A bad first quarter is notable for the industry because that’s when it is usually the strongest. The industry added an estimated 445,000 subscribers in Q1 of 2012, and 470,000 in Q1 of 2011. But even with additions from satellite and phone companies, this year’s first quarter was only up around 194,000 – not enough to make up for previous-quarter losses.

From April 2012 to March 2013, the industry lost a total of 80,000 subscribers, according to Leichtman Research. That’s the first time the research company has ever seen subscriber losses over a 12-month-period, leading president Bruce Leichtman to this assessment:

“First-time ever annual industry-wide losses reflect a combination of a saturated market, an increased focus from providers on acquiring higher-value subscribers, and some consumers opting for a lower-cost mixture of over-the-air TV, Netflix and other over-the-top viewing options.”

That’s quite a statement, especially considering that Leichtman has been an outspoken skeptic of the cord cutting phenomenon. In a 2010 New York Times story, he famously called cord cutters “really just a bizarre breed of people, usually in New York or San Francisco, who don’t watch a lot of television in the first place.”

Three years later, he rightfully cautioned that the numbers don’t necessarily point to a “more dramatic near-term market decline,” even though we can expect further losses in Q2. But there’s reason to be nervous, and a closer look at Leichtman’s numbers shows why:

Cable has been bleeding for years, and it’s no surprise to see this continue – even though many had expected a stronger showing for Comcast and Co. But really concerning is the slowing growth in the satellite TV segment, which is where price-conscious consumers have been fleeing to in previous years.

DirecTV added 184,000 subscribers in Q1 of 2011, and 81,000 in Q1 of 2012. This year, it only gained 21,000 new subscribers in the same time frame. Things didn’t look better for DISH, which dropped from 104,000 subscribers in Q1 of 2012 to 36,000 in Q1 of 2013.

That’s a sign that people aren’t just looking for a cheaper pay TV option anymore, but actually want to get rid of the traditional pay TV bundle altogether.

Image courtesy of Flickr user Jason Rosenberg.

“Every channel has a 14-day free trial, and many offer discounted yearly rates. For example, Sesame Street will be offering full episodes on their paid channel when it launches. And UFC fans can see classic fights, like a full version of their first event from UFC’s new channel. You might run into more of these channels across YouTube. Once you subscribe from a computer, you’ll be able to watch paid channels on your computer, phone, tablet and TV, and soon you’ll be able to subscribe to them from more devices.”

Partners include The Young Turks, UFC, Jim Henson Company, Mark Cuban’s HDNet and the Sesame Workshop. Not all channels are live yet, a first list of 53 initial launch partners can be found here.

Some of the new partners should come as no surprise to paidContent readers: We reported earlier this week that YouTube’s employees have been testing paid channels for the Sesame Workshop, Baby First TV and Cookie Jar TV for months.

YouTube said Thursday that it wants to make subscriptions available as a self-serve feature to select partners soon. Asked how big of a cut YouTube is taking from subscription fees, a spokesperson told me that partners get to keep “the majority share,” without elaborating further.

Show notes for this episode:

• Netflix is going to release the entire first season of House Of Cards on Februar 1. Check out the show page on Netflix.com for more details.
• You can read our previous House of Cards coverage.
• Check out our e-book Cut the Cord: All You Need to Know to Drop Cable to learn more about various devices that House Of Cards and other Netflix content is available on. The book is available for $5 on Amazon, Barnes & Noble and iTunes.

Are you going to watch House Of Cards? Is original programming like this making Netflix more valuable for you, or would you prefer if the company spent its money on other content instead? Please share your thoughts in the comments, get in touch with us on Twitter (@cordcutters) or email us at cordcutters @ gigaom.com. Also, please check out our new Google+ Cord Cutters community!

Speaking Friday morning in New York, Bewkes also expressed confidence that the TV business is not threatened by the likes of Netflix or Amazon because these services are largely distribution platforms that don’t own the quality content audiences want to watch. He added that such platforms compete with each other and not with traditional TV companies.

“It’s a good thing to have more of them,” said Bewkes, adding that multiple universal platforms are good for consumers because they mean the content industry “can’t be held hostage” to a given distributor.

Despite his dismissal of cord-cutting, Bewkes did acknowledge the emergence of “cord nevers,” which are younger people who never acquire cable in the first place. For them, he said it’s not a question of money — “they can afford three Starbucks a day” — but rather different habits and expectations. Bewkes pointed out that the “cord nevers” are not receiving the best content (it will be interesting to see if this argument one day sways them into signing up).

In the meantime, the traditional cable model is under other strains, including the spiraling cost of sports. As Bewkes noted, “half of the population that doesn’t want sports is subsidizing the other half that does” because the former are forced to buy expensive sports channels they don’t want as part of their cable plans.

All of this suggests that the cable industry will finally have to give in and offer consumers a full-blown a la carte model — but don’t hold your breath. As Peter Kafka has pointed out, even a company as rich and powerful as Apple has proved incapable of dislodging “the TV industrial complex.” The simple reality is that the mighty incumbents are going to ensure that a cable subscription remains a toll to get access to things like HBO and the NFL on the iPad.

