Is the increasing frequency in which the pay TV industry finishes quarters with net subscriber losses a sign the business will soon be overrun with over-the-top competition?
Not really, says Bernstein Research senior analyst Craig Moffett. On Monday, he issued a report to media investors, boiling down what appears to be a net video customer loss incurred by cable, satellite and telco services in the second quarter as a normal cycle for maturing businesses.
It happens every year, Moffett told us Monday afternoon when we queried him via email about the memo. “Customers — including colleges — disconnect for the summer and then reconnect in September,” he explained.
Well, to be more specific, these net losses have happened every year recently.
It started in Q2 2010, when the pay TV industry reported a net loss of 216,000 video subscribers, according to SNL Kagan, its first quarterly net video customer loss ever. This decline — which was followed up by a 119,00 net loss in the third quarter of 2010 — was largely put down to economic factors at the time.
The industry finished 2010 in the black, but once again featured a down second quarter in 2011.
For Q2 2012, the top four pay TV operators — Comcast (s CMCSA), DirecTV (s DTV), Dish Network (s DISH) and Time Warner Cable (s TWC) — reported collective video user losses of 407,000. This decline exceeded the gains (322,000 users) of still-growing telco services AT&T U-Verse (s T) and Verizon FiOS (s VZN).
The final number of net subscriber losses will probably exceed 100,000 once all major cable services report their second quarter performances (Cablevision, for example, is set to report its Q2 financials Tuesday).
It was only the second time that both satellite operators (DirecTV and Dish) reported user losses in the same quarter.
Really, this has nothing to do with the proliferation of over-the-top services like Netflix? After all, with nearly 24 million streaming subscribers acquired within just the last 24 months, Netflix has more video users now than any multichannel operator.
“It’s tempting to read this as the beginning of the end, as ‘Cable Strikes Back’ (or even ‘Cord Cutting Gets Real’) or something similar. But we believe the dip is better viewed as merely the latest data point in a long glide path to market share equilibrium for the Pay TV sector,” Moffett wrote.
As the newer satellite and telco components of the pay TV business mature, he added, they become more “seasonally sensitive.”
“In any churn-based business, a growing subscriber base exerts a commensurately growing drag on future subscriber growth,” Moffett further explained. “Gross additions stay roughly constant, losses to churn rise … and net addition growth slows.”
Below is a chart Moffett included in his memo, showing how DirecTV and Dish are approaching leveled off subscriber growth in the U.S. as time goes on.