Dish Network’s return to net
new subscriber losses in the second quarter
may have inadvertently done more than
signal that the low-cost satellite-TV service
provider could be in store for rough times.
It may also add to evidence that “cordcutting”
— once laughed off by cable, telco
and satellite providers alike — is coming
closer to reality.
Dish Network was the last publicly traded
pay TV service provider to release secondquarter
results on Aug. 9, and by losing 19,000
customers — its first quarterly loss after four
consecutive quarters of gains — the sector was
pushed into the red for the first time ever.
The Dish deficit meant that the entire publicly
traded pay TV industry lost about 13,000
subscribers in the second quarter (a loss of
3,600 customers, if overbuilders such as Knology
and RCN are not included). Sanford Bernstein
cable and satellite analyst Craig Moffett
said that despite the loss, the pay TV market
is expected to grow on a full-year basis. But he
added that probably won’t stop the skeptics.
The pay TV industry so far this year is
ahead of the game by about 582,000 subscribers.
So barring a disastrous second half,
the sector should end the year in the black.
“That said, can it be long before the claims
that cord-cutting has begun?” Moffett asked.
Collins Stewart media analyst Tom Eagan
said that a greater mitigating factor of the second
quarter deficit is the migration of overthe-
air viewers to pay TV. Last year, amid the
digital transition, pay TV providers added
about 300,000 customers, Eagan said.
Back out the impact of homes that switched
from free broadcast TV to pay TV in that period,
and the growth trajectory would have been
flat, he said.
It should be noted
that the second
quarter is traditionally
a tough one for
cable, as customers
move to vacation
homes and college
students leave for
Adding to the
pressure is the cont
has helped increase
involuntary churn, or customers that were
dropped because of a failure to pay, Eagan said.
Voluntary churn, he added, was due mostly to
customers who switched from one provider to
another, likely because of pricing promotions.
“There was probably cord-cutting for a
segment of the OTAs who decided to become
subscribers, but didn’t feel it was worth it,” Eagan
said. In the past, it was pretty clear where
former cable customers were going — to either
telco or satellite companies. In the past
three years, publicly traded cable operators
have lost a collective 2.97 million basic customers,
while satellite has gained 3.673 million
and the telcos have added 4.7 million.
In the second quarter of this year, the
five publicly traded cable operators shed a
combined 477,000 basic video customers,
mostly less-profitable single-product customers,
the MSOs claim. Satellite and telco
customer additions for the period were just
464,000, marking the first time the competition
was unable to take up the slack.
While that may be in part due to the lack
of new housing growth (many cable operators
on recent quarterly conference calls
said there was no evidence of cord-cutting
), housing growth was no better in the
past three years.
According to the U.S. Census Bureau, housing
starts dropped from 1.4 million in 2007 to
554,000 in 2009. Seasonally adjusted annualized
housing starts in June were down about
5%, to 549,000 from 587,000 in May.
One reason for Dish’s subscriber decline,
said Eagan, was its decision to invoke a rate
increase at the same time it also raised lease
charges for set-top boxes. That, Eagan said,
helped spike voluntary churn. Dish, which
has positioned itself as the low-cost alternative,
is particularly sensitive to rate increase
and fluctuations in the economy.
Dish blamed most of its subscriber losses on
the economy. “We think unemployment and
consumer confidence did have an impact on
our quarterly results and as a valued provider
in the industry, we probably may feel that
more than others,” Cullen said on Dish’s earnings
Eagan also expects Dish to return to positive
subscriber growth in the third and
fourth quarters, although not as much as he
had previously thought. He expects Dish to
add about 127,000 subscribers in the second
half of the year, versus his previous estimate
of 312,000 additions.