Pay-TV industry shrinks for first time

Analysts see the pay-TV industry facing a new competitive threat in the Internet. Verizon is among the providers planning to allow subscribers to watch live shows on Apple Inc.'s iPad.
Analysts see the pay-TV industry facing a new competitive threat in the Internet. Verizon is among the providers planning to allow subscribers to watch live shows on Apple Inc.'s iPad.
Posted: September 01, 2010

Squeezed by a weak economy, faltering housing markets and the Internet, the pay-TV industry shrank for the first time ever in the second quarter, according to leading research firm SNL Kagan.

The industry - made up of cable, satellite and telephone companies offering TV services - slipped by 216,000 TV subscribers to a total of 100.1 million subscribers, according to the report. SNL Kagan has tracked pay-TV subscriptions since the early 1980s.

No one was saying Tuesday that the pay-TV industry was on the ropes. But there was a sense among analysts that the industry is facing a new competitive threat in the Internet and a tough economy.

Vacant and foreclosed homes, in addition to a limp new-housing market, have been a lingering problem for the industry.

"It may be a blip on the screen, but there is concern that it could become part of a larger trend," said Rebecca Arbogast, a managing director of Stifel Nicolaus. "There is a lot of instability in the video-distribution model right now."

Kevin Werbach, a Wharton law professor and former staffer with the Federal Communications Commission, said: "At some point the market reaches saturation. That point had to come."

Ian Olgeirson, senior analyst with SNL Kagan, said: "This was not an inflection point where we will see a downward trend from here." But, he said, "it is definitely a signal that multichannel saw some hard times and is facing pressure from a whole lot of directions."

Olgeirson attributed the industry drop in the period to a "confluence of events" - seasonality, the recession, and the government's digital transition in 2009. There might not be another down period for the pay-TV industry until the second quarter of 2011, he said.

According to the report, telephone companies, such as Verizon Communications Inc., added 414,000 TV customers in the second quarter, and satellite-TV companies added 81,000 customers. Cable companies, meanwhile, shed 711,000. Part of that number was an estimate of privately held cable companies.

Philadelphia's Comcast Corp. lost 265,000 TV subscribers, or 37 percent of cable's total. Comcast is the nation's largest cable-TV and residential-Internet provider.

Comcast noted in its second quarter conference call that it lost some TV customers who had enrolled at deeply discounted pay - TV packages in 2009 when the government ordered over-the-air broadcast-TV stations to switch to digital transmissions from analog.

The switch forced people to purchase digital-ready TVs or special digital-converter boxes. Comcast offered cable service at $10 a month to those customers, who then balked at re-signing at a higher monthly price this year when the special offer expired.

This was an industry-wide trend, according to analysts.

"The multichannel video industry has been maturing and is also quite competitive. These dynamics are negatively impacted by the economic and housing issues," said Michael Angelakis, Comcast's chief financial officer. He added that "Comcast continues to grow our business and provide more services to our customers."


Contact staff writer Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.

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