Finally, there is the question of advertising. According to Bewkes, advertising-only models are not viable for most types of content, pointing to the era of the big three networks as a “wasteland” for TV. He called on companies to make more ads that people want to watch, citing a James Bond trailer or ads in GQ magazine as examples.

Bewkes made the remarks during a chat with Reuters’ Chrystia Freeland at the Paley Center for Media’s “Innovation without Borders” event. (Highlights available here).

(Image by holbox via Shutterstock)

An internet-only TV subscription with smaller, more customized bundles would be great news for cord cutters. However, one of the biggest issues that needs to be resolved seems to be the pricing. From the article:

“Dish wants to reach consumers around 18 to 28 who would rather pay $20 a month for a smaller package of channels to watch on computers or mobile devices, CEO Joseph Clayton said in an interview this month… Negotiations bog down because programmers aren’t willing to sell Dish the rights for a low enough price to make a service viable, he said.”

It makes sense that the price of any such offering would be a stumbling block. If it’s too low, Viacom won’t sign on. if it’s too high, consumers won’t bite. Of course, the question is: how much is too much? We figured we should ask our readers to find out.

Let’s assume, for now, that Dish would sell this type of internet-only offering with a much smaller bundle, which would mainly consist of Viacom channels. You’d pay $10, $20 or $30 a month in return get the ability to stream new episodes of the Daily Show, the Colbert Report and the MTV Music Awards live, when they air on traditional TV. How much would you pay for it? Please let us know by answering the poll below, and feel free to elaborate in the comments!

Want to learn more about watching TV without paying for cable? Then check out my book Cut the Cord: All You Need to Know to Drop Cable.

Asked whether cord cutting is losing steam, Krishnaswamy said:

“No, that trend is not stopping. It’s growing. The question is: Is it growing enough for us?”

Of course, many traditional TV services vendors would rather see cord cutting just go away, but Verizon seems to have a slightly different take on the matter. That’s not just because the company is rolling out a Netflix competitor in cooperation with Redbox later this year, but also because cord cutting is fundamentally changing the parameters of Verizon’s TV business. Again, Krishnaswamy:

“Is the migration to a-la-carte enough that we can go that route? It has a way more important impact that (sic) just on them. It impacts how we negotiate TV contracts with studios. It’s not something we can do overnight, but definitely something we’ve been looking at.”

Krishnaswamy didn’t spell out all the details, but here is what I read between the lines of this statement: Cord cutting isn’t just about some people not paying for TV anymore, but also about enabling new and innovative business models, including unbundled subscriptions to individual channels. And Verizon is apparently ready to take the plunge as soon as the wave is big enough.

Some viewers might be tempted to start searching for unlicensed streams – but chances are, many of those will be shut down minutes after they pop up. Luckily, there are plenty of legal ways to watch the Olympics, be it on your TV or on your iPad.

NBCOlympic.com’s one-time pass: Users who do have a pay TV subscription, but simply can’t find their credentials in time before the competition of their choice starts are getting a break from NBC in the form of a one-time pass. Selecting this option will give you access to a total of four hours of live streaming, after which you’ll have to authenticate. Just beware, this ain’t roll-over minutes: Your pass will expire at noon if you request it at 8 a.m., regardless of whether you keep watching or not. The one-time pass is available both on NBCOlympics.com as well as through NBC’s Olympics apps.

Want to learn more about watching sports, and other TV programming, without paying for cable? Then check out our e-book Cut the Cord: All You Need to Know to Drop Cable.

Free over-the-air TV: Want to watch the Olympics on TV, but don’t have cable? No worries, most the major competitions are going to be broadcasted by NBC, which can be watched for free, in HD, with a simple antenna. The broadcaster will show a total of 272.5 hours hours of footage from the games, with coverage beginning on weekdays at 10a.m. PT / ET, and on weekends at 5a.m. PT / ET. Check NBCOlympic.com for a more detailed schedule.

But wait, that’s not all: Spanish-language broadcaster will also offer 173 hours of coverage of the Olympic games, and can be received for free over the air as well. Check NBCOlympic.com for a more detailed schedule.

To learn how to access over-the-air programming with a simple rabbit-ear antenna, check out this video:

Don’t have a TV in your office or want to watch Olympics programming on the go? There are several ways to do this without relying on NBC’s authenticated streams as well:

Aereo: Viewers in New York can subscribe to Aereo to watch NBC on their iPad or PC. A subscription costs $12 a month after a free trial, but sign up is limited. For more on Aereo, check out our previous coverage.

Slingbox: You can also stream live broadcast TV to your office PC or mobile device with a Slingbox, but this solution isn’t exactly cheap: The Slingbox Pro HD, which is the only model currently on sale that works with an antenna, sells for around $240.

