Second-Quarter Pay TV Sub Trends Revive Cord Cutting Debate

But most Wall Street observers see no reason for concern about declines in the seasonally weak period.

Second-quarter earnings season for pay TV operators has brought back the cord cutting debate given some negative subscriber headlines.

First of all, the second quarter is traditionally the seasonally slowest for cable TV companies and their peers as students and senior citizens moving to their Florida sommer homes disconnect service.

Second, AT&T and Verizon saw slower gains for their U-verse and FiOS TV services.

And third, most shocking for some, satellite TV brought in only its second-ever quarterly subscriber decline, with DirecTV posting its first-ever drop.

While some investors wonder if all that should be cause for concern, most Wall Street observers continue not to fret over the sub decreases.

"The headlines in the general press are likely to read “Pay TV Industry Loses Subscribers in Second Quarter,” Sanford C. Bernstein analyst Craig Moffett wrote in a report. "But that has been the case for each of the past two years in the second quarter, and is as expected. A more appropriate title should probably read “Pay TV Industry Holds Its Own".”

ISI Media analyst Vijay Jayant told The Hollywood Reporter that it "is quite well known that the second quarter of the year is seasonally the weakest quarter." And video subscribers were only "marginally below expectations" with net losses of around 200,000 for the publicly traded pay TV firms, compared with his expectation of a 150,000 drop.

Nomura's Mike McCormack estimated that the overall pay TV industry lost 352,000 subscribers, "similar to the 359,000 losses in the second quarter 2011, with cable ... losses a bit better, but telco net adds weaker."

Moffett warned though not to expect a big rebound from cable operators amid the quarter's losses for both satellite TV firms DirecTV and Dish Network. "It's tempting to read this as the beginning of the end, as "Cable Strikes Back" (or even "Cord Cutting Gets Real") or something similar," he said. "But we believe the dip is better viewed as merely the latest data point in a long glide path to market share equilibrium for the pay TV sector."

Evercore Partners analyst Bryan Kraft predicted that at DirecTV "seasonal gross add strength will return in the third quarter, driving positive net adds for the next three quarters."

And Collins Stewart's Tom Eagan echoed: "We expect U.S. third-quarter sub adds will more than offset the second quarter's losses" as the current quarter could see as many as 150,000 additions.

Barclays Capital analyst James Ratcliffe said DirecTV drop "was largely due to the company being more disciplined about acquiring new customers." 

So are consumers cutting the pay TV cord to watch TV content online? "I certainly don't see any evidence thus far ... of cord cutting," Ratcliffe told THR. Even if a few thousand more pay TV subs were lost than last year, "in a nearly 100 million sub industry, that's not meaningful," he said.

Some analysts like Janney Montgomery Scott's Tony Wible have noted though that household penetration has continued to drop  as there are fewer subscriber additions than new residences. "This would imply that newer households may be more inclined to use alternatives to a [pay TV] subscription," he said earlier this year.

But most are seeing no reason for panic as the full year 2011 saw the pay TV industry, including cable, satellite TV and telecom companies, add 280,000 subscribers, ending it with 100.38 million, according to SNL Kagan.

It seems to be a safe bet to expect the cord cutting debate to continue to resurface in regular intervals for the foreseeable future.

Twitter: @georgszalai