Time Warner Cable's basic video subscriber loss matched our expectations. The company is under significant competitive pressures from the IPTV operators in two of its biggest markets, New York City and Los Angeles. Furthermore, the three-month period ending in June was particularly difficult for most consumers in the USA, including TWC's subscribers, facing rising fuel prices and rising unemployment. Unsurprisingly, many economically-distressed American households dropped their TV subscriptions as they diverted a greater portion of their disposable incomes toward energy and rising food prices. Other distressed households that did not drop cable entirely chose to forego additional services such as DVR, on-demand and premium channels.

With that said, we estimate that most cable operators experienced similar subscriber declines in the second quarter. Not only did their customers come under the same economic pressures as TWC's subscribers did, but many operators opted to raise their monthly fees during that period, which may have accelerated churn among low-income and value-minded consumers.

In contrast, IPTV operators' growth has shown no signs of slowing down. In fact, FiOS and U-verse added slightly more video subscriber during the second quarter of this year than they did during the same period in 2010. As mentioned earlier, FiOS and U-verse's footprints are lightly penetrated which leaves room for growth for years to come. The continued strength of the IPTV sector must be reassuring for the pay TV industry as a whole, but not enough to dispel fears that the industry may experience another contraction similar to what happened last year when the number of TV subscribers declined two quarters in a row.

On the upside, all three operators have grown their video ARPUs. TWC, for example, grew its video ARPU one per cent quarter-on-quarter and four per cent year-on-year. IHS Screen Digest estimates that other cable operators have accomplished similar ARPU growth rates, which will be confirmed as they report their Q2 2011 results over the next few days. Needless to say, increases in video ARPU bode well for cable operators which need to offset lost revenue from churning video subscribers and cover increasing programming costs. However, sustaining such ARPU growth in the future without inducing even higher churn rates may become increasingly untenable - especially if economic softness persists - a reality that all players in the industry including operators, content creators and network owners would have to address sooner or later.