Why 193,000 people stopped paying for TV last quarter

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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

Ralph Vincent Ferraren

I would do it in a heartbeat if it weren’t for sports programming. http://www.cabletvcompanies.org/ And with football season coming up, my only option to get that sports programming is Comcast. So I’m essentially stuck until some other vendor comes up with what I want.

Ryan Lawler

Ralph, it’s possible to get NFL Sunday ticket online — it’s just expensive.

MariettaGator

My Comcast bill exceeded my electric bill. Cut the cord and couldn’t be happier with the 2 dozen HD channels I get over-the-air plus Netflix streaming. I can watch Fox News on my iPhone and download (free) episodes of my favorite cable series like Breaking Bad & Sons of Anarchy.

MariettaGator

Atlanta area, I dropped cable two years ago for over-the-air HD and Netflix streaming. Couldn’t justify a cable bill that exceeded my electric bill…

TheTransplant

So, they didn’t want my $1400 per year for programming from the 80’s? Good god, then I am even more glad I cut the cord.

HD local programming is free… between Netflix and Hulu, you can pick your own bad programming, rather that letting some idiot at Showtime or HBO do it.

Long live the internet- Death to cable and satellite ripoffs. Cut the cord.

Geoff Burnaska

EDIT.. how many of these people are just canceling cable tv, and using a splitter from the internet line to get free basic cable… I did that for 3 years.. and then my provider changed to all digital and only 1 of my tv’s worked

Geoff Burnaska

how many of these people are just canceling internet and using a splitter to get free basic cable… I did that for 3 years.. and then my provider changed to all digital and only 1 of my tv’s worked

GNS

But if there was a lack of concern about cord cutters … it’s because in most cases, they didn’t want those subscribers anyway.

Not sure I accept the premise. The total number of subscribers is an important metric for cable operators. Don’t forget they are getting revenue from advertisers too – not just your cable bill. And once they lose you as any kind of a subscriber it makes it that much harder to sell you anything else as in the “bundle”. Realize that the basic video sub might be getting his phone from AT&T, and his broadband from DSL extreme.
http://cordcutterguide.com/

Lilivati

Same thing here. We pay for cable internet because we use that all the time. $40+ a month for basic cable because I miss food network and my husband misses basketball games isn’t worth it. After three years of being TV free those are the only aspects of it we miss.

I do really wish Comcast weren’t the only option for cable anything in our area though, as last month they tried to add cable TV and an upgraded internet plan to our bill, and then tried multiple times to tell us that we TOLD them to do so, and when that failed, convince us the better service was worth it. Just another tale of Comcast’s crappy customer service, except switching us to a higher speed internet package also fried my 10 year old router thus forcing us to buy another, which is money I’d really like to have back. I’d switch in a heartbeat if they had ANY competition.

Bes

Kevin: What is breaking down is the Corporate Media monopoly which controlled who could bring content to market and also force fed the darling channels of a bunch of old media men. Again, women are 52% of the population and make 80% of household spending decisions. There is no financially relevant definition of “women’s content” except “content women will pay to consume”. I now can buy books on my Nook without leaving home AND I can purchase and read trash and no one can even tell! I just tell them “I like to read women authors” (Charlaine Harris, Stephanie Meyers, Janet Evonovich). I also have reconnected with a bunch of old friends who moved out of state on Facebook and that takes up my screen time. I also like to play the Wii work out game and I like to go to the new women’s gym to work out and chat. Cable TV just doesn’t have anything I want anymore. And I seriously doubt that people who consider lingerie football, bikini volleyball, thong poll vaulting and professional cheerleader tryouts to be “women’s sports” and “women’s content” because they have women in them are going to develop something I want to watch. I agree, the cable model is going to go down like the Titanic.

Kevin Horne

“But at some point, the value proposition has to break down”

You didnt make the case for that at all. And the non-stop climb in ARPU (which you acknowledge) – which is always a significant % growth each reporting period – doesn’t give you much to argue from. Why does it have to break down? At what level? When?

