U.S. Pay-TV Industry Sub Growth Hits Low in 2012

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Amid the continuing cord-cutting debate, SNL Kagan says multi-channel service providers continued to grow last year, but the gain of 46,000 was down from 280,000 in 2011.

U.S. pay TV operators once again slightly expanded their subscriber base in 2012, but growth came in below the year-ago level and hit what is believed to be an all-time low.

Research firm SNL Kagan said late Monday that the pay-TV industry, combining cable TV, satellite TV and telecom video service providers, collectively added 46,000 subscribers in 2012. That compared with a gain of 280,000 in 2011 and meant that the industry finished the year with close to 10.428 million subscribers, up from around 100.38 million total pay TV users at the end of 2011.

One of the company's analysts said the data is likely to allow both sides of the cord-cutting debate to find something that supports their argument.

The second and third quarters of 2010 had been the first-ever quarters to show a decline in U.S. pay-TV subscribers, even though the fourth quarter saw a rebound that left the full year 2010 up by 211,000 in terms of the overall number of pay-TV customers at 100.1 million.

But those quarterly declines started off a debate over whether American consumers were starting to get rid of their pay-TV services -- in part to substitute them with Netflix and other online video providers. Since then, Netflix's streaming video subscriber base has continued to grow, while pay-TV user figures have grown or declined from one quarter to the next, but full-year user counts have continued to inch slightly higher.

SNL Kagan analyst Ian Olgeirson said last year's increase is the lowest for the overall industry that he has ever recorded. He has been at the firm since 1999. Asked what the data meant for the cord-cutting debate, he said it wasn't necessarily cause for alarm.

"It's inconclusive," he said about the data. "It's neither a decisive victory for the multi-channel industry, nor is it a clear indication that there is some kind of precipice ahead. It is in line with our long-term view that predicts slight [annual] gains in the foreseeable future that are below what we used to see in the past."

Olgeirson estimates that "over-the-top substitution homes," or households using online video instead of traditional TV service, reached 4.3 million at the end of 2012, up from 3.2 million at the end of 2011, but below previous forecasts from the firm. "Economic pressures have been fairly persistent, and prices [for pay-TV services] continue to go up," the analyst said in explaining the increase. "And usage patterns are just changing."

Asked about his expectation for whether pay-TV subscribers would grow or decline over the current year, Olgeirson said: "I don't think we will see a negative year in 2013."  

Satellite TV giant DirecTV and telecom firms AT&T and Verizon posted lower subscriber growth in 2012, Dish Network swung back to a gain, and Comcast and others narrowed their losses compared with 2011, making for mixed trends across the industry.

Nielsen on Monday also reported that 5 million U.S. homes didn't subscribe to pay-TV services as of the end of 2012, up from 2 million in 2007.

About 36 percent of these so-called "zero TV" homes cited cost, while 31 percent mentioned a lack of interest as their reasons for not getting traditional TV services.

While this and the lower SNL Kagan growth figures will be something that critics will point to as evidence of increasing cord-cutting risk, others will highlight that as long as pay-TV subscriber growth continues for the full year, all is good.

The slight 2012 pay-TV subscriber gain recorded by SNL Kagan was in line with CEO comments at a recent investor conference that also shrugged off fears.

"You don't see evidence of cord cutting or even cord shaving," meaning a reduction in the scope of pay-TV services consumers pay for, Time Warner chairman and CEO Jeff Bewkes said at the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Fl. last week.

And Comcast Cable CEO Neil Smit highlighted that his company's 7,000 fourth-quarter pay-TV subscriber loss meant the ninth straight quarter of narrower losses. And it would have been a gain when excluding the impact of Hurricane Sandy, he suggested.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai