The maturing of the pay-TV market in North America is no secret: market penetration as of September was greater than 80 percent, according to ABI Research (News - Alert). So while the global pay TV market continued to grow (at a modest 3 percent) in the first two quarters of 2013, adding 23 million new subscribers, the pay TV market in North America grew at its slowest pace ever, due to market saturation. An initial look at third-quarter results points to some bright spots for growth, and revenue continues to expand, but cable continues to suffer subscriber losses.

Heady Days for IPTV

Growth in the North America pay TV market will mainly be driven by the region’s increasing Telco TV market, ABI noted, and that certainly seems to be the case as both Verizon (News - Alert) FiOS and AT&T U-verse turned in heartening results.

AT&T saw good gains in its U-verse fiber-fed TV and triple-play service for the third quarter of 2013, topping 10 million subscribers (up from 9.4 million in the previous quarter) and generating its first $1 billion month in revenue during the quarter. The Telco added 265,000 new U-verse TV subscribers, which it said was the "second-highest net add quarter ever and best quarter in almost five years.”

"I don't think there is a better wireline growth story in the industry than U-verse," CFO John Stephens told investors during the earnings call. "This seven-year-old start-up is now a $12 billion-a-year revenue stream growing at 28 percent," he said. It's the fastest-growing part of AT&T's (News - Alert) business, with a total of 10 million subscribers, twice the number of two years ago."

Overall, Dallas-based AT&T reported that its consolidated net income in the third quarter stood at $3.8 billion, an increase of 4.9 percent year-over-year. Revenue totaled $32.15 billion, up 2.2 percent. U-verse now represents 54 percent of wireline consumer revenues, up from 43 percent in the year-earlier quarter (TV stats are not broken out). And, consumer ARPU for U-verse triple play customers comes in at $170+ per month, it said.

AT&T continues to build out its fiber-to-the-node network, unlike Telco and IPTV provider Verizon Communications, which is choosing to focus on adding penetration in existing markets rather than trenching more infrastructure for FiOS (News - Alert). Verizon picked up a healthy net 135,000 FiOS video subscribers in the third quarter to reach a 35 percent take-rate in its footprint, which passes 18.3 million premises.

It was the second quarter in a row it has boosted its net additions from the year earlier. The IPTV provider now has 5.2 million subscribers and is the No 5 pay-TV distributor, after Comcast, DirecTV, DISH and Time Warner Cable.

FiOS revenue (TV and broadband) rose 13.4 percent to $2.8 billion during the quarter, which drove consumer wireline revenue up 4.3 percent to $3.7 billion. Consumer ARPU was up 8.7 percent year-over-year.

The Telco TV momentum is also expected to continue: “ABI Research forecasts that more than 1.5 million Telco TV subscribers will be added in North America in 2013 to reach 11.9 million subscribers. The region will generate service revenue of $10 billion from Telco TV service in 2013,” said ABI industry analyst Khin Sandi Lynn.

Dismal Cable Results

ABI Research expects that globally, the Telco TV service revenue market share will increase more than one percentage point to capture 14 percent market share this year. However, cable TV service revenue market share will see the opposite trend, decreasing to 47 percent in 2013 from 48 percent in 2012. In North America, this is certainly being played out.

The No. 1 cable MSO and pay-TV provider in the United States, Comcast reported mixed financial results for the third quarter of 2013. The company's triple-play voice, video and data bundled offerings are still gaining market traction and the cable division's revenue was up. However, the company continues to lose video subscribers, and lost 129,000 of its 21.647 million video customers (down 1.6 percent year over year) compared with a net loss of 117,000 video customers in the prior year's quarter.

Nonetheless, the good news is that video revenues were $5.127 billion, up 2.9 percent from the prior-year quarter.

Overall, total revenue fell 2.4 percent to $16.15 billion, below analysts' estimates of $16.26 billion. Net income for the third quarter of 2013 was $1.73 billion, or 65 cents a share, compared with $2.11 billion, or 78 cents a share in the prior year's quarter.

The story was much, much worse at number two MSO, Time Warner Cable. It turned in third-quarter results that surprised investors with a massive decline in video customers that almost doubled what analysts were expecting. It saw a shocking 304,000 video customers on a net basis walk away.

The company blamed a month-long blackout of No. 1 U.S. broadcaster CBS in August for the churn, and Verizon for one said that it benefited from the lengthy TWC-CBS retransmission dispute in the late summer — it referred to it as "the dispute that happened" in the third quarter on the earnings call — picking up an undisclosed number of subs as TWC customers in New York found their CBS and Showtime content blacked out. Analysts also attributed gains at DirecTV to the issue.

Video revenue meanwhile was impacted by the $15 million in credits that TWC issued to subscribers to compensate for the blackout of Showtime during the retransmission spat with CBS.

Net income dropped precipitously for the quarter as well, coming in at $532 million, or $1.84 per share, down from $808 million, or $2.60 per share, a year earlier. Revenue rose 3 percent to $5.52 billion. Analysts had expected earnings of $1.65 per share on revenue of $5.54 billion, according to Thomson Reuters (News - Alert).

TWC also revised its expected full-year revenue downwards, saying that it expected it to grow 3 to 3.5 percent, down from its previous forecast of 4 to 5 percent.

Satellite Sees an Uptick

Satellite meanwhile seems to be holding its own, although DISH Network won’t report its results until Nov. 12.

DirecTV however beat expectations for the third quarter, recording a gain of 139,000 television subscribers, which is sharply up from the just 75,000 additions that analysts had predicted.

That good news came after a weak second quarter, when it lost customers for the second time in its history, shedding 84,000 of its 20 million subscribers.

The good news continued because revenue was up too, by about 6 percent, to $7.88 billion, on the back of ARPU hitting $102 per subscriber—that marked the first time that it has risen above the $100 mark.

Overall, DirecTV reported profit of $699 million, or $1.28 per share, compared with a profit of $565 million, or 90 cents per share, in the same quarter last year.