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Is the Pay-TV Model in Trouble? Thanks to the 'Cord Never' Generation, It May Be Bloomberg

The pay-TV market as we know it is threatened by a new generation of "technology-savvy, budget-conscious consumers who are taking advantage of the availability of high-speed Internet connections and the proliferation of smartphones, tablets, lower-cost TVs and other gadgets that make it easy to consume downloadable shows in a snap," Bloomberg reports.

"The shift in viewing habits is putting pressure on cable, satellite and phone companies by pinching subscriber numbers, which may have a knock-on effect on revenue growth," the report says. "The impact on the $80 billion pay-TV industry is already being felt, with 2013 on pace to be the first year ever that total U.S. pay-TV subscriptions will decline, falling to 100.8 million from 100.9 million last year, according to researcher IHS."

In the past three years -- a period during which 3.2 million new U.S. households were set up -- the pay-TV industry added only 250,000 subscriptions, the piece reports, citing SNL Kagan figures.

Said Rich Greenfield, an analyst at BTIG LLC in New York: “It’s hard not to be concerned that there’s a growing population growing up not using [pay TV]. Alternatives are growing by the day.”

Bloomberg calls this new group the "cord never" generation, reporting: "Cord nevers are set to accelerate the erosion that cable and satellite TV providers are already suffering at the hands of phone companies. AT&T Inc. and Verizon Communications Inc. have taken 11 percent of the market for paid-TV subscriptions after introducing competing services in the past decade. Cable commands 55 percent of the market, while satellite TV has 34 percent, according to IHS."

Meanwhile, choices are proliferating thanks to the Internet. "Netflix has attracted 29.8 million subscribers since it was founded in 1997, while Amazon sells streaming shows through its e-commerce storefront," Bloomberg reports. "Then there’s Hulu LLC and the wide range of programming available for download or streaming through Apple Inc. and Google Inc. websites. Silicon Valley technology companies such as Intel Corp. (INTC) are also planning Internet-based TV services."

Challenges posed by the "cord nevers" come on top of the widely acknowledged problem of cord cutters -- customers who previously paid for traditional cable or satellite and have since opted out in favor of Internet-related sources.

"Both groups affect the cable industry, which is unlikely to return to the growth in customer numbers it once enjoyed, said SNL Kagan analyst Ian Olgeirson," Bloomberg notes.

Said Olgeirson: “We think this trend probably amplifies a little over time. That comes from people who have either had a service and discontinued, or never came into the fold.”

So will pay TV vanish altogether? Not necessarily, according to the report.

"Paid TV subscribers in the U.S., including those buying programming from phone companies, remain prevalent, reaching 86 percent of households in 2009, according to IHS," the story reports. "Increases in advertising, per-subscriber fees and bundling telephone and Internet services will also help make up for customer declines, said Erik Brannon, an analyst at IHS."

Brannon adds: “The pay-TV business is fundamentally sound."

We encourage you to click on the link at the top of this story to read the rest of Bloomberg's in-depth report.