The potential loss of basic video customers to online sources, the so-called "cord-cutting" phenomenon, was a prominent trend in 2010, made all the more critical by rising rates of online video viewership. Parks Associates' Digital Video: Three Screens and Beyond found consumers are increasingly using online resources to watch premium video such as TV shows and movies. At the same time, there is an erosion of linear weekly television viewing occurring among Netflix users, who watch an average of 4.5 hours of online video content on television in a given week.

Is the wider availability of online video a significant factor in consumers' considerations to cancel their pay-TV subscription? The churn likelihood has remained steady over the past two years, and overall, the actual number of "cord cutters" remains low. However, the increased penetration of connected devices will affect the competitive ecosystem of the television industry. Our studies reveal a significant consumer trend: households that use a connected game console or a TV connected to a PC to watch online video are about three times more likely to cancel their pay-TV services than those not completing that activity. In short, experience with connected CE is the first part of a potential chain reaction that could spur greater migrations away from pay TV.

Given the potential for churn, pay-TV operators are moving quickly to meet this challenge. They are developing and deploying value-added features such as remote DVR programming, multiroom DVR, and multiscreen content services to boost customer satisfaction and neutralize thoughts of service defection.Pay-TV operators are wise to move quickly with these efforts. Multiscreen and TV Everywhere services will be effective in countering cord-cutting temptations. Of those very likely to change pay-TV providers, 20% would be unlikely to switch if their provider offered a TV Everywhere feature for free. For consumers who recently cancelled their pay-TV service and regularly consume Internet video, almost 40% would re-subscribe if their provider offered a free TV Everywhere-type feature.

Several operators are developing plans to make their video services as elastic as possible. Cablevision, Comcast, and Time Warner Cable began by extending programming to computers, smartphones, and tablet computers, and they will also allow consumers to view programming on Internet-connected TVs. Other operators-including Canal Digital, Charter Communications, Cox Communications, DISH Network, ONO, RCN, Suddenlink, and Virgin Media-are working with vendors such as TiVo and Logitech to enable Internet content to be viewed on televisions.

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