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Report: Domestic Pay-TV Market Shows Resilience

9 Sep, 2011 By: Erik Gruenwedel

Maturity of cable and satellite TV industry — not cord-cutting — underscore market’s seesaw appeal with consumers

Despite declines in cable and satellite TV video subscribers in the second quarter and a 30% increase in competing over-the-top video services, the threat of so-called cord-cutting among video subscribers is overblown, according to a new report.

El Segundo, Calif.-based IHS Sept. 9 said the number of U.S. households subscribing to pay-TV video services such as HBO, Showtime, Epix and transactional video-on-demand declined by nearly 370,000 in the second quarter of the year. At the same time, the total number of subscribers increased by 238,000 fueled by non-video services such as high-speed Internet and telephone.

Total domestic video subs declined 400,000 to 100.6 million in Q2 compared with 101 million in the first quarter. However, the number of Q2 video subs actually increased 68,000 when compared with the same period in 2010.

“This seesaw pattern of quarterly growth and decline is indicative of a mature industry that has reached a high level of saturation, with subscription video services now being sold to some 85% of all U.S. homes,” said Erik Brannon, analyst for U.S. Cable Network Intelligence and U.S. TV Intelligence at IHS. “Like any mature industry in a recession, the video side of the business is seeing some softness, but not the kind of steady or accelerating drops one would expect if — as some are suggesting — the American consumer is abandoning pay-TV en masse in favor of Internet-delivered video, a phenomenon known as ‘cord cutting.’ This indicates that the threat of cord-cutting has been overblown.”

Indeed, cable operators saw an increase of 270,000 broadband subscribers and 593,000 Internet-based telephone subscribers in the second quarter compared with last year.

IHS said even if cable loses 10% of its video sub base by 2015, operating margins will remain strong due to high-speed Internet and VOIP services.

Satellite TV operators reported combined losses of 109,000 video subscribers during the period. Analyst Brannon said the declines have to be viewed objectively in light of the ongoing recession rather than technological changes.

“In better times, subscribers were happy to pay for both video subscriptions and for high-speed Internet subscriptions, as evidence by the rapid growth in both in the pre-2008 period,” Brannon said. “In the current economic situation, when forced to choose, some consumers appear to see greater value in the latter.”

Citing a high percentage of people who are unemployed or underemployed, IHS believes that the relative stability of sub-counts—especially at the RGU level—underscores the value consumers see in pay-TV services.

Meanwhile, a separate study found use of over-the-top video services such as Netflix, Amazon Prime and Hulu has grown more than 30%. The term “over-the-top” refers to services offering competing video services from pay-TV carried over the same cable or satellite connection.

New York-based Knowledge Networks said use of OTT services jumped from 26% in 2010 to 35% in 2011 among users aged 13 to 54. At the same time, monthly use of connected TVs jumped nearly 50% — with Web-connected video game console use up 6% to 12%, mobile device viewing up 5% to 10%, and Netflix use up 13% to 26%.

The results were based on a survey of 1,013 qualified respondents conducted in June.


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