Weak Economy, Not Cord-Cutting, Drives US Pay-TV Subscriber Decline by 167,000 in the Second Quarter

The number of U.S. households buying multichannel video entertainment services fell in the second quarter for the first time (down 167,000 subscribers across all platforms). What remains unclear is whether the unusual decline is just an anomoly, or the beginning of a pattern. And even if some sort of pattern develops, does it portend some change in demand for the product, or simply financial stress which is causing consumers to temporarily suspend their purchases?

Though nobody can be sure, analysts at In-Stat argue that the decline is caused by the poor economy.

"There are several reasons behind the quarterly subscriber loss," says Mike Paxton, Principal Analyst. "While growing availability of over-the-top Internet video is spurring talk of mass 'cord-cutting,' this decline is not about cancelling pay TV in favor of Internet video."

"The main driver of these subscriber declines is the struggling U.S. economy and high unemployment," Paxton argues. If that is the case, some forecasters might ultimately project a return to growth. If high unemployment is causing the defections, a return to normal levels of employment should bring customers back.

There are a couple of issues, though. If forecasts of a return to "normal" employment (defined as pre-2008 levels) are correct, we might not see a full restoration of underlying job conditions until 2012 or later. That will mean a period of some years until anybody can really assess what is happening.

The other issue is that the attractiveness of alternatives will increase over time, though most observers probably do not believe alternate channels will make sense for another three to five years.

The point is that we might be in for a few, or several years where subscriber growth in the multichannel video business will be quite constrained, then face a period where demand might well be shaped by adoption of alternatives.

Either way, it now appears that multichannel video entertainment is at the point fixed-voice services reached in 2000 or 2001, depending on which data source one wishes to use: namely a historic high-water mark. After 2001, all data suggests, the number of fixed-line voice subscribers has steadily fallen.

Whether we have reached such a clear turning point for video is not yet clear, and will be difficult to assess because overall economic conditions will keep pressure on the business for a few to several years. The other unknown is the suitability of alternate consumption modes.

Weak Economy, Not Cord-Cutting, Drives US Pay-TV Subscriber Decline by 167,000 in the Second Quarter of 2010, Says In-Stat: