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Cable TV's Shrinkage Problem

11/16/2010 11:01 AM

No amount of “TV Everywhere” content or devices will fix cable TV’s underlying economic issues.

What’s clear is that pay-TV providers will need to start offering customers more choices, and that will mean shrinking tiers and lowering prices.

In the third quarter of 2010, the five publicly traded cable companies — Comcast, Time Warner Cable, Charter, Cablevision and Mediacom — lost a combined 532,000 basic video customers in the period (see Mediacom Stabilizes, Gains Subs; subscription required).

Why? A number of reasons, the biggest right now seeming to be competition: Verizon’s FiOS TV and AT&T U-verse TV added a net 439,000 video customers while the satellite guys gained 145,000 customers in the quarter (DirecTV +174,000; Dish -29,000).

But there’s also plenty of evidence that some portion of cable customers are fed up with steadily rising prices and are calling it quits (see Survey: 22% of Americans Canceled Or Cut Back Cable TV In Last Six Months and Cable TV Subscribers More Annoyed About Prices: J.D. Power).

cable-tv-prices.jpgWhether disgruntled subs are canceling cable to shift to “over the top” sources of video programming, telco or satellite services, or just “over the air” broadcasts, the fact remains that thousands of them are leaving. On the whole topic of supposed cord-cutting, the industry has taken pains to try to show that Internet video actually reinforces cable TV subscriptions (see Streaming Video Viewers Watch More Regular TV: CTAM Study).

Granted, it’s not only about pricing and packaging. Witness the recent subscriber losses at Dish, which has emphasized lower pricing and value, vs. gains at DirecTV, which has doubled down on sports and bleeding-edge areas like 3DTV.

But as time goes on, for cable operators, offering a choice between $60-plus per month for cable TV or $10 for “lifeline” service isn’t going to cut it.

The MSOs are cognizant of this value gap. “We’re going to address the question of the lower-end not being able to afford pay TV,” Time Warner Cable chief marketing officer Sam Howe said at last month’s Multichannel News/B&C OnScreen Media Summit in New York.

Time Warner Cable plans to introduce a new video package geared to low-income households before the end of the year. Howe noted that over the past year, some consumers who switched to cable during the 2009 digital TV transition are going back to over the air. At the same time, the MSO is making an upmarket play with the high-touch SignatureHome service.

Of course, if packaged and priced in the right way, a downsized TV package could actually have a higher margin than the more expensive mainstream tiers.

But getting there will be tricky, as David Bank, RBC Capital Markets’ managing director of global media and Internet research, pointed out in a research note last week.

“We believe that such a move [to smaller, lower-priced programming bundles] over the long-term is certainly possible, but it would be virtually impossible to do near-term without the consent and cooperation of the cable channel providers whose carriage agreements dictate a level of carriage in most instances that simply couldn’t be changed unilaterally.”

Ultimately the trend will result in winners and losers among programmers, continued Bank: “We would argue that channels with marginal audiences and relevance will likely be in jeopardy of losing carriage in the long run. In general though, the removal of these channels (witness DirecTV’s recent intention to simply stop carrying G4) probably wouldn’t have a major impact on the broader cable channel ecosystem.”

What do you think? Add your comments below.

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