Sub numbers a seasonal slump rather than key shift
The second quarter numbers for major multichannel video providers offer more evidence that concerns about cord cutting have been overblown.
With financial results for Charter Communications and Cablevision reported Tuesday, all major U.S. video distributors have issued subscriber totals that, by the count of investment research firm ISI Group, suggest a seasonal slump more than a secular meltdown.
The pay TV sector has been under constant scrutiny for the past two years by those wondering whether the combination of a weak economy and growth of digital alternatives like Netflix would spur significant numbers of subscribers to “cut the cord.”
At first blush, the numbers can seem bleak. The 198,000 net loss among subscribers for cable, satellite and telco video distribution is the worst aggregate number they’ve posted in at least the last 10 quarters. The loss snaps a three-quarter streak of net adds that ticked up to 471,000 in the first quarter of the year. DirecTV experienced its first quarterly loss ever. AT&T and Verizon, which typically muster enough sub additions to offset the losses of cable and satellite, saw their smallest increases in nine quarters.
But the second quarter was always expected to be downbeat: The April-June timeframe is historically a time when moving households and college students disconnect more than at any other period in the year. The numbers are only slightly worse than a year ago, when sub losses of 165,000 hit in the second quarter of 2011. Cable and satellite actually lost fewer subs this quarter, 473,000, than at this time last year, 555,000.
Comcast and Time Warner Cable were largely responsible for the overall decline, with losses of 176,000 and 169,0000, respectively. Cablevision was actually flat for the quarter, keeping the four major cable players to a 411,000 loss.
If last year is any indication, the second quarter could be merely a blip when the full year is taken into account. Last year, the 165,000 sub loss was more than made up for by a combined 933,000 gain across the other three quarters.
The satcasters could be the wild card that determines whether this year plays out like the last one. Third-quarter will notably reveal whether the highly publicized tiffs between DirecTV and Viacom and between Dish and AMC triggered sub losses. DirecTV CEO Mike White played down that possibility on the company’s conference call last week.
Last year, the gains registered by the combination of DirecTV and Dish were key to offsetting steep declines from the cable side. They’ll need to do that again to ensure that the pay-TV category as a whole stays out of the negative side considering AT&T is signaling its sub numbers have peaked in video. Satcaster declines in the second quarter were small, with DirecTV dropping 52,000 and Dish just 10,000 — combined, the loss was nearly half the two aggregated in the quarter last year.
If there’s anything truly notable about the second quarter, it may be a transition playing out on the broadband side of the pay TV biz. The telcos have basically all but given up as they increase their focus on wireless, letting cable make massive gains in the category. AT&T alone dropped 100,000 broadband subs, keying a telco sector-wide reversal of the approximate 26% sub increases registered last quarter and the same quarter year-ago to a 26% decrease.
With increased video usage via broadband connections, pay TV could be setting itself up for a smooth transition in the long term as its sub base weans off traditional channel packages while compensating for those losses on the broadband side. It will be interesting to see if the availability of broadband video delivery of the Olympics — already being hailed as a watershed event for the pay-TV biz’s TV Everywhere efforts — pushes already healthy interest in cable’s data offerings into the stratosphere.