Panic time for cable companies?
For a number of reasons, customers are fleeing pay TV.
By Minyanville.com Aug 9, 2012 1:54PM
Are cable companies losing customers to the likes of Netflix (NFLX) and YouTube (GOOG)?
That could be one explanation for the increased level of cord-cutting cable TV companies have reported for the second quarter.
DIRECTV (DTV), the leading satellite TV provider in the country, lost some 52,000 homes in the second quarter, which was the first time it had ever experienced quarterly losses.
Time Warner Cable (TWC) also lost 169,000 subscribers, more than analysts had predicted. The company still has 12.3 million customers in all, but that nevertheless marks 10 straight quarters of subscriber losses for Time Warner Cable.
The other two in the cable TV big four, Comcast (CMCSA) and Dish Network (DISH), fared relatively better. Both also lost subscribers in the second quarter, but at rates better than previous quarters. Comcast lost 176,000 subscribers while Dish lost 10,000 subscribers.
In all, approximately 400,000 pay TV customers have canceled their subscriptions so far this year, according to Reuters.
It should be noted that the second quarter is traditionally a weak one for pay TV operators, as college students cancel their plans and head home for the summer before resuming their subscriptions in the fall.
However, Sanford C. Bernstein analyst Craig Moffett points out to The Wall Street Journal that the year-to-year growth rate of cable subscribers is lower than the rate of new household formation, indicating that "there are homes that are cutting the cord."
The poor economy, high unemployment rate, and lousy housing market have all contributed to the drop in subscriber numbers. Also not helping are the programming blackouts that come during contract negotiations between content providers and pay TV operators, such as the recently resolved tussle between Viacom (VIA) and DIRECTV, and the still-ongoing battle between AMC (AMCX) and Dish Network.
However, it is also likely that the rise of free or relatively cheaper online video choices in recent years, such as Netflix, YouTube and Amazon's (AMZN) Prime service, has weakened the cable TV market. Some content providers like Viacom and CBS (CBS) also put up their programming online for free streaming, further weakening the impetus to get a cable subscription.
As Dave Thier of Forbes writes:
With video revenue declining, pay TV companies are turning elsewhere for growth opportunities, such as their broadband Internet businesses, which have higher margins compared to video, where rising costs for buying programming cut into profits. Time Warner Cable, for example, has seen a 28% year-to-year increase in the number of customer who subscribe only to their broadband services.
"Our real opportunity for residential growth rests with our high-speed data product," Time Warner Cable President Rob Marcus said, according to Reuters. "We have been postulating that that's the case for some time now."
Time Warner Cable is embracing instead of fighting competitors like Netflix by marketing its Internet service as being fast and reliable enough to deliver consistent Netflix streams to customers.
Together with Comcast, Time Warner is optimistic that new projects like Google's plan to launch its one-gigabit communications network, Google Fiber, will hasten broadband adoption in the country and boost its broadband subscriber count.
"We are constantly hoping that new [broadband] applications and needs develop. [It will be a] positive development if we can help that happen and if Google can be part of making that happen," said Comcast CEO Brian Roberts in an earnings call last week.
That could be one explanation for the increased level of cord-cutting cable TV companies have reported for the second quarter.
DIRECTV (DTV), the leading satellite TV provider in the country, lost some 52,000 homes in the second quarter, which was the first time it had ever experienced quarterly losses.
Time Warner Cable (TWC) also lost 169,000 subscribers, more than analysts had predicted. The company still has 12.3 million customers in all, but that nevertheless marks 10 straight quarters of subscriber losses for Time Warner Cable.
The other two in the cable TV big four, Comcast (CMCSA) and Dish Network (DISH), fared relatively better. Both also lost subscribers in the second quarter, but at rates better than previous quarters. Comcast lost 176,000 subscribers while Dish lost 10,000 subscribers.
In all, approximately 400,000 pay TV customers have canceled their subscriptions so far this year, according to Reuters.
It should be noted that the second quarter is traditionally a weak one for pay TV operators, as college students cancel their plans and head home for the summer before resuming their subscriptions in the fall.
However, Sanford C. Bernstein analyst Craig Moffett points out to The Wall Street Journal that the year-to-year growth rate of cable subscribers is lower than the rate of new household formation, indicating that "there are homes that are cutting the cord."
The poor economy, high unemployment rate, and lousy housing market have all contributed to the drop in subscriber numbers. Also not helping are the programming blackouts that come during contract negotiations between content providers and pay TV operators, such as the recently resolved tussle between Viacom (VIA) and DIRECTV, and the still-ongoing battle between AMC (AMCX) and Dish Network.
However, it is also likely that the rise of free or relatively cheaper online video choices in recent years, such as Netflix, YouTube and Amazon's (AMZN) Prime service, has weakened the cable TV market. Some content providers like Viacom and CBS (CBS) also put up their programming online for free streaming, further weakening the impetus to get a cable subscription.
As Dave Thier of Forbes writes:
Among the informal data set of "myself and people I know," virtually none pay for cable. And we watch a ton of TV. We use a combination of Netflix, Hulu, and other services to fulfill our viewing needs. If there's a show I really want to watch that I can't get otherwise -- i.e., "Breaking Bad" or "Mad Men" -- I buy it on Zune, through my Xbox (MSFT).
