Just sit down and consider the following two reports from this week. The first is that ABI Research says that Global Pay TV service revenue was up 9% and reached $58 billion in Q2. And the second piece of data from SNL Kagan was that Pay TV in the US, taking in cable, satellite and IPTV suffered its first drop in total subscribers ever.
And these two facts are not too hard to reconcile. Revenues are going up globally and customers in the most densely penetrated market are going down. But it gives us a number of things. Firstly that the US is saturated with pay TV. Never mind the recession, even if there was no recession, the growth in the US would be tiny. So this is how saturated most other markets can get, at their most dense. That gives us a whole new basis to judge and forecast for other TV markets. So think twice before forecasting a billion pay TV homes any time soon. We are just reaching 700 million globally, and that may well be a plateau for a while, if some major markets slow, while India and China are still going gangbusters.
Secondly it creates an environment where one of two things will happen. Either every pay TV player is happy with its market share and all the pay TV operators can get on, like most cable operators, and keep customer numbers static and try to raise ARPU (average revenue per user). Or continued competition will mean that one or other segment will chase the customers of the established leaders, and tempt them away with offers of lower prices or better features. In the US we are seeing the latter, because after five or so years of cablecos stealing phone customers away from the telcos, they feel they have get some of them back, through triple and quad play offers and they also need to widen their base of IPTV in order to pay back investments in core infrastructure. In other words IPTV has too few customers so far, so this is a fight to the death or at least until we see more parity in the market share between cable, DTH and IPTV.
And that means in turn that ARPU rises will begin getting dragged back through competition, and the share prices of the cablecos will fall, then later the same may happen to the DTH companies.
This type of stand off creates the perfect environment for innovation whether it be through triple plays, by adding wireless to the mix or simply adding TV Everywhere features, or buying up more and more exclusive content. These companies want to compete on anything but price, while the telcos compete on price AND everything else.
Back to the two reports, ‘The increase in ARPU and service revenue in Q2 2010 was largely due to the programming packages on offer, with higher prices and more advanced services such as HD programming,’ says ABI Research’s digital home practice director Jason Blackwell.
Cable TV represents 52% of the overall global pay TV market, and the year over year growth of cable TV service revenue is quite low compared to other pay TV platforms, due to slower subscriber growth in mature markets. Already cable ARPU is declining in some markets due to competition from IPTV operators, the ABI report says.
ABI also said that satellite TV revenue shot up to $24 billion, a rise of 12%, while IPTV will continue to grow 20% CAGR for the next five years as cable shrinks.
SNL Kagan said the US TV industry lost 216,000 customers in the quarter compared with a gain of 378,000 a year earlier. Cable suffered its worst quarterly video loss to date, dropping 711,000 subscribers. Six out of the top eight cablecos reported their worst quarterly video subscriber losses. Funny but not one of them highlighted it as a concern at their results conferences. DirecTV and Dish added 81,000 TV subscribers, while Verizon and AT&T added 414,000 customers.