Satellite TV Subscribers May See First-Ever Quarterly Decline
NEW YORK -- Last year's second quarter brought a shock for the pay TV industry that set off the cord cutting debate. For the first time ever, pay TV in the U.S. lost subscribers as satellite TV and telecom video gains couldn't offset a steep cable decline.
Now, the industry looks set for another negative first. Some analysts now expect satellite TV, which has been on an uninterrupted growth path since its U.S. launch in the mid-1990s, to show its first-ever subscriber decline for the second quarter.
Early on Thursday, DirecTV, the bigger of the two U.S. satellite TV providers, reported a second-quarter net subscriber gain of only 26,000 -- the company's lowest ever and well below the Wall Street consensus of 57,000.
"With today's below-expectations growth at DirecTV, it seems likely that the satellite industry will post its first-ever quarterly subscriber loss in the U.S. (expectations are for a contraction at Dish Network)," Sanford Bernstein analyst Craig Moffett said in a note to investors.
"Our forecast calls for a small subscriber loss" at Dish, but after weaker-than-expected results at other pay TV firms, including DirecTV, in recent days, "the risks have risen for a more substantial drop," he told The Hollywood Reporter.
Wunderlich Securities analyst Matthew Harrigan also expects a satellite TV user decline after the weaker DirecTV figures. He has forecast Dish to lose 35,000 users on a net basis.
Bryan Kraft, analyst at Evercore Partners, told THR that, unlike other industry watchers, he had already expected total sat TV subscribers to fall into negative territory for the second quarter as his DirecTV forecast was more bearish than that of his peers.
He predicts a 100,000 quarterly drop for Charlie Ergen's smaller competitor Dish, which would add up to a 74,000 decline in the second quarter.
Evercore or an affiliate of it has acted as a manager or co-manager of a public offering of securities by the company in the last 12 months, and Evercore or an affiliate owns 1 percent or more of the firm's stock.
"We've estimated that Dish could add 50,000 [subscribers] in the second quarter, but this could be optimistic now," said Miller Tabak analyst David Joyce in echoing the more bearish expectations after DirecTV's results. "This will create headlines that consumers again are leaving the multichannel video distribution market, but probably due to economic factors."
On DirecTV's earnings conference call, chairman and CEO Mike White cited economic and competitive issues. "The pickup in competitive intensity that we saw coming out of the first quarter has yet to abate," he said. And he said that consumers are "increasingly under stress from an ongoing weak economy."
In the second quarter of 2010, DirecTV had added 100,000 subscribers, and Dish had lost 19,000.
The second quarter is typically the slowest for pay TV firms as students move and so-called "snowbirds," retirees who have a winter home in the South that they leave in the late spring, disconnect their service.
"Uncertainty about whether or not we would have an NFL football season may have weighed on gross additions in the quarter," Moffett added. "Still, subscriber growth is unmistakably slowing."
The U.S. pay TV business is already saturated, analysts have long said. "Subscriber growth is a zero sum game," said Moffett.
He also reminded investors that Ergen "has already made clear his disaffection with the core satellite business, and is looking to diversify away -- or at least to radically re-craft the portfolio of surrounding assets" with the recent acquisition of Blockbuster and wireless spectrum.
White on his call spoke of "favorable" subscriber trends so far in the third quarter, suggesting that "we have also regained some of our lost momentum."
But Moffett expressed concerns about the third quarter, which he said "usually isn't any better than the second, so it's easy to imagine that this weakness will be with us for a while."