The unlikely group putting the kibosh on cable TV: Parents

Tykes are dream customers who don't care how they watch Mickey and clamor to watch him again and again. With Netflix and Amazon catering more to kids, parents may be the next big group to cut the cable cord.

Netflix's Just for Kids section
Netflix's Just for Kids section marries child-appropriate content to big clickable images of favorite characters. Screenshot by Joan E. Solsman/CNET

In the cold Alaskan winter, alone with her infant son while her husband was stationed in the Air Force nearby, Ashley Bauza needed something to entertain both herself and her child, something she could get on a tight budget.

She moved north in 2010 and quickly learned after giving birth to Lukas the next year that the rural state not only crimps her kid's playtime options with minus-40 degree temperatures it also amps up the cost of cable and Internet.

"We are on a fixed budget, we do really need to figure out what we forgo," said Bauza. "So we had to figure out if we needed cable in addition. My husband said, 'Why don't we do Netflix?'"

Her response: "I don't even understand what this thing is."

But after two years on the video streaming service, she was hooked. Having recently relocated to Florida, and moved in with family while her husband transitions to civilian life, Bauza said she'll stick with Netflix and other online options when they find their own place.

Now, she said, she can't envision paying for cable again.

The image of the cord cutter -- someone who forsakes traditional cable television for Internet video services -- has largely been of the solitary young adult. It's somebody tech savvy, already well-versed in what Web options are out there.

But with online video services such as Netflix and Amazon Prime Streaming loading up on Dora the Explorer and Mickey Mouse, parents may end up being the one hitherto overlooked group that's on the path to cutting the cord .

The shift in attitude underscores a broader change in the viewing habits of not just the young and tech-savvy but mainstream America as well. The rising cost of cable and the abundance of online video options (and gadgets that can ferry online programs to your television) have more people questioning why they pay for cable TV.

"It's very much more about economics than technology, and more about economics than content," said John Barrett, director of consumser analytics at Parks Associates. "We ask cord cutters, 'Why did you do it?' They say, 'It was because of the price.'"

Race for the crib
Netflix has been investing in original programs this year , and on Monday the Internet's top streaming service unveiled its largest deal for original, first-run content ever.

It's cartoons.

In an agreement with DreamWorks Animation, Netflix will bring 300 hours of original kids' television programming to subscribers next year, all based on the studio's blockbuster franchises such as Shrek. News of the deal lifted Netflix's stock price as high as it's been in almost two months. The following day, the company rolled out a Families page on the site, which recommends kid-friendly TV shows and movies, along with information for nonmembers about how to stream.

Kids are key to Amazon's original-content push too. Of the first five programs it will produce, three series are children's programs .

Original content is only one front where Amazon and Netflix are vying to one-up each other. In April, when Netflix let a Viacom pact expire that included a library of popular Nickelodeon content like Dora the Explorer and SpongeBob SquarePants, Amazon was quick to snatch it up.

James Martin/CNET

Kids' content is "the single biggest reason that drives subscriptions to Netflix and Amazon," Bernstein analyst Todd Juenger said in an interview. If Viacom and Disney -- the two main creators of children's programming content -- had just simply refused to strike any deals with the online players, Juenger said, he's not even sure what those sites would look like today.

Other online players are paying attention too. Subscription service Hulu Plus has a kids' hub that streams programs ad free, including current Nickelodeon seasons. Redbox Instant by Verizon, a recently launched streaming joint venture between the DVD-rental kiosk company's parent Coinstar and telecommunications company Verizon Communications, pegged family fare, alongside new releases, as its core media proposition.

The idea is twofold: Go after a type of programming that -- after sports -- can be the most decisive factor in a viewer's choice of provider. Then get children cozy with the format and style of Internet-delivered content to create a new generation of subscribers.

And for those with ambitions abroad, like Netflix, children's shows can be a way to bring into the fold those who might otherwise watch illegally.

"Particularly overseas, I would say that it's a huge differentiator against piracy, because pirate sites don't typically have kids' content," said Jonathan Friedland, Netflix's chief communications officer.

The effect on parents, burgeoning cord cutters
Households with children aren't the prototypical cord cutters, but data suggests they could be on their way.

Of broadband households with minors living in them, 54 percent have subscribed to an online video service, according to data from Parks Associates, compared with only 36 percent of households that don't have any young people.

Amazon Prime Instant Video
Amazon touts Dora the Explorer as something Netflix can't match. Screenshot by Joan E. Solsman/CNET

The same data shows that the momentum of adopting these services -- known as "over the top" because they ride on the Internet connection instead of a cable line -- is stronger in households with kids. Over-the-top subscriptions had a nine percentage point increase in households with minors in the beginning of 2013 from a year earlier, nearly double the five point increase in households without them.

The overwhelming majority of households still subscribe to services like cable. But 11 percent of households with minors are cord cutters, compared with 9 percent for adult-only households, according to Parks.

But the cord-cutting trend is still small and murky. Nielsen data shows that two thirds of homes with traditional television delivery systems like cable are childless. Among cord-cutter homes, 81 percent have no kids.

Online options are making an impact elsewhere in the children's programming world. Viacom in the first quarter of the year said old episodes on Netflix were part of the reason for an unexpected ratings drop at Nickelodeon last year.

Effect on kids, burgeoning "cord nevers"
For Netflix and Amazon, the great appeal of children is that they're "the original binge viewers," said Jonathan Wilner, who leads product strategy at Ooyala, a multiscreen video platform that analyzes view too. Kids are extremely sticky viewers, he says; once kids find something they like, they'll watch it forever.

As children grow up accustomed to the Internet-delivered mode of viewing, a generation of future subscribers appears that's more inclined to be "cord nevers," or those who have never paid for traditional cable and perhaps never will. "The more and more families get trained to put their kids before Netflix, that will just compound" as the children grow up, said Bernstein analyst Juenger.

Fostering the idea of streaming video as the natural state of viewing programs will help build loyalty and cut down on subscriber cancellations, which is crucial to Netflix because it's facing the prospect of slowing customer growth in a market where few people haven't already tried or heard about the service.

"Kids are early adopters, they do not live in a world of linear television and never will," Netflix's Friedland said. "They are our future customers."

As for its current customers, those like Bauza, the military wife in Alaska, pay TV gives her too much of what she doesn't want, she said.

"You have channels upon channels upon channels of nothing, and you have commercials, it kills you to have to sit through those," she said. "I'm spoiled now, it's hard to go back."

 

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