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Seeking Subs

14 Feb, 2014 By: Erik Gruenwedel

Comcast’s bold $45.2 billion acquisition of Time Warner Cable is more than the top two domestic cable operators merging operations; it’s an attempt by Comcast to circumvent ongoing video subscriber losses and rein in costs, which include escalating retransmission fees, among others.

Comcast in its most recent fiscal quarter reported a pedestrian gain of 43,000 video subscribers — the cabler’s first net video additions in six years.

Time Warner Cable ended its fourth quarter with about 11.2 million video subscribers — down 833,000 subs from the previous-year period. It lost 217,000 subscribers in the third quarter to end the year with a subscriber base one-third of Netflix’s 33 million domestic subs.

Comcast and TWC’s combined video sub base approaches 32 million.

The losses, which some observers attribute to cord-cutting by consumers opting for lower-cost over-the-top video services such as Netflix, Amazon Prime Instant Video and Hulu Plus, aren’t isolated.

Cablevision lost 112,000 video subscribers in the third quarter, while Charter Communications lost 27,000 video subs. When combined with Comcast and TWC, the cable industry lost more than 500,000 video subscribers in the most recent 90-day period.

And video sub losses aren’t uniquely American. Rogers Communications — Western Canada’s largest pay-TV operator — lost 127,000 video subscribers in 2013, including 28,000 subs in the quarter ended Dec. 31. Rogers ended the year with more than 2.1 million video subscribers.

Eric Handler, media and entertainment analyst with MKM Partners, said Comcast’s purchase of TWC ratchets up the need for further consolidation among multichannel video program distributors (MVPD) seeking to consolidate resources and stymie subscriber losses. He said the pressure is now on Charter, which had sought to acquire TWC separately, or in partnership with Comcast, to seek synergies by combining forces possibly with Cablevision, Cox Communications or other regional players.

“[A Comcast/TWC pact] is really going to be the tip of an iceberg, in terms of future transactions, both on the distribution side, as well as on the consolidation side,” Handler said.

In addition, Handler said a combination between satellite operator DirecTV and Dish Networks has been hung up by regulatory concerns — issues he said could be mitigated by federal approval of the Comcast/TWC union.

The analyst said that consolidation not only bolsters sagging subscriber counts, it affords the empowered MVPD players the ability to better retain and attract subscribers through improved content selections (notably sports), TV Everywhere platforms and broadband connectivity.

Indeed, Rogers added 13,000 Internet subs in the quarter, to end the year with more than 1.9 million.

In an effort to combat Netflix, Rogers bowed an app giving subscribers access on their TV screens to personalized recommendations for live, rental and on-demand content. This app is the first such software of its kind in Canada (excluding Netflix).

Rogers also plans to launch IPTV service in 2015, which includes a kids’ section.

Comcast is emulating the strategy with Xfinity X1, a broadband platform that features a customized screensaver that tracks weather, stocks, traffic, news headlines, Pandora, Facebook and sports scores, among other features.

TWC in 2013 made similar strides with its TWC TV app, which now includes HBO programs. 

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