But thanks once again for corralling the “I cut the cord!” anecdoters. 51 out of about 105,000,000 households…

Ryan Lawler

Kevin – Subscriber growth is flat, because at 90% penetration there just aren’t that many more households. So the cable industry is increasing revenues in other ways: raising rates, increasing the cost of leasing set-top boxes, DVRs and HD.

Most reasonable businesses can’t expect to raise their prices 5-10% every year and expect that growth to be sustainable over the long term. Yet, that is exactly what the cable industry is doing. At some point, people reach a limit to how much they are willing (and able) to pay.

Jtyle

I had full cable package, and dropped it. You can stream HD free many places, and for $9, get netflix or hulu+, even though hulu is free. Why pay 100’s when $10 will suffice?

Bes

Women are 52% of the population and make 80% of the household spending decisions. I have been offered NFL and also Showtime and HBO to keep my subscription. I don’t give a rats ass about any of these channels. Women’s content is content women will pay to consume. Because Media have considered “women’s content” to be anything men say it is they have nothing to offer me to entice me to continue their service. How bout a package of beauty pageants, bikini volleyball and Victoria’s Secret fashion shows? Those shows all have women in them!? Um well I think I will pass on that! How bout a package of movies that feature women as victims of violence and plucky workers in the sex industry, those show all have women in them! Um no I don’t value that. Well how bout beauty product placement venues like Tyra, she is a woman. Um no, I’m not interested. My kids grew up and Cable no longer has anything I want. I can get the few shows I do watch for free on the internet. BTW none of my kids have cable in their new households.

Heather

We got rid of our cable. The cable company didn’t want to come fix it for 12 days when the box broke so I told them to shove it. We now use boxee and hulu and other online providers and I don’t really miss it at all.

I also didn’t have cable in college. Who has time for that?

Sly

The piped in T.V. has become a mash of channels that are selling religion,junk jewelery, movie channels that wear out movies rerunning from one channel to the next. And this is what the customer is paying for. It’s no wonder people are bailing out.

Sean Holt

i dropped my cable months ago watch everything. i got tired of being told by the cable companie when i could watch my shows= and at what time.

Don

@Dennis Crowely

That describes me perfectly. I thought about it deeply at one point and realized it was the lack of entertaining content, an entertainment shift to video games, and a preference for reading if I wasn’t at a LAN party or gaming.

These days it includes the ability to watch via Netflix or Hulu the few good shows that are on. Of course you could say some of us also just questioned the reason we were paying $150 a month for TV (since all the decent science/history channels got moved to premium packages around here at least.)

Jon Doyle

prices are a big factor and the availability of OTT like Netflix. I moved over myself because I want my kids to watch “decent movies” vs Disney channel and iCarly! Prices for triple play here in Europe make the USA seem out of touch….

Sean Noel

Disney…right now that’s our main staple, but increasingly my wife and I are like “WTF?”. I’m seriously considering canceling the cable part of my comcast bill.

I’m wondering what the withdrawal symptoms will be like from my 4 year old. meh, she’ll be better for it.

Mike E.

If you have a 4 year old, the kids programming is pretty good. I recently called Comcast to drop TV service and cut back to just phone and internet, and they offered me a 1 year promotion for a triple play package with a lower tier TV offering that is cheaper than their phone/Internet combo. My 3 year old is now watching more PBS. A good thing.

Marisa Reichert

So we’re refusing to consider cord-cutters might be reacting to a glut of lousy offerings on TV?Apart from news,whcih I can get online,the only thing I’d want out of TV is those rare programs that are only on temporarily,like the Women’s World Cup Soccer games.That,and now that Nickelodeon is playing old Nicktoons late at night,I’d like that,but what does it say when my only motivation for regular TV-watching is a bunch of stuff that went off the air ten years ago?When mainstream media realizzes it needs to cater to it’s audiences differently instead of trying to produce something with the most appeal as cheaply as possible regardless of quality,people will pay for mainstream TV.

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