A TV tuner: Much cheaper than a Slingbox is to simply get a USB TV tuner for your PC. That way, you’ll be able to watch the Olympics on your laptop where ever you are, and some devices, like the Mac-only EyeTV, even make it possible to leave your computer at home and stream directly to your iPad or iPhone. Check out a demo of the EyeTV One tuner below:

The NPD Group put out a survey on Tuesday suggesting that pay-TV rates could hit $200 by 2020 from an average rate of $86 per month now. The analysts at NPD credit rising content-licensing fees and the average 6 percent rate increase that cable companies jam down users’ throats each year. Check out the expected rise in this graph.

The big threat to cable is broadband

But the idea of paying $200 in eight years, or even $123 in three years, seems like insanity for most consumers. It also seems like insanity for the cable companies to attempt, given how rising cable costs amid grim economic times have led folks to cut the cord. But is demand for cable inelastic? The NPD report notes that 16 percent of U.S. households don’t have pay-TV service. This means 84 percent do — a huge success for the industry. But can it last? From the NPD report:

“As pay-TV costs rise and consumers’ spending power stays flat, the traditional affiliate-fee business model for pay-TV companies appears to be unsustainable in the long term,” said Keith Nissen, research director for The NPD Group. “Much-needed structural changes to the pay-TV industry will not happen quickly or easily; however, the emerging competition between S-VOD and premium-TV suppliers might be the spark that ignites the necessary business-model transformation of the pay-TV industry.”

That business-model transformation is already occurring, but the end result isn’t likely to be exactly the à la carte, pay-for-channels-you-want and watch-it-when-you-want model that many of us in the Web world are hoping for. Instead, we are witnessing the first steps toward the creation of a combined pay-TV and broadband bundle that gives consumers most of the TV they want on demand and encourages them to avoid going to the outside Web.

Cable sees the threat, but consumers are missing the opportunity

Those days of watching hours of Netflix together may soon end.

If done quickly, consumers, who are just discovering how pleasant (and economical) it can be to watch TV via broadband using over-the-top services such as Netflix or Hulu, will be lulled back into complacency and will still view their pay-TV and broadband subscriptions as necessary. So far, research this week from the Leichtman Research Group notes that 79 percent of Netflix Watch Instantly consumers use it to watch movies and television shows on a TV set, but in the past six months only .1 percent of survey respondents dropped cable because they found all the content they wanted online.

Today a big reason why people don’t cut the cord is the lack of content, such as live sports programming, as well as some people experiencing problems in getting broadcast content that should be free. This can be an issue with not being able to get the over-the-air signal clearly inside a home, or it can also be a result of the cable companies’ interfering with technology that can make it easier. And finally, consumers still want the convenience of one place to go for all of their television. According to NPD, 59 percent of pay-TV subscribers preferred having one single provider for their pay-TV services, compared with 21 percent who desired multiple providers and 21 percent who expressed no preference.

And only 20 percent told NPD they would consider going over the top if they could access their favorite shows online. This may be the case today, but if pay-TV subs reach $200 or even $123, those sentiments may change. The lure of convenience may not be enough if the content is available and people can access it without going over some set broadband cap. And it appears that cable companies, especially Comcast, are preparing for that future today.

Creating the TV walled garden

TiVo, the original TV disrupter, said yesterday it would offer Comcast’s Xfinity video-on-demand service via its boxes for users in San Francisco. A Comcast spokesman called the plan a pilot and confirmed that the Xfinity content watched via TiVo wouldn’t count against a user’s broadband cap. Comcast is offering the same arguments that it made in deciding to exempt content streamed over the Xbox, namely that this content never leaves its private network to travel over the public Internet.

The FCC left that loophole open in its network neutrality ruling, as I explained in a previous post, but as media watchdog Dwayne Winseck notes, public-interest groups and the FCC may have a chance to stop the practice using the merger conditions associated with the Comcast NBC-U deal. But the political will to enforce those conditions and recognize the potential for creating a shadow Internet has to be in place at the FCC and in the government (or courts) in general.

So by offering the cap as a stick to prevent over-the-top streaming from disrupting pay TV and the carrot of exempt television content from the Xfinity service, Comcast is well on its way to creating a safe haven inside its network to keep subscribers complacent and making the idea of leaving to grab content elsewhere a risky proposition: If you go over the cap too often, you get cut off. And if the fears of a cap don’t stop people, the cable industry is also tied pretty closely with content providers via ownership, as Comcast owns NBC-U, or via the relationships forged by access to their subscribers (see this awesome post from the Economist on why HBO isn’t going to abandon the cable guys and go over the top).

So the question for TV consumers is, Do you keep paying $86 today for access to a walled garden of really good content that will likely continue to rise in cost? Or do you go outside the walled garden and scramble to get your regular shows while fighting the caps and agreements that will eventually make the world outside the walled garden inhospitable for a TV lover? And the bigger question is whether or not the FCC or anyone in Washington is watching this play out and plans to help the consumers by taking action. Otherwise $200 cable doesn’t make the cable guys stupid. It makes them brilliant.

Walled Garden image courtesy of Flickr user sportsilliterate

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