Why 193,000 people stopped paying for TV last quarter

66 Comments

With Cablevision (s CVC) reporting a loss of 23,000 subscribers and Dish Network (s DISH) shedding 135,000 in the second quarter, the U.S. pay TV industry has lost nearly 200,000 subscribers in the second-quarter — and those are just the ones we know about. But if there was a lack of concern about cord cutters on second-quarter earnings calls, it’s not because operators were unaware of the losses; it’s because in most cases, they didn’t want those subscribers anyway.

As seen in the chart below, public pay-TV providers collectively shed 193,000 subscribers in the most recent quarter. While losses by cable providers are nothing new, they are usually offset by stronger growth in satellite and IPTV providers picking up the slack. That didn’t happen this quarter, as somewhat weak growth by IPTV providers and a big loss at Dish highlighted what seems to be an exodus of pay TV subscribers amidst a weak economy.

Company 2Q Video Net Adds/Losses
Comcast -238,000
Time Warner Cable -130,000
Charter -79,000
Cablevision -23,000
Dish Network -135,000
DirecTV 26,000
AT&T 202,000
Verizon 184,000
Total -193,000

When the numbers actually shake out, things are likely to be even worse than this. Keep in mind that these are just the top eight public pay TV providers, and most of those above operate in metropolitan markets. There’s a number of Tier 2 and Tier 3 providers not in this list, and many of those are in rural or underserved areas where the down economy has hit even harder.

Is competition really the cause?

On most of the earnings calls we sat in on over the past several weeks, there seemed to be a common refrain: Cable and satellite providers were losing subscribers in part due to increased competition and deals from the telco providers — Verizon (s VZ) and AT&T (s T) — who are aggressively buying share with steep upfront discounts.

But a look at the actual numbers doesn’t seem to bear that out. AT&T added 202,000 video subscribers in the second quarter, while Verizon added 184,000 in the same period. The addition of about 386,000 video subscribers combined is not out of line with previous quarters, and in fact is actually a little low compared to the 410,000 the telcos signed up in the first quarter or the 440,000 they added in the fourth quarter.

Will the real cord cutters please stand up?

If those pay TV subscribers aren’t actually going to competitors, where are they going? Most likely they’ve actually become cord cutters — two words that we didn’t hear much of on those earnings calls. In part, that’s because the rhetoric around cord cutters as anti-establishment, online video-watching rebels has largely been dispelled.

Studies have found those going without cable aren’t doing so because of over-the-top streaming offerings. Instead, those who are choosing to go without cable are doing so because they either don’t see much value in pay TV packages, can’t afford to keep paying for TV, or some combination of the two.

Operators acknowledge that the few video subscribers who have left the pay TV ecosystem so far have most commonly been on the bottom end of the cable value chain — that is, generally low-income users that just paid for TV and didn’t subscribe to broadband, HD or other higher-value services. And for most operators, that’s ok because they weren’t very high-margin customers anyway.

The myth of the higher-value customer

Cable providers are increasingly seeking ways to get more money out of their existing subscriber base. As a result, we’ve seen steady increases in average revenue per user (ARPU) as users sign up for more HD, more premium channels, more DVR set-top boxes throughout the home. That’s the reason Comcast’s (s CMCSA) ARPU stands at about $140, when basic cable service starts at about $39 based on some introductory offers.

On the other side, operators are increasingly shying away from customers who might not want to pay for the premium cable package, multiple DVRs and other bells and whistles. DirecTV (s DTV) and Dish Network (s DISH) both run credit scores of potential subscribers to weed out those who might turn out to be flakes and cancel after an introductory deal is over. The goal — to get customers signed up for as many value-added services as possible — is not just about driving up revenues, but about making those services sticky and increasing customer lock-in.

The problem is that in a world where all the cable operators are trying to sell ever-more expensive packages of services, there’s a sad truth of business they’re running up against, and it’s that not everyone is a luxury car buyer. That is, not everyone is in the market for the biggest and best. But in the cable world, there’s very little choice if all you want is a Kia.

Will cable reach a tipping point?

