- Share this article on Facebook
- Share this article on Twitter
- Share this article on Email
- Show additional share options
- Share this article on Print
- Share this article on Comment
- Share this article on Whatsapp
- Share this article on Linkedin
- Share this article on Reddit
- Share this article on Pinit
- Share this article on Tumblr
This story first appeared in the Dec. 25 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
What cord-cutting? That was the message from top cable operators at the annual UBS media conference Dec. 7 to 9. But are the new numbers smoke and mirrors, or is the pay TV industry seeing encouraging signs of growth?
After years of subscriber losses amid the boom in telecoms and then digital over-the-top competitors like Netflix, the CEOs of Charter Communications and Time Warner Cable, which the former is planning to acquire, predicted they would return to full-year growth in pay TV customers for 2015 based on trends through early December. Comcast, the nation’s largest cable carrier, echoed the sentiment of improving trends.
The growth “is a significant milestone, not only for us but for the industry,” Time Warner Cable CEO Rob Marcus told attendees. The last full year of growth for TWC was 2006, when it added 65,000 video customers. Marcus told THR after his speech that residential, business and total video subs look like they all could grow this year. Similarly, Charter CEO Tom Rutledge said his company will post video sub gains for 2015; the most recent time it did so was 2001. “It’s a very competitive environment,” said Rutledge. “And Charter lost video subs for a decade. We are going to grow this year, and we expect to continue to grow video subs.” Comcast CFO Mike Cavanagh said his company, which hasn’t grown subs since 2006, hopes to return to full-year video sub growth without putting a time frame on it.
Why? The answer probably is that cable companies now are winning over some video subscribers that in the past chose satellite and telecom giants rather than increasing the overall pie of paid subs. Leichtman Research Group boss Bruce Leichtman emphasizes that the strength in big cable is less a sign of the pay TV sector returning to growth and “much more of a share shift” because “to various degrees, each of the main competitors [DirecTV, Dish, AT&T and Verizon] have chosen to slow down their traditional video service growth over the past year.”
In fact, the 13 largest U.S. pay TV providers collectively lost about 190,000 net video subscribers during the third quarter, according to Leichtman’s data. That’s fewer than during the seasonally weak second quarter but slightly more than a year earlier, making for the industry’s worst third quarter to date. Still, the biggest losers weren’t the cable companies, as has been typical, but the telecom giants, which lost 49,000 subs after adding 323,000 during the year-ago period, in part because of AT&T’s merger with DirecTV. “With AT&T adjusting focus from its U-verse TV service to its newly acquired DirecTV satellite service, telcos reported their worst quarter ever,” wrote Leichtman in a research note. Plus, Verizon has fewer FiOS areas rolling out, so there is less pay TV growth there, he tells THR. Dish’s and DirecTV’s decisions to be more disciplined in subscriber acquisition amid higher acquisition costs (because of intense competition) also have affected momentum.
In addition, cable’s video product and services are getting better and now, in many cases, outshine competitors’ packages. And the proliferation of “skinny” bundles, which see subscribers fork over less money for fewer networks, can prop up cable sub numbers while not boosting overall revenue (either for the distributor or the networks left out of the bundle). But Marcus has said TWC’s TV Essentials package, launched in 2010, only has drawn subscribers in the low-10,000s range. Others have said a small minority takes such bundles, and Leichtman tells THR that his data “implies some degree of consumer/commercial accounts getting smaller packages, but we do need to be careful in interpreting this as a new rash of cord-shaving down to smaller packages.” He adds: “What we may be seeing is providers selling lower-priced smaller packages to new subscribers, more so than an increase in consumers dropping service.”
The question now is whether the cable momentum will continue and, if so, at whose expense. “Cable’s video product has gotten better and better, and the bundle has gotten harder and harder for satellite to compete with as broadband speed requirements have risen,” says MoffettNathanson senior analyst Craig Moffett. “Cable’s momentum in video looks like it has some legs to it.”
After third-quarter earnings season, Moffett wrote, it is “time to change the narrative about cord-cutting.” His report said: “Yes, the pay TV industry is slowly drip, drip, drip declining.” But, he emphasized “that cable was actually holding its own.”
Sign up for THR news straight to your inbox every day