings, the chief executive officer of Netflix who is often cast as the man who will take down cable companies and their pricey packages with his inexpensive streaming video service. He's not the only one who thinks Netflix has a lot of room to grow yet – its shares are up almost 450 per cent over the past year.

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Netflix doesn't believe in cord cutting

In a webcast with analysts following his company's quarterly results – which saw the service blast past 40 million global subscribers and post a $38-million profit – Mr. Hastings said traditional television isn't likely to lose vast numbers of subscribers any time soon.

"The trends have been quite clear, the data shows that there's zero cord cutting. We're at a 100 million [U.S. television subscribers] and Q2 goes down a little bit every year as students move, but it's the same as Q2 last year. So right now, there's zero cord cutting. The question is well, will that last? And that really depends on does cable continue to get better? Cable is taking share from satellite. Fibre is growing a little bit, too. So there are some important and interesting secular moves in that. But in general, consumers are getting a lot of content on cable and that's doing well for them. And our market has not been the cord cutter market. I mean, if you think about it domestically, we've grown from zero to 31 million, and there's been no decline in [paid television] households. So it really seems pretty strong that customers see us as complementary to [paid television] rather than a replacement for it."

He's exaggerating a little bit. A recent report from Leichtman Research Group said about 9 per cent of American homes that have broadband Internet access don't subscribe to a traditional television package. That's up from 8 per cent in 2012 – an increase to be sure, but hardly a rush for the exits.

The alternate narrative

Mr. Hastings isn't telling the whole story when he says the number of American subscribers has held steady at 100 million despite the introduction of alternative services. That number has indeed remained static since 2009, but prior to that, the market was adding almost two million subscribers a year. In other words, you can't call someone a cord cutter if they never had a traditional television package in the first place.

"Netflix is a contributor to U.S. cord cutting (and Canadian for that matter) so Hastings always downplays it," Brahm Eiley of Convergence Consulting Group said.

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Netflix is also said to be looking to partner with cable companies, possibly by having a Netflix app built into the digital television boxes that bring signals into millions of homes. His defence of the industry could be seen as a conciliatory offering intended to clear the way for his next round of expansion.

"He knows very well that when Netflix speaks, people in this business around the world listen," said Mario Mota, a partner at Ottawa-based consultancy Boon Dog Professional Services. "This might be a subtle attempt at lobbying in some global markets – 'We're not a threat, we're complementary; there's no need to worry about Netflix.'"

Canadian cutters

Recent Canadian data is a little harder to come by. An annual report released this month by the Canadian Radio-television Communications Commission said the number of Canadian households with a television subscription increased by 1 per cent in 2012 to about 12 million.

But the rate of growth appears to be slowing considerably. A report by Convergence found about 52,000 new subscriptions were set up in 2012. In the past, the industry could count on adding about 220,000 new subscribers each year.

"I can point to at least four or five firms in the U.S. and Canada including our own whose analyses are showing some level of cord cutting or increased shaving," said Kaan Yigit, president of Toronto-based Solutions Research Group. "No one has said it's huge numbers but everyone agrees growth has stopped."

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Canadian television executives have echoed Mr. Hastings assertion that Netflix and other services seem to be complementary to traditional packages, at least for now. But there are signs some cutting is starting to take – a summer report by Boon Dog said Canada's publicly traded television providers lost 19,624 subscribers.

Where are they all going? They haven't said – but Mr. Eiley said Netflix could have three million subscribers in Canada by the end of the year (a gain of 800,000 in just a year).

Somebody better tell Mr. Hastings.

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