Monday, August 23, 2010

In Cable TV, one quarter does not a trend make

Today, SNL Kagan reported that in the second quarter of this year, net pay TV subscriptions in the U.S. dropped for the first time in history. Cable systems lost 711,000 subscribers, and six of the eight largest cable operators reported their worst subscriber losses ever. So that means that consumers are dropping pay TV and moving to over-the-top Internet video services, right?

Not necessarily. Satellite (DirecTV and Dish) and IPTV services (Verizon FiOS and AT&T U-Verse) gained a total of 495,000 subscribers in the same quarter (414,000 for IPTV, 81,000 for satellite), and the satellite services don't even offer high-speed Internet. Why the big gain? You've probably seen the aggressive introductory price deals offered by the satellite and IPTV companies on television or in the mail, so people are switching to these services to save money.

Really? According to Steve Hawley, an IPTV industry analyst I used to work with, the monthly ARPU (Average Revenue per User, or subscriber) for the IPTV services is higher than that of any of the major cable operators. Only Cablevision comes close to Verizon and AT&T. That means that on average, the IPTV operators are charging more per month than the cable operators.

But pay television still lost a net of 216,000 subscribers in the quarter, so that still means that those subscribers went to Internet video, right? Perhaps, but Verizon and AT&T lost 515,000 subscribers to their DSL high-speed Internet services in the quarter, and you need high-speed Internet for Internet video.

So what does it all mean? We simply don't know yet. Over the next year or so, we can start sorting out what's really going on and identify the underlying causes. Are we seeing a temporary drop due to economic pressures (people losing or in fear of losing their jobs) that will be reversed when the economy improves? Are people experimenting with Internet video or committing to it as a replacement for pay TV? Is there a long-term shift from cable to IPTV and satellite, or in a saturated market, are people simply switching back and forth to get the best deal, just like they used to do with long distance services?

The key thing to remember is that one quarter does not a trend make.
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