Internet Will Eat Cable’s Lunch

Trend adds luster to Comcast-NBCU marriage
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MULTIPLE CITIES: The cable TV industry will lose around 2.5 million subscribers net over the next decade if Kagan’s projections are spot on. Those numbers suggest content will remain king and that an NBCU acquisition is a wise move on the part of Comcast.

Cable subscriptions registered a small uptick in June following at least seven years of declines during that period. The rise was attributed to the digital television transition. Cable and satellite operators went gangbusters after new customers that may have lost over-the-air reception. DBS gained during cable’s years of loss, but both platforms started stabilizing over the last two years.

Kagan predicts cable will be the big loser over the next decade. Cable subscriptions are expected to decline from 63.2 million in 2009 to 60.7 million in 2019, due in part to more people watching TV shows on the Internet.

“Though operators are downplaying the impact of online video on multichannel subscriptions, the early adoption trends suggest a growing stature for [online] substitution that SNL Kagan forecasts will account for 7.1 million homes by 2013 and more than twice that number in the 10-year outlook,” the Monterrey, Calif. firm said.

The projections bode unfavorable for Comcast, the country’s biggest multichannel TV provider with 24 million subscribers. Comcast owns some content networks--E! Entertainment, Style, Golf Channel, Versus and a few others--but cable TV is its main source of revenue. Cable services generated $34 billion, or 95 percent of revenues in 2008, but growth in the division is leveling off.

Ron Grover of Business Week said Comcast would do well to acquire NBCU on the Internet substitution upswing. In addition to broadcast and cable nets, NBC owns a portion of Hulu.com, the online clearinghouse for shows from NBC, Fox, ABC and some syndicators. Hulu most recently made headlines for taking millions out of broadcasting through an advertising deal it cut with MediaVest.

Comcast “has only has to look at its income statement to realize the growth potential of owning content,” Grover writes. “In its most recent quarterly numbers, the cable giant says the revenue it collects for providing TV signals to its nearly 24 million subscribers grew by 1.7 percent, while its much smaller entertainment assets grew by 5.1 percent. Growth like that no doubt stands out like a TV set in a dark room for a smart guy like Brian Roberts,” head of Comcast.

Among other multichannel platforms, satellite is expected to grow from 32.2 million this year to 33.6 million in 2013, then fall to 33 million in 2019. The portion of all TV households that subscribe to multichannel video will fall as people turn on the ’Net instead of the TV. Kagan said total U.S. TV households are only expected to grow at a 1.3 percent compound annual growth rate, while total subscribership is expected to grow at only 1 percent CAGR.Telephone companies making inroads in the video business will also intensify competition among multichannel providers.

TelcoTV is expected to remain on its start-up growth curve. After years of false starts, the telephone industry finally launched multichannel video services within the last few years. AT&T and Verizon, the primary providers, continue to build out their video infrastructures. TelcoTV is expected to go from 5.7 million subscribers to 16.7 million in the 10-year period.

“Telecoms are well-positioned to grab the majority of new customers,” Kagan’s Mari Rondeli said. “However, telco’s limited footprint--only 24 percent of total telco homes passed--means cable and DBS will easily maintain the greater portion of the pie. We expect telco video services will be available to 77.8 million households in 10 years, but that still leaves about 54 million without a facilities-based video product.”

More on multichannel video:
October 6, 2009: “MediaVest Moves Millions from Broadcast to Hulu.com
MediaVest said this week it cut its first large-scale, upfront deal based on targeted demographic mixes, moving “millions of broadcast dollars into the digital space.”

October 1, 2009: “Comcast Shares Sink on NBCU Speculation”
“In our view, an acquisition of NBCU makes sense as it relates to the cable networks... but the other assets--broadcast network, the O&O stations and the theme park units--do not.”

August 13, 200
9: “Cable and DBS Subscriptions Rise”
Analysts have noted that cable and satellite operators picked up subscribers in the DTV conversion, and overall numbers reflect the trend.

June 30, 2009: “DBS and Cable Subscriptions Stabilize”
Satellite TV uptake and cable TV erosion is flattening out, according to Nielsen data. In 2007, cable reached a low, serving just 62.1 percent of total U.S. TV households, while direct-broadcast satellite reached 27.1 percent. Cable made a slight recovery over the last two years, reaching 61.8 percent in May. DBS had a lock on 28.4 percent of U.S. TV households as of May, 2009.

June 12, 2009: “Analog Broadcasting Ends”
Today is officially the last day for TV signals to fly through the air in the form of sine waves. Comcast and Cox have both promoted same-day hook-ups for callers looking to subscribe.

(Image by Patrick Q.)

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