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Time Warner Subs Dip, Echoes Fears of Cable Industry

By Chris Tribbey | Posted: 26 Feb 2009

Time Warner Cable CEO Glenn Britt summed up the fears of cable operators this month during the company’s fourth-quarter earnings report.

“As cable networks put more and more content online for free, that will over time start eroding the subscription revenue source. There isn’t a whole lot that we can do about that,” he said, as Time Warner reported a fourth-quarter loss of 119,000 basic cable subscribers. “The reality is we are starting to see the beginnings of core cutting where people, typically young people, are saying, ‘All I need is broadband.’”

Britt echoed the thoughts of most every cable and satellite operator, who are worried about seeing their services cut out of customers’ budgets during this recession. Comcast reported losing almost half a million net subscribers during the fourth quarter. Charter Communications reported losing a net of about 75,000 basic cable subscribers during the same period. Dish Network — which reports its fourth-quarter results March 2 — reported it lost about 10,000 net subscribers in the third quarter of 2008. Cablevision reported losing about 4,000 during the fourth quarter.

“The weak economy is impacting the consumer particularly on housing growth, vacancies and moves, providing us with fewer opportunities to sell new services,” said Comcast CFO Michael Angelakis, in a conference call with investors.

The companies that are doing well are dealing in digital. DirecTV and Verizon each added more than 300,000 subscribers during the fourth quarter, with AT&T adding more than 260,000. Cable companies offering digital reported positive gains for their digital services.

But cable operators’ bread-and-butter basic services are losing customers, as more and more consumers turn to free online video.

“Cable operators are working aggressively to neutralize the growing threat of online video and the inevitable erosion of traditional pay TV viewership,” said Michael Greeson, president of research firm The Diffusion Group (TDG). “Making their best content available for online viewing through their own branded portals instead of online aggregators such as Hulu is the right strategy at the right time.

“Even incumbent pay TV operators — the antithesis of fast-movers when it comes to Internet video — understand that very soon their one-stop, one-screen TV services will be challenged by alternative conduits and new screens.”

TDG research finds that 43% of broadband customers want to watch their TV service online, and they’re willing to pay for the privilege.

“Comcast has close to 17 million digital TV subscribers and 15 million broadband Internet subscribers. If 29% of Comcast's broadband Internet subscribers would spend an extra $10 per month to have their current TV programming delivered to their PCs, that's an additional $43.5 million in gross revenue each month,” Greeson said.

Comcast, Time Warner and others are in talks with programmers like Viacom and Discovery Communications to provide their content online. But, Reuters reported, most of those services would be free to those already buying cable.

People are watching cable TV: Both Fox News and MSNBC reported double-digit increases in viewership in February, compared to the same period in 2008, and The Nielsen Co. released statistics this month that during the fourth quarter of 2008, American all-around TV viewing was at an all-time high. But online video viewing is also seeing huge gains, with online research firm comScore reporting that in December, Americans watched a record 14.3 billion Web videos, up 13% from the previous month. And free videos from YouTube were No. 1, the firm reported.

While much of what companies like Time Warner offer isn’t legitimately free online — such as movies, sporting events and HBO specials — more and more content people used to pay for is showing up as free, ad-based content. And that worries Britt.

“People will choose not to buy subscription video if they can get the same stuff for free. In other words, free wins,” he said. “If we don’t have a customer, then the programmers don’t get paid for the customer that we don’t have anymore.”

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