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Pay TV Subscriber Uptick Trails Economic Gains

RESEARCHERS: HIGH CABLE COSTS PUTTING OFF SUBS 3/24/2013 8:00 PM Eastern

Pay television operators reported small gains in multichannel-video customers in the fourth quarter and full-year 2012, reversing losses in the second and third quarters of last year, according to separate reports by two top research groups.

But video-subscriber gains lag improvements in the housing market and the overall economy, analysts said, possibly indicating that the high price of multichannel-TV service has led existing subscribers to cut back and discouraged new customers from signing up.

SNL Kagan said total multichannel- video customers rose by about 51,000 subscribers in the fourth quarter, to 100.4 million.

For the full year, the sector added about 46,000 video customers, as strong gains by telco video providers and continued improvement for cable operators helped negate seasonal losses in the second and third quarters.

For all of 2012, U.S. cable video customers declined to 56.4 million from 58 million the year before.

Satellite-TV subscribers grew to 34.1 million from 33.9 million and telco video customers grew to 9.9 million from an undisclosed year-ago figure, SNL Kagan said.

GAINS IN TOP 13

Meanwhile, the 13 largest pay TV operators added about 170,000 video customers in 2012, down from 230,000 additions in 2011, Leichtman Research Group estimated.

“In this saturated and competitive market, it has become a contest over market share,” Leichtman Research president and principal analyst Bruce Leichtman said.

Leichtman also estimated that the top 17 U.S. broadbandservice providers added 2.7 million high-speed Internet customers in 2012, about 90% of the total number of additions recorded the year before.

Cable continued its dominance of the broadband market, adding 2.4 million broadband customers in 2012, or 88% of the 2.7 million total additions for the year.

On the video side, the top four publicly traded cable operators had a relatively strong first quarter. Led by Comcast, they lost a collective 104,000 video customers, a 30% improvement over the prior year.

Seasonal declines in the second and third quarters erased those early, positive comparisons with 2011.

Kagan said factors beyond the TV industry’s control, such as high unemployment and the impact of Superstorm Sandy, weigh on subscriber gains. But the modest rise in subscriber growth for the quarter and the year “suggests the segment is not rebounding with the broader economy and customer formation is lagging the rebounding housing market.”

HOUSING BOOST

Kagan cited fourth-quarter 2012 figures from the U.S. Census Bureau housing survey, which state that occupied housing ticked up by about 500,000 new units, including occupied, seasonal and occasional-use households.

That metric implies a gain of 974,000 occupied, seasonal and occasionaluse homes for the full year 2012, Kagan said, more than 21 times the increase in multichannel customers during the same period.

As a result, multichannel penetration has actually declined, according to Kagan. The three platforms (cable, satellite and telco) account for 84.7% of occupied homes in the U.S., down from 87.3% in the first quarter of 2010.

While cable seems to be making headway in improving its losses, Kagan said growth for satellite and telco video operators is slowing down.

Satellite-TV service providers added about 288,000 net new customers in 2012, according to Kagan, down from the nearly 500,000 added in 2011.

Telco growth decelerated to 1.4 million additions in 2012 from 1.6 million in 2011, according to Kagan.

Pivotal Research Group principal and senior media and communications analyst Jeff Wlodarczak said some people are dropping their pay TV service for over-the-air broadcast and “over-the-top” alternatives, making for slower gains than would normally be expected given improvements in the housing market. “The rising price of multichannel certainly exacerbates this issue,” Wlodarczak said.

TAKEAWAY

Video subscribers are on the rise, but improvement is lagging growth in the overall economy and housing market.

September