Analysts: Fourth-Quarter Pay TV Sub Momentum Allays Some Cord Cutting Fears

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NEW YORK - Pay TV operators ended 2011 with improved video subscriber momentum as many cable and satellite TV providers exceeded Wall Street expectations.

Satellite TV giant Dish Network was the latest sector giant to post its fourth-quarter results late this week, including a 22,000 gain in subscribers, compared with a year-ago loss and the average Wall Street expectation for a gain of only 5,000.

Cable giant Comcast, which lost only 17,000 video subscribers in the fourth quarter rather than 135,000 like in the year-ago period and is by some tipped to return to slight growth this quarter, and others also did well.

Some take the momentum as the latest evidence that cord cutting concerns, which were so prevalent a year ago, are unwarranted.

"It is at the fringe," Miller Tabak analyst David Joyce said about cord cutting risk. "A low-single-digit percentage of TV homes, at most, are at risk," mostly younger viewers.

SNL Kagan data, typically used as the final tabulation of subscriber trends, for the latest quarter will be out once all companies' results are in, but Joyce estimates that 255,000 subscribers came back to pay TV in the final quarter of 2011 and around 238,000 for the year, "which could show that the modestly improving unemployment figures and economy looked a little better at the end of the year," he said. "However, Comcast's Neil Smit said their improving performance was due to their marketing, customer service and product offerings, not so much from the economy."

Some observers say though that it will take more time to see how things will shake out in the debate over whether consumers are cutting their pay TV cord amid economic pressures and/or increasing availability of video online. It first started when the industry brought in its first-ever subscriber decline in the second quarter of 2010.

The quarterly results and the prospect for more pay TV operators rolling out streaming services "should allay some of the fears, but some residual fear will remain," said Collins Stewart analyst Thomas Eagan.

"Investors have been pleased with the fourth-quarter results on the video side, and I do believe that some view the results as a sign that cord cutting fears may have been overblown," said Credit Suisse analyst Stefan Anninger, who estimates 129,000 added pay TV subscribers in the latest period, leaving 2011 up by 63,000. "If the economy improves, so could video sub results, and in turn some could become convinced that the cord cutting thesis is dead."

But he also cautioned that "we still have a long way to go before we can say that cord-cutting is a non-issue." Explained Anninger: "I am less concerned about cord-cutters than I am about cord-nevers; younger consumers that are growing up today, that may find pay TV less relevant to their lives when they become adults, than do today's adults."

The analyst projects 100.88 million U.S. pay TV subscribers as of the end of 2011, up from 100.82 million a year earlier, but down from the record 101.26 million at the end of the first quarter of 2011.

The current first quarter is also expected to be stronger for pay TV firms before two seasonally lower quarters.

Even declines in the second and third quarters won't change the belief that cable operators can benefit from any cord cutting activity thanks to their broadband service.

"While there might be a drop of traditional video service, consumers need to be paying at least for a high-speed data connection to get the streaming, and there is more and more authentication-protected content, meaning the consumer has to be paying for a subscription somewhere," Joyce said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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