It’s not enough to blame the weak economy when things get rough and folks stop paying for cable; there’s also a structural problem with the way the industry views its subscribers. In the quest for higher margins and customer retention, those companies are generally willing to sacrifice subscribers at the low end if it means they can get more out of their so-called higher-value customers.

The question is how long the industry can keep pushing ARPU up before it starts to shed some of its better customers — those that aren’t necessarily poor, but don’t have $150 or more a month to spend on entertainment. There’s the old belief that TV is recession-proof, as consumers hunker down and spend more time at home rather than going out when their disposable income gets low. But at some point, the value proposition has to break down — especially when there are other ways to get low-cost video entertainment from services like Netflix (s NFLX) or Hulu.

No TV image courtesy of Flickr user Mykl Roventine.

66 Comments

steve

Dropped TV altogether. The quality is so bad and the price for this junk is outrageous and watching TV is generally a waste of time.

RS

I’d pay for a la cart. Don’t want to pay for 100 other channels I never watch.

Kory Ferbet

Dropped cable as well. Not only is it absurdly expensive for a service that you can find online for free. But the reality is that the shows that are on televsion just aren’t entertaining. If you don’t like reality television or watching spoiled people continuously make morons of themselves than there isn’t anything else on.

Seriously, think about it. What was the last show that you watched that you enjoyed…that wasn’t reality tv? Don’t worry, I’ll wait.

Philipp

You crazy americans :)
I live in germany and i tell you: no one, absolutely no one, is going to pay 100$ or 150$ a month for a TV subscription here.
For a low monthly fee (about 25$/month), that everyone with a tv set has to pay, you get 20 public TV channels (including 4 nationial channels, and lots of regional ones) and 25 or more ad-supported private broadcast channels. And you get it in HD (720p) for the major channels and 567i (digital SD) for the smaller ones.
For an additional fee of 2$/month you get everything in HD.

Thomas Daly

Ahhhh. We Americans love getting screwed. We’re addicted to it ;)

Logtar

Dropped cable, I get a combination of free over the air digital and Hulu/Netflix over the Xbox or the computers. The cable companies that I used had horrible customer service and wanted to sell me services I was not interested on. I hardly ever used it and the digital content they provided was sub par. I could not be happier with the way I get my entertainment now.

David Straub

Dropped cable and phone in March in favor or OTA antenna, Netflix, PlayonTV and Nettalk for phone. Considering FTA satellite in the future. Might consider Sprint 4G for my ISP if it tests out good for Netflix and Playontv streaming. Cutting cable will save my family over $1700/yr. We haven’t missed not having cable and find ourselves spending more time away from the TV.

Cole Brodine

We cut the cord in our house. I get the majority of the shows I want over the air with my Antenna, some with a Netflix streaming only connection, and new shows À la carte from Amazon.

I was spending around $50 a month on Cable before I cut it. Now I spend the $8 a month on Netflix. That leaves me $504 a year to spend on À la carte shows on Amazon and Redbox movie rentals before I break even on cable TV. Will I watch 168 shows in HD on Amazon (assuming $3 per show for an “hour” long show)? No way, we’re money ahead, and I can go back and stream those shows over and over whenever I want.

I sometimes miss certain cable channels for sports, but I figure that will work itself out before too long. The sports leagues won’t miss out on revenue because of the cable companies for too long. And there’s always the bar.

David Zotter

I dropped it because I can’t stand dealing with Cablevision.

Jose Alvear

Ryan, don’t forget that the ARPU that most TV Operators quote are for triple play bundles, and not just TV. TV-only ARPUs do tend to be lower, but triple play (and quad play) will likely increase in the short term.

Ric

I love that providers are so clueless. They dont get the new ecosystem of value proposition. They think they can rely on some slick marketing and new lingo naming to sell their tired, obsolete, last gen service to subscribers that have already felt bent ove and reamed by the cable companies.

Well my advice is; you keep right on thinking that and keep right on raising your prices for your second-rate crap products and see how these quarterly cord-cutting numbers rise. Particularly in the face of a new depression! Netflix as the new consumption model has beaten you on all accounts and knows how to deliver value to subscribers such as myself.