If someone like me -- a person who by any measure watches a very large amount of TV -- can manage to get by without paying for cable, it's bad news for the people who make money off of the traditional model.
With video revenue declining, pay TV companies are turning elsewhere for growth opportunities, such as their broadband Internet businesses, which have higher margins compared to video, where rising costs for buying programming cut into profits. Time Warner Cable, for example, has seen a 28% year-to-year increase in the number of customer who subscribe only to their broadband services.
"Our real opportunity for residential growth rests with our high-speed data product," Time Warner Cable President Rob Marcus said, according to Reuters. "We have been postulating that that's the case for some time now."
Time Warner Cable is embracing instead of fighting competitors like Netflix by marketing its Internet service as being fast and reliable enough to deliver consistent Netflix streams to customers.
Together with Comcast, Time Warner is optimistic that new projects like Google's plan to launch its one-gigabit communications network, Google Fiber, will hasten broadband adoption in the country and boost its broadband subscriber count.
"We are constantly hoping that new [broadband] applications and needs develop. [It will be a] positive development if we can help that happen and if Google can be part of making that happen," said Comcast CEO Brian Roberts in an earnings call last week.
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17Comments
Aug 9, 2012 6:10PM
Aug 9, 2012 5:08PM
Aug 9, 2012 3:29PM
Cable TV is going the way of land line telephones. Cable providers will survive only if they can deliver super high speed internet or produce their own content. Google is in the process of installing their gigabit network in our area, so they are ahead of the curve on this one. They also own YouTube, which is becoming a major creator and distributor of content. It will be interesting to see what Apple does with their TV.
Aug 9, 2012 6:08PM
Aug 9, 2012 6:06PM
Netflix streaming is useless as there is nothing worth watching. Cable companies keep raising rates while losing channels. Their customer service is a joke. Said goodbye to Comcast 3 months ago. After thinking that Time Warner had the worst service, Comcast changed that. Horrendous excuse for a customer oriented company. currently have ATT U-Verse with a 6 month special. We shall see what happens after 6 months
Aug 9, 2012 6:16PM
DirecTv is losing customers because they're TERRIBLE! When I had their service, they double billed me for 4 months...it took almost 7 to get it fixed. THEN they had the audacity to keep my refund because I cancelled my service instead of finishing the 2 year agreement.THEY SUCK. I've just gone back to local channels, Hulu, and Netflix. Cheaper and far less headaches.
Aug 9, 2012 6:23PM
Never like to pay for something I can get for free. The stuff shown on cable is usually not worth my time. All those frigging commercials should pay for the broadcast. Government did us a further dis-service when they took away our analog and made it all digital. I'm getting satellite XM radio for $25.00 for six months as a come on but when the cut rate ends I'm gone. Just call me cheap.
Aug 9, 2012 9:30PM
One of the reasons for the loss of customers is the treatment of those customers at these coroporations. They have the "We don't care, we don't have to, we're the phone company" attitude. For a couple of decades they were the only game in town (I'm mostly speaking of TWC here) and we could either kiss their **** of have bad tv reception. I really hope they realize that they need to improve their corporate culture to "the customer comes first" or they face the very real risk of going belly up. ATT is bringing fiber optics to my area (sometime???) and I will jump on that in a heartbeat and tell TWC to kiss mine as I leave.
Aug 9, 2012 8:58PM
Aug 9, 2012 7:01PM
Aug 9, 2012 7:34PM
And frankly speaking, pun intended, who wants to pay for all of this garbage programming from all the networks? Certainly not me. I cut the cord and buried the dishes a long time ago. What comes through and airwaves (now digital) and what I can stream from the internet more than satisfies.
Aug 9, 2012 6:30PM
Aug 9, 2012 6:56PM
Hey, just raise the prices for those of us who haven't left yet. That'll pick up the slack. <Sarcasm Off>
On a side note, I have Comcast, left them for over a year. Got an unadvertised deal on their website, High Speed Internet and expanded basic cable for a whopping total of 40.79 a month. I'm no salesperson for them, but it's a crapload better than the 90 bucks I was paying before I left. On a side note, I have used their online customer service a couple of times, and the people I chatted with were extremely nice. So I take it that they are drastically improving on CS. (Reason for call was that on speedtest.net, was getting a download speed of @ 1.3 Mbps and upload of over 4 Mbps, but on Comcast's own "Speedtest", it was saying 22 Mbps, which we all know is a lie. On Speedtest.net, it usually runs around a 3- 4 MBps, which is what that 22 boils down to in MBytes.
Another side note, with the basic service, I got a couple of the DTA boxes, and you evidently are not allowed to use the watch online segment on Comcast's site, which seems illegal, since I do get those specific channels. (And since I'm not under contract, maybe a nice little lawsuit can get that fixed?)
Aug 10, 2012 3:56AM
I live in the Los Angeles area and I get free over the air TV, I have never paid for cable and I never will. I have enough bills (and taxes included in the bill) already. Do the math @ $30 a month that's $360 a year, or which is approx. my round trip air ticket I buy every year for my vacation to Mexico. You want to give your money to the cable companies that's OK too, the big wigs at those companies will give them self's raises and bonuses, and take the Mexico vacation for you, except they're going about 5 times a year.
Bye.
Bye.
Aug 9, 2012 11:44PM
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