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November 29, 2011
According to IHS Screen Digest's tally of Q3 operating results, the number of subscription TV households in the US has remained relatively flat during the quarter (slight decline of 8,000). This is an improvement over Q3 2010 when the subscription TV industry witnessed a decline of approximately 55,000 TV subscriptions. The total number of subscription TV households at the end of the quarter was 100.6m, representing approximately 85 per cent of total TV households in the US.
This improvement can be entirely attributed to the stronger the usual performance of the two largest operators in the country - Comcast and DirecTV. Comcast stemmed its TV subscriber losses by over 100,000 subscribers during the quarter, reporting a net loss of 165,000 basic subscribers compared to 275,000 a year earlier. At the same time, Comcast added a total of 261,000 broadband subscribers and 133,000 telephony subscribers. Comcast's basic video ARPU remained flat $72.7 during the period while broadband ARPU increased 2.2 per cent to $42.6. Telephony ARPU declined 2.4 per cent from the previous quarter's $31.9.
Similarly, the satellite operator DirecTV, which had a weak showing in the previous quarter adding only 26,000 subscribers, reversed its fortunes in Q3 by adding 327,000. Furthermore, DirecTV's ARPU increased almost two per cent from the previous quarter, reaching $92.20.
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, for example, witnessed declines across the board in ARPU and subscriber counts - with the sole exception of broadband, where it added a healthy 89,000 subscribers. Similarly, Charter, Insight, COX and Cableone lost over one per cent of their basic video subscribers during the quarter. DISH lost 111,000 subscribers compared to its loss of 29,000 a year earlier, and saw its ARPU decline two per cent from the previous quarter, marking the company's first consecutive quarter ARPU decline since the recession in 2009.
Even IPTV operators, which fuelled the last round of growth in the industry, saw slowing subscriber growth in their video segments. 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. U-verse and FiOS ARPUs continued to grow, however. FiOS monthly ARPU increased two per cent from the previous quarter and U-verse's monthly ARPU was up 2.5 per cent.
The sharp contrast in performance between the largest operators and the rest of the industry confirms that size matters in TV delivery. 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. Take Comcast, for example; not only did the company nearly halve its subscriber losses from a year ago, but it also accounted for almost half of all of cable's new broadband and telephony connections, thanks in large part to the Broadband Essentials package the company launched during the quarter which provides low-cost internet to low income households in urban areas.
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.
The future sustainability of DirecTV's strong performance, however, is not certain, since the satellite industry as a whole continues to be at a disadvantage due to its inability to offer broadband connectivity and lack of a true VoD solution. Furthermore, DirecTV's subscriber gains in Q3 came at a hefty price for the operator, which practically gave away its pricey NFL Sunday Ticket to lure customers. DirecTV pays a billion dollars a year for the Ticket, which may limit the company's long-term ability to use it as a customer acquisition and retention tool. The CEO of DirecTV recently revealed that the company is tightening belts in terms of spending, and that he plans to cut back on overhead, hiring and programming.
In any case, 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.
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