Michael Grotticelli /
08.15.2011 11:15 AM
‘Cord cutting’ of subscription TV continues

The number of customers “cutting the cord” with their pay television companies appears to be accelerating. Comcast reported a loss of 238,000 subscribers, and Dish Network said it shed 135,000 in the second quarter.

There are clearly many more, but those numbers are some that major subscription television companies have reported.

In the second quarter, other losses included 130,000 for Time Warner; 23,000 for Cablevision; and 79,000 for Charter. However, on the gain side, DirecTV gained 26,000 subscribers; AT&T gained 202,000; and Verizon gained 184,000. The total loss from those reported was about 193,000 subscribers.

These numbers consist of the top eight public pay TV providers, and most of those operate in metropolitan markets. The list does not include the numerous second- and third-tier pay TV providers, and many are in rural or underserved areas where the down economy has hit even harder.

Operators have blamed the poor economy for the loss of subscribers. Cable and satellite providers also say they are losing customers due to increased competition and deals from the Telco providers — Verizon and AT&T — which are aggressively buying share with steep upfront discounts.

However, in a recent report, “GigaOM” found the actual numbers don’t seem to bear that out. AT&T added 202,000 video subscribers in the second quarter, while Verizon added 184,000 in the same period. The addition of about 386,000 video subscribers combined is not out of line with previous quarters, and in fact is actually a little low compared to the 410,000 the telcos signed up in the first quarter or the 440,000 they added in the fourth quarter.

The publication asked: If those pay TV subscribers aren’t actually going to competitors, where are they going? Most likely they’ve actually become cord cutters — two words that pay television operators don’t like or want to use.

Studies have found those going without cable aren’t doing so because of over-the-top streaming offerings. Instead, GigaOM said those who are choosing to go without cable are doing so because they either don’t see much value in pay TV packages, can’t afford to keep paying for TV, or some combination of the two.

Operators acknowledge that the video subscribers who have left pay television so far have generally been low-income customers that just paid for TV and didn’t subscribe to broadband, HD or other higher-value services. And for most operators, that’s fine because they weren’t very high-margin customers anyway.

GigaOM reported that cable providers are increasingly seeking ways to get more money out of their existing subscriber base. As a result, there have been steady increases in average revenue per user (ARPU) as users sign up for more high-definition, premium channels and additional DVR set-top boxes throughout the home. That’s the reason Comcast’s ARPU stands at about $140, while basic cable service starts at about $39 based on some introductory offers.

Operators are also shying away from customers who might not want to pay for the extras. DirecTV and Dish Network both run credit scores of potential subscribers to weed out those who might cancel after an introductory deal is over. The goal is to make services sticky and to increase customer lock-in.

The question is how long the industry can keep pushing the ARPU up before it starts to shed some of its better customers. At some point, the value proposition has to break down — especially when there are other ways to get low-cost video entertainment from services like Netflix or Hulu.



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