News

New Report Sees Slower Growth for Cable

8/13/2000 8:00 PM Eastern

Cable and direct-broadcast satellite growth should slow in the next five years, following a half-decade of substantial gains, according to a new Veronis, Suhler & Associates Inc. report.

The New York-based media-investment bank-in its "Communications Industry Forecast," released last week-predicted that total spending in the cable and DBS sector, including advertising and subscription revenue, would increase 53 percent in 2004 to $86.4 billion, a compound annual growth rate of 8.8 percent.

That figure is considerably lower than the 13.1 percent CAGR the cable and DBS sector enjoyed between 1994 and 1999.

Still, cable should be able to maintain market share in a slower-growth environment through deployment of new services, such as digital cable, high-speed Internet service and video-on-demand.

"The new broadband services the cable operators are pursuing should permit cable to retain a strong grasp of the market, with its share remaining at about 95 percent to 96 percent," the report stated.

The total number of multichannel subscriptions is expected to rise 2.6 percent from 1999 to 2004, with cable expected to grow 1.1 percent to 70.3 million subscribers and DBS forecast to grow 10.8 percent to 16.9 million customers in 2004.

One competitor that both cable and DBS won't have to worry about, at least in the video business, is the regional telephone companies.

Once thought to be a major threat to cable operators-VS & A predicted that regional telephone companies would have 2.5 million multichannel-video subscribers by 2002-the telcos appear to be concentrating more on digital-subscriber-line high-speed Internet services rather than video, and they had just 400,000 video subscribers in 1999.

Although telco video subscribers increased 33 percent in 1999 from the year before, growth rates are expected to decline to 18.2 percent in 2004, mainly due to the popularity of DBS services.

The transition of C-band satellite customers to DBS service continued in 1999, with an 8.2 percent decline in C-band subscribers to 1.8 million customers.

Other competing technologies, like satellite-master-antenna television and wireless cable services, actually saw increases last year. According to VS & A, SMATV households grew 6.1 percent in 1999 to 1.4 million, while wireless cable households rose 27.7 percent to 1.5 million.

Household spending on basic-cable and satellite services was up 9.1 percent in 1999 to $27.5 billion-cable had $22.8 billion, or 5.9 percent.

Household spending on multichannel services gained 2.8 percent in 1999 to $25.70 per month. Cable alone showed a larger gain-4.1 percent-to average $28.54 per month.

Pay-per-view-which has grown at double-digit rates every year since 1994 except for the poor event year of 1998-showed strong growth in 1999. Spending was up 43.9 percent to $1.7 billion compared with 1998.

Most of that growth was from DBS, as is evident in the average spending per household for PPV. VS & A's research shows the average annual spending for standard cable PPV was $13.57 for movies and $7.81 for events for 1999, compared with $68.27 for movies and $23.56 for events for each DBS household.

VS & A predicted that average household spending for cable will continue to grow at that 4.1 percent CAGR through 2004, reaching $34.84 per month. DBS is expected to grow at a 7.8 percent CAGR, reaching $37.50 in 2004.

Growth in cable advertising-up 17.2 percent in 1999 to $13.1 billion-is expected to slow in coming years. VS & A predicted that the ad-spending CAGR will decline to 13.4 percent in the period between 1999 and 2004, when it will hit $21 billion.


Projected Revenue, U.S. Cable and Satellite Television


1999

2004


Basic Services


$27,460


$40,013


Premium Channels


7,412


9,080


Pay-Per-View


1,705


3,163


Advertising


11,195


21,028


Amounts in millions. Source: Veronis, Suhler & Associates Inc.


Compound Annual Growth Rates, U.S. Cable and Satellite Television


1994-1999

1999-2004


Basic Services


11.6%


7.8%


Premium Channels


8.1


4.1


Pay-Per-View


29.8


13.2


Advertising


19.3


13.4


Source: Veronis, Suhler & Associates Inc.

November