Contracting subscription TV market encourages consolidation

Michelle Clancy ©RapidTVNews | 01-12-2011

Stronger than expected performances by Comcast and DirecTV in Q3 2011 have managed to stem the overall decline of subscription TV households in the US, levelling out what has been a steady dwindle in the past few quarters.

The apparent market influence wielded by the two largest TV providers in North America—Comcast with 22.36 million subscribers, followed by DirecTV with 19.76 million—points to a competitive incentive towards market consolidation in order to be able to compete, according to IHS Screen Digest.
According to the research firm's tally of Q3 operating results, subscriptions remained relatively flat during the quarter (posting a collective slight decline of 8,000). The total number of subscription TV households at the end of the quarter was 100.6 million. This is a marked improvement from a year ago, when the subscription TV industry witnessed a decline of approximately 55,000 TV subscriptions.
Comcast almost halved its year-over-year subscriber drain in Q3, reporting a net loss of just 165,000 basic subscribers compared to 275,000 a year earlier. Basic video ARPU remained flat at $72.7 during the period.
Meanwhile, satellite operator DirecTV did its part by adding 327,000 subscribers, up from an anaemic Q2 that saw only 26,000 adds. DirecTV's ARPU also increased almost 2% from the previous quarter, reaching $92.20.
That might be good news, but the picture isn't so rosy for the rest of the segment, Screen Digest found. In contrast, the rest of the cable operators and DISH Network not only continued to see their basic video subscribers decline, but they also began to feel the crunch in other aspects of their business. Time Warner Cable, Charter, Insight, COX and Cableone lost over one per cent of their basic video subscribers during the quarter. DISH Network lost 111,000 subscribers compared to its loss of 29,000 a year earlier, and saw its ARPU decline 2% from the previous quarter, marking the company's first consecutive quarter ARPU decline since the recession in 2009.
The Tier 1 IPTV operators, which have long been the success story in video as they take market share from incumbent MSOs, also saw a waning of fortune. AT&T U-verse's net video subscriber growth slowed down to 176,000 in Q3 2011 down from 202,000 in the previous quarter and 235,000 in Q3 2010. Similarly, Verizon FiOS' net IPTV subscriber growth was 138,000, down from 184,000 in the previous quarter and 202,000 in Q3 2010.
That said, FiOS monthly ARPU increased 2% from the previous quarter and U-verse's monthly ARPU was up 2.5%.
"The sharp contrast in performance between the largest operators and the rest of the industry confirms that size matters in TV delivery," said Amer Barghouth, Screen Digest analyst. "With a few exceptions, the larger the operator, the easier it seems to be to navigate the new entertainment landscape. In fact, the economics of the industry appear to have reached a level of maturity where only the top operators are able to compete successfully."
A similar dynamic seems to be playing out in satellite TV where DirecTV has consistently outperformed DISH since the onset of the recession. "Never was the contrast clearer than in the past quarter when DirecTV added 327,000 subscribers as DISH haemorrhaged 111,000 (approximately one percent of its total subscriber base), even though the companies spent the same in Subscriber Acquisition Costs (SAC) - $793 and $789, respectively," Barghouth noted.
This new dynamic in the TV industry has created an incentive for operators to consolidate, even in this uncertain economic environment. According to IHS Screen Digest's research, 2011 was the busiest cable M&A year since 1999 when the last bout of consolidation took place. Time Warner Cable, for example, has recently agreed to pay $4,400 per basic subscriber for the Insight systems, which is well below what Insight's owners had been asking for but still substantially higher than the average 2011 per-subscriber price of approximately $2,200. As the logic of consolidation continues to prevail, IHS Screen Digest predicts the heightened M&A activity to continue in 2012.