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Cable Technology Feature Article

October 28, 2010

Will Third Quarter Video Results Confirm or Deny a Trend?

By Gary Kim, Contributing Editor

We soon will have a way of confirming or denying a potential shift in end user demand for multichannel video entertainment services, once DirecTV (News - Alert) and Dish Network announce their third quarter 2010 results. The second quarter of 2010 was seen as historic as it was the first time the total number of U.S. multichannel video subscribers actually declined for the first time, ever. 

Some have suggested the quarter was a fluke, the salient argument being that lots of customers signed up for cable TV sooner than they otherwise would have, given the transition from analog broadcasting to digital over-the-air broadcasting. Over time, the argument goes, the growth rates will resume the long-term growth trend. As video customer counts already are available from major cable TV and telco providers, the reports from Dish Network and DirecTV will tell the tale. 

Another dip in total subscribers, especially if it is in the range of 200,000 range, will tend to confirm the thesis that demand for video services is dropping, whether temporarily because of the economy, or, more ominously for some, as the lead edge of a permanent shift. 

Comcast (News - Alert) Corp., saw 275,000 video customers in the third quarter, up from the 265,000 Comcast lost in the second quarter, when there was evidence the U.S. multichannel video subscriber base actually shrunk for the first time, ever.

Comcast executives do not believe the subscriber losses are to competitors such as DirecTV, Dish Network, Verizon and AT&T (News - Alert), or the Internet. Instead, Comcast believes customers are simply disconnecting in favor of "over the air" broadcast TV. 

But many observers did attribute the second-quarter losses to competition from satellite and telco competitors, as well as generally-weak economic conditions. Subscriber gains by both Verizon (News - Alert) and AT&T continued in the third quarter of 2010 as well, suggesting that customer defections are occurring. 

Verizon added 204,000 new TV customers in the third quarter, growth of 19 percent over the second quarter of 2010 and seven percent higher than the third quarter of 2009.

AT&T added 236,000 U-verse TV subscribers in the third quarter, for its part. DirecTV and Dish Network have not yet reported third-quarter results. 

SNL Kagan estimates suggest the U.S. multichannel video market as a whole lost 216,000 subscribers in the second quarter. Cable TV providers lost a combined 711,000, while telcos and satellite players gained a combined 495,000. Should that pattern continue in the third quarter, there might be room for multiple explanations of what is going on. Comcast might be right that hundreds of thousands of consumers are simply dropping service because they can't afford it. 

At the same time, it appears many hundreds of thousands of customers also are defecting to satellite and telco competitors as well. Observers will have a better handle on what might be happening once the satellite providers release third quarter results. Assuming the third quarter winds up being much like the second quarter, another couple hundred thousand households will have disconnected their multichannel video entertainment services, and not simply moved to a new provider.

That could show just how severe economic conditions are, as cable TV services have held up remarkably well through several decades that included recessionary periods. Cable executives, in fact, always have boasted that cable TV was essentially recession-proof, as customer bases never dipped in any of the prior recessions. If in fact the overall market shrinks again, we might be witnessing a historic break in behavior that might be temporary, reflecting the unprecedented severity of the recent recession and slow recovery, or could be permanent, reflecting a shift of at least some demand away from multichannel TV services for the first time. 

The 216,000 subscriber loss for the market as a whole compares to a 378,000 gain for the same period of 2009, which illustrates the magnitude of the second quarter 2010 shift.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Tammy Wolf