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Analysts Expect Pay TV Industry Continued to Add Subs in Q1

Satellite TV and telecom gains should once again outweigh cable declines, but Credit Suisse analyst Spencer Wang says "the evidence of cord-cutting remains inconclusive."

NEW YORK -- The pay TV industry likely recorded slight subscriber gains in the first quarter as customer growth at satellite TV and telecom companies continued to offset cable declines, analysts surveyed by The Hollywood Reporter predict.

The pay TV sector recorded its first-ever subscriber drops in the second (246,000) and third (130,000) quarters of 2010, which led to investor concerns that consumers were cutting their pay TV cord to watch TV content via online sources, such as Netflix, whose subscriber count is expected to overtake cable giant Comcast's TV customer base with its first-quarter results on Monday.

A fourth-quarter return to slight user growth of 65,000, as recorded by SNL Kagan, has pushed cord cutting worries into the background, but industry watchers have predicted choppy subscriber momentum ahead.

Credit Suisse analyst Spencer Wang, who has repeatedly expressed concern about broadband video alternatives and helped kick off the cord cutting debate last fall, believes that the final word isn't spoken yet.

"Does this performance in the fourth quarter 2010 debunk our concerns about cord-cutting risk? Potentially, although we still believe that there are still some worrisome signs," he said in a recent research report. "On a longer term basis, the trend clearly shows a deceleration of pay TV subscriber growth, which would at minimum suggest that the business is nearing saturation...Net-net, we submit that the evidence of cord-cutting remains inconclusive."

First-quarter earnings season already saw Verizon's FiOS TV and AT&T's U-verse video services post subscriber increases of 192,000 and 218,000, respectively, for a total gain of 410,000.

Ahead of earnings season for cable and satellite TV companies, analysts predict the pay TV industry overall will once again come out with a slight first-quarter subscriber gain over the previous quarter.

Collins Stewart analyst Thomas Eagan projects a gain of 280,000 "as declines in cable are offset by gains in telco and satellite." Others echo that view, although growth estimates vary.

Goldman Sachs' Jason Armstrong in a recent report projected net additions of 235,000 "though we note the first quarter is a stronger seasonal quarter," he added. Sub gains were likely only about half of what they were in the first quarter of 2010 though partly due to what he believes were "significant losses" for Dish Network.

Evercore Partners analyst Bryan Kraft predicts a more bullish 386,000 net additions for pay TV players for the first three months of 2011. "Seasonal strength, modestly better economic conditions and less pressure from customers going back to over-the-air [TV] are the reasons," he said.

Meanwhile, Miller Tabak analyst David Joyce expects only about 145,000 pay TV subscriber gains in the first quarter as satellite and telecom growth offsets what he expects to be 385,000 cable user losses. Telecom subscriber gains came in slightly ahead of Joyce's estimates though.

The 145,000 uptick that he projects would amount to only about a 0.1% improvement when looking at the total TV homes of about 115.9 million -- remaining well below the average pay TV subscriber growth of recent years in the range of one to two percentage points. For the full year 2010, pay TV subscriptions grew by 211,000, up 0.2%.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai