Pay-TV Industry is Pricing Its Self Out of Many Homes

[dkreichen1968]

For cable-TV operators, 2013 has been a tough year.

This year will probably be the worst for the pay-TV industry in terms of customer retention, according to a report Tuesday by independent research firm MoffettNathanson.

Veteran Wall Street media analysts Craig Moffett and Michael Nathanson calculated that the pay-TV industry — which includes cable, satellite and phone companies offering video service -- lost 113,000 subscribers during the third quarter.

Cable operators lost 687,000 subscribers in the period, according to their estimates. That was a far steeper decline than the year-ago period. And though the satellite TV and telephone companies picked up about 574,000 subscribers, it wasn't enough to erase the net loss for the industry.

"The pay-TV industry has reported its worst 12-month stretch ever," Moffett and Nathanson wrote...

"Of course, the fact that pay-TV revenue is still rising smartly is part of the problem," Moffett and Nathanson wrote. "We have always argued that cord-cutting is an economic phenomenon, not a technological one. ... Pay-TV revenue growth reflects rapid pay-TV pricing growth and that is precisely the problem. Rapidly rising prices are squeezing lower-income consumers out of the ecosystem."

Read More: Cord-cutting: Pay-TV companies lose 113,000 customers in quarter - latimes.com

Yes, it's basic supply and demand economics. As the price goes up the demand drops. That is especially true when there are much lower cost alternatives like free digital television and internet streaming services.

 

[dkreichen1968]

Jeff Kagan's Take

“This is a mistake. They are not the only source and the marketplace is more aware, year after year. There are many new competitors, which are popping up on the screen every day. Many of the problems the cable television industry face today were created by them. They have no one to blame but themselves. The cable television model is broken,” says Kagan.

Cable TV prices rise every year. Every ten years customers pay double. They get more channels to watch, but the average customer still only watches the same 5 to 15 channels. So they are just paying more year after year.

“It finally got to the point where customers were looking for alternatives to save money. Today the stars are lining up. Whether you want to save money or have a more updated experience, there are more choices than ever. Cable television companies set the table for their own demise. Unless they can reset the table, the future may roll right past them,” says Kagan.

Companies like Comcast, Time Warner Cable and Cox are the top three cable television companies in the industry. They all face the same competitive threats. They are all losing traditional subsribers.

In fact Cox is rolling out a new IPTV service which is what the phone companies use to compete in television.

AT&T Uverse and Verizon FiOS are the two telephone company alternatives that offer IPTV in competition with the cable television world.

Aereo is a new company trying to break into the traditional cable television world and seems to be doing well so far.

Read More: Industry Analyst Jeff Kagan on Cable TV Losing More Subscribers

 

[James]

"Veteran Wall Street media analysts Craig Moffett and Michael Nathanson calculated that the pay-TV industry — which includes cable, satellite and phone companies offering video service -- lost 113,000 subscribers during the third quarter.

113K is not a lot if it includes all TV services. Am I reading that statement incorrectly?

"Cable operators lost 687,000 subscribers in the period, according to their estimates. That was a far steeper decline than the year-ago period. And though the satellite TV and telephone companies picked up about 574,000 subscribers, it wasn't enough to erase the net loss for the industry."

These numbers are larger and significant.

 

[dkreichen1968]

There are two things that make it more significant than it seems. First the industry needs to add customers just to keep the same level of market penetration. Household formation, though slowing, was positive for the quarter. Second, the third quarter historically tends to be a higher growth quarter due to people signing up for sports packages and students going back to college. Having negative growth in the third quarter is not a good overall sign. Telco is certainly still growing, and with CenturyLink rolling out PRISM TV in more markets, the legacy cable guys need to get their acts together.

 

[Lestrade]

Well, in a deepening financial crisis this is the rule. Pay TV industry will suffer, as many people try to make do with less cash than before. Sad though it may be, pay TV is luxury and so it can be overcome. Food and housing is not.

 

[MrPogi]

For myself and many others, it comes down to VALUE. If consumers could pay $20 for a package of basic locals + a small selection of popular pay TV channels, that could be watched on every TV in the home without paying for a cable box on every TV, many would do it. A lot of people wouldn't even care if they were all in SD, either. But when such a limited package costs $30+ AND requires additional fees for boxes on every TV set, consumers will balk and seek better values. An antenna + a few pay services can provide locals in HD plus movies and (delayed) pay TV network content via HULU for under $20 a month.

As recently as 2010, for example, Comcast offered a basic cable package for just $10 a month that included locals and a few pay TV channels. Now, just 4 years later, the cheapest package is $30, with additional charges for each TV. That's a 300% PLUS increase in just 4 years.