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Cable Technology Feature Article

November 08, 2010

Is the Internet Killing Cable TV?

By Beecher Tuttle, TMCnet Contributor

American consumers canceled their cable television subscriptions at a record pace last quarter, and a large percentage of those customers did not take their business to an IPTV (News - Alert) or satellite provider.

Consumers' willingness to go without traditional television services has made many analysts question whether the stagnant economy has finally taken its toll on the industry, or if people are simply walking away from the pay-TV model to take advantage of free or low-cost Internet-based services like Netflix and Hulu.

In the third quarter alone, cable TV companies lost a net total of 500,000 subscribers. Comcast (News - Alert) took the worst hit of any of the major cable providers, experiencing a net loss of 275,000 customers over the last three months. In contrast, the company only lost 132,000 subscribers during the same quarter last year, when the economy was said to be in much worse shape.

Meanwhile, Time Warner (News - Alert) lost 155,000 customers, Charter Communications lost 63,800 and Cablevision lost 24,500. Cox Cable, the third largest provider in the U.S., is a privately held company and is not required to unveil its quarterly numbers. If the company experienced net losses similar to that of its competition, more than 600,000 subscribers may have moved on from cable companies last quarter. These service providers also added record lows in terms of phone and digital video subscribers.

Generally speaking, when customers cancel their contracts with service providers in the cable space, we will see a correlated jump in IPTV and satellite sales. While these companies did report gains in the third quarter, the numbers simply don't add up, leading analysts to speculate that customers may be leaving pay-TV providers for Internet-based services, which have been booming lately. Netflix's streaming service is now the largest source of U.S. Internet traffic during peak evening hours, according to ABC News.

However, Craig Moffett, analyst at Sanford Bernstein, told the news source that he believes the economy, not the Internet, is the reason that most people are cancelling their subscriptions.

"The evidence suggests that poverty is the problem," Moffett said. "But public sentiment, particularly among the technology press, strongly favors the Internet substitution thesis, and we don't expect that to change."

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Tammy Wolf