Good riddance to rubbish service I always say and I cant wait to see your power in the entertainment delivery world wain!

phil

Verizon Fios saw growth according to this article..Why?
Excellent picture, best Motorola HD DVR….fair price.
My cable company…Brighthouse…expensive poor picture,
cheap HD DVR

dusanmal

There is another factor article does not mention: quality of service. From our own and friends/relatives experience I see exact match between providers with poor service and losing customers as well as providers with good service gaining. That part likely reflects the “migration” across providers. Than IPTV and Netflix-like services eat the rest as the article states.

Boodah Phuckin

What an article…Only to be topped off with a picture of Eminem… My God

Dustin Wood

Its become too expensive to get HTDV. And I’m in an area where over the air hardly comes in. I don’t watch online streaming either. And I’m really not too worried about it. All the shows are any ways are singing copetitions and “reality” shows. Bring back real shows, and then I’ll subscribe.

Dino Tobin

Cord-cutter here. Didn’t watch enough to justify the ridiculous cost. Watch on demand via AppleTV when I have time to watch something b/c paying per episode/movie amounts to a fraction of my old bill.

Jen Svogar Edwards

My husband and I have been cable-free for 3 years now, and I’m loving it. Between Netflix, Xbox Live (to stream it to my television) and a couple of other add-ons, we’re only paying about $25 a month and getting all the entertainment we want, with a bare minimum of advertisements pushing their way into our home. I am able to stream Hulu, Nickelodeon, MTV, OWN, SyFy, PBS, and many others right to my TV. So why would I pay $60 or more for that same privilege, along with dozens of channels I would never watch?

skywyze

I dropped cable 2 years ago and have used Hulu and Netflix. There’s too little good programming to justify the cost of cable IMHO. TV isn’t the only form of household entertainment either, there are these things called books that I found are pretty great and pretty cheap.

CharlesP

Well I guess I am the exception. Prior to cutting the cord I had 3 HD DVRs, and the Gold package (basically everything) from Cablevision. Now I get everything I want with OTA HD, Plex/Catch and Netflix.

Cipher3113

I dropped DirecTV because it makes no sense to pay $70 a month for the 10 channels that you actually do watch, questionable service, and crappy customer service. We went with Internet TV and I’m working on digitizing my entire DVD library onto HDD.

…also, I’m no longer under a contract to watch TV.

Patty Gale

We are 2 1/2 years with no television. I have a 10 year old daughter and we aren’t missing a thing! Saved nearly $2,000 by not having cable.

Albatross

Look at the economy, look at the unemployment numbers, and the question becomes “Why ARE so many people continuing to waste money on cable?”

I have never had cable and I have never missed it. I have a cheap DSL Internet connection, an antenna on my roof, and a public library.

David H. Deans

Ryan, you said “But at some point, the value proposition has to break down.”

But the big question, on Wall Street analyst minds, is WHEN will it happen? Back when the pay-TV ARPU went above $100/month, I thought that would surely be the tipping point — but it wasn’t. Will $150 be the breaking point, I doubt it.

Why? There’s still a huge segment of the American consumer population that is somewhat discontented with pay-TV’s value for money, but most are too lazy to look for alternatives. They apparently keep paying whatever the increased rate is on their monthly bill. Perhaps affluent and apathetic consumers constitute pay-TV’s core base of customers. Who knows?

My point: something relatively dramatic will have to happen to drive these people to take action — otherwise, the ongoing decline of traditional pay-TV could take several years to fully run its course. A torturous end to a video entertainment legacy — death by a thousand (cord) cuts.

AnthonyP

The issue I have is that TV is supposed to be relaxing entertainment. Cable is one-click, and the alternatives are not. I don’t want to have to buy a PC just for watching TV in the living room. I don’t want to have to mount an antenna on my house or have it sitting visible in the living room for OTA. I don’t want to have to subscribe to multiple services to find the shows I want. I don’t want to have to use multiple program guides. I don’t want to have to waste my personal time managing that stuff. Outside of work, the computers and electronics in my life are tools, and only tools. And those tools had better be as efficient as possible. The cable box is simple and efficient. The suggested alternatives are not.

