1. Cord Shifting Is Growing (Not Cord Cutting)

Pay-TV’s Q3 numbers have been coming in this week, and the “TV Is Dead” crew has been dancing in the aisles and smashing plates as they cite "predictions” that the final totals will reveal that pay-TV lost around 1 million customers in Q3.

Which, while it seems like a huge number, actually only represents around 1% of the total number of pay-TV subscribers.

But wait, there’s more!

You see, what they conveniently left out was that those same “predictions” are also predicting that vMVPDs like Sling, DirecTV Now, Hulu et al will have gained around 900K subscribers in Q3.  And as we’ve said many times before, if you’re buying pay-TV from Dish, AT&T, or Comcast, we’re really not sure how that qualifies as “cord cutting” just because the delivery mechanism is a Roku box rather than a set top box.

Why That Matters

What we’re actually seeing is a phenomenon known as “Cord Shifting” whereby people are moving from expensive set top box-based pay-TV service to lower priced OTT-based services. Or MVPD to vMVPD.

The thing is, the MVPDs are all going to have their own vMVPDs—Dish and AT&T led the way, Comcast just launched theirs, and Verizon, Charter and Cox are allegedly not far behind. That means that most of the money is still going to the same players.

And it really is most of the money.

If we look at the above numbers, we can see that at worst, pay-TV is likely to shed 100K subscribers, the delta between the number of people leaving set top box-based services and the number adding virtual services. That is just 0.1% of the pay-TV universe.

In other words, a rounding error.

Now there are numerous ramifications from this switch, both good and bad. On the bad side, there’s the fact that the profit margin on vMVPD bundles is considerably smaller than it is on set top based bundles, something the MVPDs can attempt to make up by upping the fees they charge for broadband. (They can hide some of it in fees for the increased broadband speed users will “need” to watch the OTT service.) Aggressive upselling will help too.

There’s also the fact that most of the so-called “skinny” bundles are not all that skinny, often consisting of close to 100 channels, including almost all the ones you’ve heard of. Most of what’s missing are networks like Centric, Cooking, Daystar, Reelz and Velocity. (And if you had no idea any of those networks even existed, odds are high you are not alone.)

On the upside, there’s the ability to deliver more targeted addressable advertising and cross-screen advertising and to offer new and better bundles that combine services like Netflix, Amazon and Hulu with broadcast and cable channels as well as providers like YouTube, giving the viewer a single easy to use interface and a single bill.

In other words, the ability to give the people what they want.

What You Need To Do About It

If you’re an MVPD, you’ll need to focus on your vMVPD service, making sure that it’s not significantly worse than anyone else’s and that it’s fairly priced. You’ll want to create offers for double play packages with your broadband and you’ll want to make sure that the service is able to handle all sorts of advanced advertising. Finally, you’ll want to figure out a way to make deals with Netflix, Amazon and other SVOD platforms because that’s what your people want and they’ll go somewhere else if they can’t get it from you.

If you’re a network, at least one of the the hundred or so largest ones, you can rest easy because there aren’t as many people giving up your service as you’d thought. (Though it’s those Cord Shavers you need to worry about. The ones swapping a full-on cable package for the super basic one with broadcast only. There’s no official tally on them yet, since they haven't officially "cut the cord" but given ESPN’s otherwise unaccounted for subscriber losses, they must number in the low millions.)

If you’re an advertiser, make sure that your ads can run on OTT systems simultaneously with linear ones (e.g., buy out the digital rights) and look into advanced advertising units and (especially) addressable. It’s the future and you'll want to be a part of it.

2. Facebook Introduces A Search Feature On Watch. (Finally!)

Like many Silicon Valley companies. Facebook relies heavily on iteration: V 1.0 of any new product just has to launch, changes and improvements can be implemented on the fly.

And that’s exactly what happened with Watch, Facebook’s in-app short-form video platform.

When Watch launched this summer it was missing a Search function. As in completely missing it, zero way to actually find a video unless you went in through Google. (And even then your odds of success were not great.) If that wasn’t bad enough, videos you watched immediately disappeared from your Watch home screen. So you couldn’t go back and Watch them again.

Ouch.

Fortunately Facebook seems to have introduced a workable Search function in the past week or two, which greatly improves the usability of the Watch platform.

Why It Matters

Facebook and other tech companies forget how fickle viewers can be: there’s nothing unique about yet another short form video service and so if the UX is awful the first time, there’s a good chance they’re not coming back.

OTOH, given how little Facebook has done to promote Watch, most people might not even be aware of its existence, so Facebook may not be in such bad shape after all. We’re not sure if that was intentional, or if Facebook was just so wrapped up in its own Russian drama that Watch took a back seat, but either way it seems to be working to their advantage.

What You Need To Do About It

If you’re a network or an MVPD, you need to be worried about when and if Facebook launches their long-form TV product, which currently seems to be on a lengthy delay cycle. That's your real competition.

If you’re an advertiser, you might want to start spending some money on Watch, now that they’ve fixed the Search problem.