NEW YORK – Third-quarter earnings season saw big publicly traded cable, satellite TV and telecom companies add about 146,000 pay TV subscribers, while subscribers declined minimally industry-wide when including smaller and privately-held firms.
Most on Wall Street see the trends as positive amid cord cutting fears that started about a year ago, even though they say current industry momentum is nothing to brag about.
Going into the latest quarterly earnings season, Wall Street observers had a range of different expectations, but agreed that video subscriber trends would likely improve over the year-ago trends and over a second-quarter drop.
According to research firm SNL Kagan, whose data is widely used, the U.S. multi-channel universe lost 32,000 subscribers in the third quarter, falling from a total of 100.113 million at the end of June to 100.081 million at the end of September.
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“The pay TV industry appears to have bounced back from its dismal second quarter,” said Wells Fargo analyst Marci Ryvicker in a recent report. “The pay TV industry posted strong results, while Netflix lost 800,000 subscribers; which we believe should help assuage investor concerns that “cord-cutting” is an immediate secular challenge. That said, we believe the pay TV industry is likely to remain a zero-sum game among the incumbent players until the economy and housing market more fully recover.”
Barclays Capital analyst James Ratcliffe‘s conclusion from third-quarter earnings season similarly was that housing weakness is still the dominant factor in video sub performance. “U.S. pay TV subscribership was essentially flat in the third quarter,” he wrote in his review. “We continue to believe that the minimal pay TV subscriber growth we are seeing in the U.S. market is primarily driven by conditions in the housing market rather than cord cutting, as penetration rates, while not rising, are essentially unchanged.”
Ryvicker estimated a third-quarter loss of 31,000 subscribers among all video operators – public and private. That compares to her calculation of 464,000 sub losses in the second quarter, or 458,000 according to data from SNL Kagan.
The slight decline was also better than the 119,000 sub drop, according to Ryvicker, or 130,000 according to SNL Kagan, in the third quarter of 2010.
“The improvement was primarily due to better satellite (+216,000, versus -109,000 in the second quarter and +145,000 in the third quarter 2010) and cable (-584,000, versus -771,000 in the second quarter and -741,000 in the third quarter of 2010) results, both of which were up on a sequential and year-over-year basis,” Ryvicker said. “Telco adds (+337,000 versus +416,000 in the second quarter and +477,000 in the third quarter of 2010) were weaker.” But Ryvicker argued that “this could be a one-time ‘lip” as a strike at Verizon was a drag on results.
Comcast, the largest U.S. cable firm, and Time Warner Cable were among those cable operators that reported narrower declines in the latest period.
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In the satellite TV space, strong gains from DirecTV due in part to its promotion of free NFL Sunday Ticket to new subscribers offset a 111,000 decline at Dish Network, which came in higher than a 29,000 year-ago loss, but was better than some observers’ fear of a 150,000 subscriber decrease. DirecTV’s addition of 327,000 U.S. pay TV customers in the third quarter compared with 174,000 in the year-ago period and marked the company’s strongest third-quarter showing in seven years.
“DirecTV was an anomaly due to their…NFL Sunday Ticket for a year promo,” cautioned Miller Tabak analyst David Joyce though. Overall, “the nearly 400,000 consumers who left pay TV in the second quarter did not come back, nor has unemployment improved,” he added.
Pay TV industry subscriber numbers dropped for the first time ever in the second quarter of 2010, with SNL Kagan reporting a 246,000 decline, kicking off the cord cutting debate over whether U.S. consumers were looking to cheaper online options to replace their monthly pay TV bills.
The drop in the third quarter of last year seemed to confirm investor fears, but then two quarters of growth calmed concerns.
Analysts expect the industry to see no major moves in either direction over the near-term. “Fundamentally, we continue to view the U.S. pay TV market as stable, but in the absence of a return to a more normal level of household formation (1 million-1.5 million per year), the market remains fundamentally zero sum,” Ratcliffe concluded.
Email: Georg.Szalai@thr.com
Twitter: @georgszalai
