Reports of Pay TV’s Demise Are Premature — Yet Again

by Jonathan Berr | August 15, 2012 10:36 am

Every few months, reports in the business press sound the death knell for the cable industry, arguing — as was done in a recent study released by IHS Screen Digest[1] — that record numbers of people are “cutting the cord” with pay-TV companies because they are fed up with paying high prices and lousy service.

The reality is not so simple.

Though the pay-TV industry lost nearly 350,000 net subscribers in the last quarter, which IHS says is the largest drop in history, Comcast (NASDAQ:CMCSA[2]), the country’s No. 1 cable company, lost[3] 176,000 cable customers — while half the total of the industry, the figure still marks a 26% improvement from the year-ago period. No. 2 Time Warner Cable (NYSE:TWC[4]) lost a disappointing 169,000 customers[5] but was able to offset the declines with price increase and increased sales of more expensive services.

DirecTV (NASDAQ:DTV[6]), the largest satellite provider, reported its first-ever decrease in U.S. customers, which the company attributed partly on its focus on customer retention instead of acquisitions, but gained 654,000 new clients[7] in Latin America. Dish Network (NASDAQ:DISH[8]), the second-largest satellite provider, lost 100,000 net customers[9] in the quarter, which was better than what analysts expected.

Of course, some of these customers merely migrated. Verizon‘s (NYSE:VZ[10]) Fios and AT&T‘s (NYSE:T[11]) U-verse added 275,000 customers.

As for the others — even if you accept the “cutting the cord” thesis, it is not clear what is happening to these customers once they get rid of their pay-TV service.

Some might be scaling back their expenses and dusting off their rabbit ears because they are worried about the financial futures given the uncertainties surrounding the economy. The more bally-hooed cause is that customers are signing up for web-based alternatives such as Netflix (NASDAQ:NFLX[12]), Amazon‘s (NASDAQ:AMZN[13]) Prime Instant Videos and Hulu.

The groundswell of anti-cable hatred, though, might not be as fierce as some tech journalists imagine.

Netflix, which has about 24 million streaming subscribers, spooked Wall Street[14] last quarter because its growth is slowing. It’s unclear how many people have signed up for Amazon’s service, and Hulu Plus[15], the video site’s subscription service, has more than 2 million customers.

The pay TV industry also has many tricks up its sleeve to retain customers as it faces new rivals. Two years ago, Time Warner (NYSE:TWX[16]) introduced HBO GO, which enables subscribers to the paid channel access to their favorite programs on any device that they choose. HBO GO currently has 5.3 million registered users, according to a spokeswoman.

There also is another advantage that the cable industry has that doesn’t get discussed much: customer inertia. Millions of Americans are sticking with cable because they figure it’s better to deal with the devil they know than with technology they might not understand.

Wall Street is betting that most customers are going to stay put as well. Netflix has dropped about 11% this year. Meanwhile, shares of Comcast and Time Warner have both surged more than 40% this year, DTV has climbed 20%, and Dish has been relegated to a more modest 7%.

For an industry that is supposedly in critical condition, that’s not too bad.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. Follow him on Twitter@jdberr.

  1. by IHS Screen Digest:
  2. CMCSA:
  3. lost:
  4. TWC:
  5. lost a disappointing 169,000 customers:
  6. DTV:
  7. gained 654,000 new clients:
  8. DISH:
  9. lost 100,000 net customers:
  10. VZ:
  11. T:
  12. NFLX:
  13. AMZN:
  14. spooked Wall Street:
  15. Hulu Plus:
  16. TWX:

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