Virtually all of the largest cable, satellite
and telco TV competitors couldn’t
avoid chronic basic-video customer
losses in the second quarter,
pushing the pay television industry
into negative subscriber-growth
territory for only the second
time in its history.

Amid lingering concern
about future growth, and rekindled
cries that “over-thetop”
video providers are taking
hold, the question remains:
Where have all the cable customers

Pay TV penetration rates by operator

In the second quarter, pay
TV providers lost a collective
204,000 customers (fueled
by losses of 417,000 video
customers for cable operators
and 62,000 satellite subscribers,
off set slightly by a gain of
275,000 telco video customers).
It was the second time that pay
TV showed a quarterly deficit
— the first was in the second
quarter of 2011, when the sector
lost a combined 195,000
video customers.

So where did they all go? For
a while, analysts have believed that the video business
is essentially a zero sum game, that one multichannel
video provider’s loss was the other’s gain. That explains
some of the losses, but not all of them.


“It’s almost all going to the telcos,” Pivotal Research Group
principal and media & communications analyst Jeff Wlodarczak
said of cable video losses. He added that the
remaining customers are moving to free over-the-air broadcast
TV and an even smaller number are taking the online
option, via services like Netflix, for economic reasons.

Seasonality also plays a big role — it is no accident
that the two periods of pay TV losses all occurred in
the second quarter, typically a time when college students
and snowbirds disconnect service as they move to
their summer residences. The difference is what was has
typically been a cable phenomenon — satellite and telco
TV were not as affected by
seasonality in the past — has
changed as the industry has

“It would appear that as the
satellite and telco companies
mature in this market, they
are increasingly experiencing
the same seasonality that cable
has faced,” ISI Group media
analysts Vijay Jayant and
David Joyce said in an email

Basic-video subscriber
losses are nothing new for
the cable industry, where the
decline in customers began
in 2002. Over the past three
years, cable operators have
shed a collective 3.7 million
customers, while satellite has
added 2.7 million and telcos
have gained 5.5 million subscribers.

The difference appears to be that while in the past,
relative newcomers like satellite TV and telco TV have
more than made up the difference. But with satellite
TV providers beginning to show their age, and telco
TV providers dialing back on growth, the momentum
is shifting.

Sanford Bernstein cable and satellite analyst Craig
Moffett has another word for what is happing in the pay
TV business — equilibrium.

“While it is tempting to conjure sports analogies, with
narratives around winning and losing and comebacks,
all of those overdramatize what is, in fact, far more pedestrian,”
Moffett wrote in a recent research report.
“Subscriber gains for the telcos and satellite operators
are slowing, as they must with maturity. And as they
do, losses for the cable operators therefore slowing as
well. Equilibrium.”

The numbers back him up.

In the past three years, growth for telcos — the latest
entrants in the video business — has slowed from 1.96
million in 2009 to 1.6 million in 2010 and to 1.5 million
in 2011. In the first half of 2012, telcos added just 655,000
customers, 18% less than they did in the first half of 2011
and 42% less than in the first half of 2009.

Pay TV’s other growth engine, satellite service providers
DirecTV and Dish Network, have watched their
gains dwindle from 1.4 million net new video customers
in 2009 to 686,000 in 2010. In 2011, growth again declined
sharply, to 496,000 net new customers.

At the same time, cable video losses are improving,
led by Comcast, which has nearly halved its video
customer losses over the past seven quarters. The
top four public cable companies
— Comcast, Time
Warner Cable, Charter Communications
and Cablevision
Systems, lost a combined 1.5
million video subscribers in
2010, paring that deficit to 1.2
million in 2011.


Wlodarczak noted that despite
their losses in the second
quar ter, cable and
satellite companies are actually
showing improvement.
Last year, cable and satellite
TV companies lost a collective
581,000 video customers
in the second quarter. This
year, the second-quarter decline
was 479,000 video subscribers.

“That’s an improvement,”
Wlodarczak said. “And for
satellite, it’s going to be a lot

He noted that the main culprit
in the DirecTV declines
was its recent focus on attracting
higher-quality customers.
Dish Network has done the
same and improved its losses
from 125,000 in secondquarter
2011 to a loss of 10,000
in Q2 2012.

Cable should also benefit
from a slowdown on the telco
side, a result of the maturing
of the market as well as
stated plans by Verizon Communications
and AT&T to
concentrate on their existing
markets, instead of expanding
into new areas.


“At some point, if the housing
market comes back, it will be
good for everybody,” Wlodarczak