Ryan Lawler

@AnthonyP – True, over-the-top alternatives haven’t done a good job with discovery or ease of use. That’s changing, however, and I think sometime over the next 6-12 months you’ll see some interesting technologies that enable continuous feeds of streaming content delivered to your TV.

Ryan Lawler

@David – I’m with you. Sometimes I feel like I live in the future, wondering why change doesn’t happen sooner. The tipping point question is a good one. Everyone knows that you can’t infinitely raise rates above inflation and keep your customer base intact forever. But where is that inflection point where you start to lose more revenues through customer losses than you gain through an increase in ARPU? I don’t know, but I’m sure someone’s done a model of it.

Not to throw another analogy out there, but my gut feeling is that it’ll be like the Titanic hitting an iceberg — the industry won’t know it until it’s too late.

sam

Maybe because there are a lot of free online Tv in which you could watch TV for free such as tvhod.

Black Belt Auntie

It is their own fault. I recently cancelled cable TV – they constantly raise their prices without any advance notice, and they try to sneak extra charges in every month. If you are not vigilant, they will charge you for movies you never watched, services you don’t actually have, and surcharges they have invented that do not correspond to any actual product or value. They are rude to their customers, as though we are an annoyance to them. On top of which, the number of commercials per hour is purely ridiculous. I am not going to pay to watch commercials. If companies want me to see their products, they can pay me for my time. That entire model of advertising is out of control – and I refuse to participate in it any longer.

When I want to watch a movie, I rent it. There is almost nothing on TV that is worth wasting the limited minutes of my life to see, and I can get the news free on the Internet. There are great browser plug-ins to block the ads so I don’t have to be bothered with advertisers who don’t understand that my time is too valuable to waste on their commercials.

The cable companies are following the same path that their entertainment peers chose – they didn’t learn a single thing from watching the complete overturn of the music and video rental industries. Now it’s cable’s turn. Bye-bye cable companies, you blew it.

Bill

Bravo!
Cable companies “double dip”. They charge us, the consumer and they charge the advertisers as well. While I hated to pay to watch commercials, useless stations and micro-manage my bill; that is not what prompted me cut drop my service.
It was the way companies treated me!
Every one I had ever used eventually got me so angry I would cancel my service. Comcast, Direct TV and now Dish Network all tried to add false charges to my bill and then treat me like “I: was the crook when I called them on it.
I there defense, they [almost] always removed the charges, but it is dishonest and just another waste of my time.
Been cable free for 4 months now and loving it. Will save enough for a brand new laptop in no time.
Bye Bye cable and good riddens!

mike

Cable is absolutely the most expensive entertainment you can buy. You are forced to receive 200 channels, even if you only watch 10 channels. You pay $50-125 a month for mostly junk you don’t watch. But now the cable monopolies are starting to see a shift away from the cable TV garbage and they are ratcheting up the price of broadband where it’s now more expensive than a cable package. That’s the case with Time Warner. Cable TV and broadband are being priced out for many families and the absurdly high expense of broadband will impact America’s ability to compete with the rest of the world which have much less expensive and quicker broadband.

Caveat Emptor

Well said. The reason I am about to ditch a TV subscription (Dish) service is that is is not value at all. For $60 a month, I get a bunch of channels, of which only 2-3 are worth watching for me. I wouldn’t mind paying as much as $5-10 for each of those if I could get them individually.

The fact is most people are waking up and seeing alternatives to the “fake choices” thrown up by bundled channels, and will continue to drop cable and satellite, in favor of pay as you go services.

This article is from the industry perspective, but fails to ask the basic questions about what customers are looking for. At least people like me want content at a reasonable price, before we even think about all the “value added services” like DVR etc.

Ryan Lawler

@Mike – I’m sure someone will come along from the cable industry and make the case that it’s still “an incredible value” based on the number of programming hours available. Bundles are great when they make sense from a value/price perspective. I guess the question is, is cable still valuable enough to justify the price increases?

