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Cord-Cutting Slows But Danger Still Real – Moffett

Alan Breznick

Despite losing more video subscribers in the second quarter, US pay-TV providers can at least take solace in the fact that cord-cutting isn't getting any worse. That doesn't mean there isn't still danger ahead.

That's according to Craig Moffett, a principal and senior analyst for MoffettNathanson. In his latest analysis of US pay-TV industry trends issued Thursday, Moffett found that cord-cutting slowed to "a crawl" in the second quarter. After factoring in such variables as the low rate of new household formation, he calculated that cord-cutting fell to an annualized rate of 400,000 customers in the spring quarter, well below the peak rates seen two years ago.

"Cord cutting trends in Q2 remained surprisingly benign," Moffett wrote in his report. "Over the past year, the number of pay-TV subscriptions in the US has barely budged. That may not sound like a reason for celebration, but it is a small but discernible improvement from recent trends when the number of pay-TV subscribers was actually shrinking (albeit slowly)."

Moffett noted that pay-TV industry revenue and ARPU growth trends remain healthy, with revenue up 3.7% and ARPU up 3.8%, both on an annualized basis. He also noted that the industry is now "growing revenue more than twice as fast as the wireless industry," after adjusting for accounting distortions in the mobile business. "Certainly, to paraphrase Mark Twain, reports of the demise of pay TV have been greatly exaggerated," he wrote.

Yet Moffett said he's becoming "more nervous" about the pay-TV industry's prospects as the "affordability stresses continue to build and the obstacles to cord cutting (particularly content availability, but also technology) … continue to fall away." In fact, he warns that "the risks to the system are now higher … even though the current evidence suggests that trends remain benign."

Moffett also pointed out that while the pay-TV industry continued to bleed customers during the spring, it fared better than usual in the traditionally weak quarter. Overall, he said, pay-TV providers lost 305,000 video subs during the three-month period, as opposed to 387,000 a year ago and 378,000 two years ago. That leaves the 100-million-home industry just about flat with where it was a year ago.

For more of Light Reading's coverage of pay-TV trends, visit our video services content channel.

As might be expected, the cable industry continued to bear the brunt of the video subscriber losses in the quarter. Moffett figures that cable operators lost a collective 517,000 TV customers during the spring, as they were battered by satellite TV and telco competition. But, in a promising sign for cable, the 2.7% annualized loss rate was actually the industry's best second-quarter performance in six years. (See Cable Cuts Video Losses in Q1.)

The two satellite TV players, DirecTV Group Inc. (NYSE: DTV) and Dish Network LLC (Nasdaq: DISH), lost a combined 78,000 subscribers in the second quarter, an improvement over the 162,000 subs they lost a year ago. Despite the loss, the industry still posted a year-on-year sub gain of 0.7%, up from 0.2% a year ago.

AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) continued to make significant inroads in the pay-TV market, adding a combined 290,000 video subs in Q2 to boost their customer total 12.3% from a year ago. But the growth rate is clearly slowing down for the two telcos, which picked up 373,000 video subs in the year-earlier period.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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User Rank: Light Sabre
8/12/2014 | 2:24:29 PM
Re: Cable’s last kicks
Cable subscriptions have been used for quite sometime. they were actually the only away that people could get access to live events like football or basketball games that are adored by many people but the new options that have come up have left cable with very few users. It might still be up and running now but it's only a matter of time before cable subscriptions wither away completely.
User Rank: Light Sabre
8/9/2014 | 6:47:33 PM
Re: Slowed but still lossing
Cable still has a pretty tight grip on live events such as sports. That's leading customers to continue paying for cable subscriptions.

However, I think many believe that the cost of cable is too high, which makes cheap alternatives a very viable option. 
User Rank: Light Sabre
8/9/2014 | 11:44:13 AM
Slowed but still lossing
It isnt a surprise to anyone that the video industry is changing and that customers want more than what they cable companies can provide. Thats all there really is too it. It's interesting that losses have slowed, but slowed means they are still lossing. 
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