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TV Household Growth an Opportunity

TV researcher Nielsen/NetRatings announced yesterday that the universe of TV households would increase 1.5 percent for the 2008-09 TV season. Nielsen is the authority for TV household figures, with approximately $75 billion in TV advertising revenue bought and sold based on the company's data.

That's good news for pay TV providers looking for a growth story. More TV households mean more pay-TV subscribers. My back-of-the-envelope estimate would suggest that a 1.5 percent increase in TV households would result in about 1.5 million new pay TV households over the next year. That's a substantial pool of potential new subscribers for AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), and their competitors.

Approximately 85 percent of U.S. households subscribe to pay TV services, and that percentage is not likely to grow substantially in the foreseeable future. So service providers are in the unfortunate position of having to claw each household from the hands of the cable and satellite operators. That's always going to be a tough, slow process, and it will get even harder once they have finished working through the initial pool of the most dissatisfied cable subscribers. That's why targeting new households, which don't have existing relationships, will be extremely important.

The Nielsen announcement offers some guidance for service providers targeting these households. Asian TV households will lead this growth, expanding 4.4 percent to 4.7 million. Next come Hispanic TV households, which will grow 4.3 percent to 12.6 million, and finally African-American households, growing 2.2 percent to 13.9 million. In addition, older households are growing: People 55 and older grew 2.7 percent to 71.3 million.

Service providers that create innovative programming packages, pricing strategies and promotions specifically targeting these segments will be better positioned to capture this growth. Given the level of competition in this space, segmentation and targeting are fast becoming essential. Nor are the MSOs likely to ignore this data: Multicultural marketing and ethnic channels have become increasingly important for both cable and satellite operators in the past.

Service providers need to take a step back from their historical mass-market approach. This is a series of segmented battles, rather than an across-the-board war.

— Aditya Kishore, Senior Analyst, Heavy Reading

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