Edward O'Meara

You should also consider the new value people see in free OTA HD. Every TV you buy comes with a tuner and an Internet connection these days. we actually get a better picture on core channels than with Comcast. Cutting the cord is less about money than you may think.

fred diener

Am I alone or has anyone else noticed the following: 1 – high percentage of Cable-TV networks transmitting programs with aspect ratio smaller than the size of subscriber’s digital TV screen (non-High Definition); 2- provider(s) playing a passive role by not reformatting any of such programming to fit subscriber’s TV screen nor requiring the networks to reformat such programs to fit the TV screen; 3- providers discriminating by furnishing HD-TV subscribers with settings option that enables them to change at will the aspect ratio of any given program to better fit their TV screen but not making such feature available to any other subscribers who do not have HD-TV equipment; 4- providers not coming clean with subscribers as to what has actually been transpiring to diminish TV experience of non-HD-TV subscribers; and finally 5-oddly enough the vast majority of networks transmitting programming with the wrong aspect ratios at the same time are transmitting advertising with aspect ratios that perfectly fit the entire TV screen of non-HD subscribers. It appears to me that these complaints/observations are consistent with the astute premise of your well-written article that networks and providers are targeting higher-end subscribers as for example those with HD-TV. I have complained to my provider and now have on the books a confirmed scheduled appointment for a technician to follow-up at my apartment in less than two days from now, but truth be told I have already spoken with 3 cable-TV provider’s field technicians on the street during the past 24 hours and their comments and explanations have more or less convinced me the entire matter will not get resolved to my satisfaction. These same providers are those also offering Internet connections and as such have been engaged in other practices of a less than honest nature that merit being formally investigated. I will be pleased to provide your organization with full details and under oath will swear to same as being the full truth. Fred Diener, New York City

George Creedle

Exactly what I did. Nice income, but hated the DVR, channel interface and customer non-service from TWC; slowly moved to OTA digital recordings on EyeTV, Podcasts from both networks and independent producers, Hulu and Netflix. I have more programming that I could ever hope to watch. Goodbye cable cabal.

Dennis Crowley

>> Operators acknowledge that the few video subscribers who have left the pay TV ecosystem so far have most commonly been on the bottom end of the cable value chain — that is, generally low-income users that just paid for TV and didn’t subscribe to broadband, HD or other higher-value services.

Seeing exactly the opposite in certain circles in NYC. High value customers (paying $140+) month trading in their cable box for a MacMini with Boxee/Hulu/EyeTV/etc.

The most interesting group tho is college students… kids who leave their parents house and never get a TV / never order cable for their dorm rooms, go a few years without cable and then become Cord Cutters after they graduate. I’d love to see a chart of cable subscribers by age (18-25) over the past 36 months.

Marc

That’s exactly what I did during undergrad, continued during grad school and then said what the heck after leaving. All I need is my 4G connection, Hulu & some other streaming sites and I’m good

Chris Blouch

Ditto. Dropped cable tv back in 2009, kept cable internet, bought a MacMini with an eyeTV USB HD tuner and a $35 antenna. Went to install that in the attic and discovered I already had an antenna up there from years gone by (previous owner). Macs have optical outputs in their headphone jacks so I ran that to the surround-sound AV receiver and get all the 5.1 goodness in my DVDs and some broadcasts. And I can websurf, play games, Hulu, youtube etc. Really has worked out well.

Ryan Lawler

Dennis – Thanks for the comment. It’s true, I think the real problem isn’t with the cyclical nature of the economic downturn and people leaving cable just because it’s getting too expensive to justify… There’s a whole class of users — the so-called “cord nevers” — who up until now haven’t paid for cable and seem unlikely to do so in the future. I haven’t really seen a good substantial study of this group (18-25 year olds) and how they consume TV/pay TV yet, however.

Cade Roux

Dropped cable, getting free over-the-air digital programming

Guest

this is exactly why i dropped my cable too, I live in the Toronto area, where I get local HD channels as well as those from Buffalo and Rochester, for a $35 directional antenna.

GNS

I did the same. Here in San Diego I get all the major networks including Fox. The main trade-off is live sports. I’ve found some work arounds online but they can be a moving target.
http://cordcutterguide.com/

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