NBA Digital’s Perez on Cord Cutting: Adapt or ‘Risk Losing an Entire Generation of Fans’

Cord cutting. Few phrases raise as much controversy in today’s media landscape. A new study seems to arrive daily detailing whether consumers are discontinuing their cable or satellite service in favor of broadband and mobile options — each study conflicting with the findings of the previous one. Even live sports, which many believe to be the singular form of content tying consumers to their linear-television subscriptions, must account for the cord-cutting effect.

“We are not seeing a lot of cord cutting from a sports standpoint, but, if you don’t participate in these [multiplatform] areas and you are overly protective of certain business models, you run the risk of losing an entire generation of fans, which, at some point, really starts to hurt,” said NBA Digital SVP/GM Bryan Perez. “This is about managing each generation of your fan base for the long term.”

Perez and several other industry executives currently on the front lines of the cord-cutting debate offered their insights during a panel at the Streaming Media East show in New York on Wednesday. The question of the hour: Will online programming really lead to cable’s demise?

Is Cord Cutting a Real Phenomenon?
“We don’t feel like our core audience is migrating away from our main platform,” said Tom Gorke, SVP, content distribution and marketing, MTV Networks. “Recently, we did a study on Millennials — people born after 1980 — and we found that 97% of that audience continues to regularly consume TV in massive quantities. It still dominates their media behavior. They are definitely buying and using new devices, but it is not in a substitution fashion.”

However, there has been evidence of cord cutting in recent months, and a primary factor in individuals’ decision to discontinue their cable/satellite service has been over-the-top (OTT) set-top boxes, which use a broadband connection, from such manufacturers as Roku and Boxee.

At the end of 2010, Roku announced that it had sold 1 million boxes, but sales have reportedly escalated since then. Roku VP of Business Development Jim Funk reported that, according to recent user surveys, 15%-20% of individuals who buy a Roku box cancel their linear subscription service and another 15%-20% “cut back on it.”

“Cable and satellite packages have gotten so bundled up that there is group of people who are looking for an alternative,” he said.

Not Quite Over the Top Yet
Many fear that these OTT services will continue to pry consumers away from the cable/satellite subscription model. However, while Roku and Boxee can offer plenty of high-profile on-demand content, they lack one key piece of the puzzle: premium live sports.

“We don’t promote the [Roku] box as a cord-cutting box because, frankly, we don’t have sports,” said Funk. “If you think you’re going to get everything, then you’re going to be disappointed.

“For example, we have a lot of sports, but they tend to be out-of-market sports packages,” he continued. “That works for some people but not all. If I am a Lakers fan living in San Francisco, then I love the package because I could watch all the games live, but a Lakers fan in L.A. would be disappointed. We’re not really there yet to say this is a true alternative.”

For Live Sports, Mobile Has the Edge
Sports packages that have been made available via broadband and mobile — including MLB’s At Bat, NFL’s Red Zone (for DirecTV subs), and the NBA’s League Pass — have seen substantial subscriber growth over the past two years.

However, according to Perez, mobile is a much more significant driver than broadband for these alternative services. He cited an NBA Digital survey that asked why subscribers had moved from the linear NBA League Pass to the League Pass Three-Point-Play package, which comprises the linear, broadband, and mobile offerings. The survey found that 56% of respondents made the switch due to “portability.”

“They wanted to be able to take their TV set off the wall and travel with it,” he observed. “In sports, mobile is more significant that broadband. Anytime you are on broadband, you are in the same room as the TV set. DirecTV has told us that the RedZone numbers on broadband were underwhelming but, when they launched on mobile, it was orders of magnitude bigger than they thought it was going to be. Displaced necessity drives that.”