Economic Chill Hits Telco TV
Residential communications – and TV services in general – have long been seen as recession-resistant industries. While consumers cut back on vacations or restaurant visits, they usually do not cancel their TV subscriptions. In fact, there are arguments for increased spending during recessions. Families are likely to cancel holidays that cost thousands, but may spend a few dollars more to add a children's movie channel, in an attempt to make it up to the kids. Similarly, Internet access becomes a critical job-seeking tool for those who have been recently laid off.
Still, it does get harder to justify the extra cost of a premium network when times are hard, and that will affect provider revenues. The greatest impact will be on new subscriber additions. In a recent study conducted by Heavy Reading, respondents repeatedly mentioned lower prices and discounts as important decision drivers for selecting pay TV providers. In fact, new services and features did not seem to have much of an impact on the decision. The survey findings are reinforced by Time Warner Cable, which is finding that demand for DVRs has fallen 40 percent compared to last year. (See TelcoTV: Consumers Say Price Matters.)
The Heavy Reading study was fielded in late October and early November 2008, right after the credit crunch sent shock waves around the world. While 46 percent of respondents in the study said it was "not likely" that they would switch providers next year, 60 percent rated price as the main driver for selecting a new provider if they were to switch.
This is worse news for telcos than for cable operators. Telco TV subscribers barely add up to 2-3 percent of U.S. households while cable owns well over 50 percent of the U.S. market. Cable operators may face slowing revenue growth and new service penetration, but substantially higher churn won't necessarily result from the recession. Telcos, however, need to increase their TV subscriber base during this time – and if price is the only way to do so, then they might just have to swallow the impact on their margins.
— Aditya Kishore, Senior Analyst, Heavy Reading