Last week we perhaps paid scant attention to the Leichtman Research Group piece that said this was the first year that pay TV was down in the US. In the past other pay TV set-backs there have been purely for one or two quarters, and our friends over at The Online Reporter have re-analyzed the detail of that report and showed that perhaps there genuinely is a US watershed occurring.
Major pay TV services had a net loss of about 80,000 subscribers during the past year, compared to a net gain of about 380,000 the prior year, according to Leichtman Research Group (LRG), which said it’s the first time there has been a net industry-wide subscriber loss over a four-quarter period since LRG began tracking the industry over a decade ago.
LRG said that although the thirteen largest US pay TV services, who represent about 95% of all pay TV subscriptions, added about 195,000 subscribers in Q1 2013, it was not enough to offset subscriber losses from Q2 and Q3 2012.
Q1 gains were down from a net gain of about 445,000 in Q1 2012, and a net gain of about 470,000 in Q1 2011.
While pay TV subscriptions declined in the past year, broadband subscriptions increased. LRG said broadband services that have 93% of the US market added over 1.1 million subscribers in Q1 2013, which is six times as many as the 194,000 that were added for pay TV. There is a message there for pay TV services as to where the consumer is headed. Asked which they would give up first ‘ pay TV or broadband ‘ most would say pay TV. The good news for service providers is that they make more money from broadband subscriptions than from pay TV subscriptions. These numbers also show why content creators are scrambling after the booming OTT market. As the famous bank robber Willie Sutton once said when asked why he robbed banks, ‘Because that’s where the money is.’ As will be the case of OTT services.
This is not to say that pay TV is no longer the main source for in-home entertainment because it is. However, that is slowly changing as OTT services offer more and better content. The pay TV services’ stranglehold on live sports is showing signs of being broken as BT recently showed with its BT Sport ‘channel,’ which has acquired the rights to some major sporting events and is free to BT’s broadband subscribers. Sooner or later a US broadband service will do the same. It’s likely to be a telco. Verizon is already rolling out a nationwide movie rental/purchase service, in a venture with Redbox owner Coinstar. AT&T/AT&T Mobile won’t be left behind.
LRG said that broadband subscriber additions have grown faster than pay TV for several years, as might be expected by the relative maturity of the two businesses. However, the six times growth ratio is more than double the average of the 2.8 ratio from the prior two years. Far more interesting would be seeing some numbers on a) how many hours consumers spend on broadband at home versus pay TV ‘ there is a lot of simultaneous use of both, of course and b) how many hours consumers spend watching Internet-delivered entertainment videos versus the numbers for pay TV delivered entertainment.
Leichtman is very clear about cord cutting: it’s not happening at a significant rate. He said the number of cord cuttings in the past 12 months increased from 0.2% of US homes to 0.4% to 0.5%. That’s why we’d like to see the eyeball count: what is the source for the entertainment videos consumers are watching. It’s hard to watch more than one video at a time, unlike browsing while viewing.
LRG said the seventeen largest cable and telephone providers in the US, which have about 93% of the market, added 1.1 million net new broadband subscribers in the first quarter of 2013. They have over 82.4 million subscribers. Cablecos have 475 million broadband subscribers and telcos almost 34.9 million, as might be expected because of the faster speeds they offer except where there is an all-fiber network.
With about 800,000 net adds, the top cable TV companies accounted for 72% of the net broadband additions for the quarter compared to the top telephone companies. AT&T with its hybrid fiber/copper wire network and Verizon with its all-fiber FiOS added 919,000 subscribers via U-verse and FiOS in 1Q 2013 but lost 696,000 DSL subscribers, many to themselves, of course. U-verse and FiOS now account for 40% of the top telephone companies’ broadband subscribers compared to 32% a year ago
Cablecos have increased their broadband market share. LRG’s list of top cable TV services have a 58% share of the broadband market with about 12.7 million more subscribers than the top telephone companies, compared to having 10.8 million more a year ago
The nine largest cable TV companies have over 51 million video subscribers, satellite TV companies have 34.2 million subscribers, and top telephone companies have nearly 9.7 million subscribers. The top nine cable TV companies lost about 264,000 video subscribers in Q1 2013, and about a 1,560,000 over the past year, about the same as the 1,535,000 subscriber loss the prior year. The top telephone providers added 401,000 video subscribers in Q1 2013 and 1,319,000 over the past year, but that was down from the 1,475,000 additions over the prior year. Satellite TV providers added 57,000 subscribers in Q1 2013, the fewest in any Q1 over the past decade. They added 160,000 subscribers over the past year compared to a gain of 439,000 over the prior year.
Bruce Leichtman, president and principal analyst for Leichtman Research Group, does not think the losses are the beginning of a downward trend. He said, ‘First-time ever annual industry-wide losses reflect a combination of a saturated market, an increased focus from providers on acquiring higher-value subscribers, and some consumers opting for a lower-cost mixture of over-the-air TV, Netflix and other over-the-top viewing options. The traditionally weak second quarter is sure to show additional net subscriber losses, but it is unlikely that these current modest industry losses are a harbinger of a more dramatic near-term market decline.’