Video Entertainment Decline Seems Not to be a Blip

Much was made of a first-time-ever decline in multichannel video subscibers in the second quarter. So the big issue became "what will happen in the third quarter?"

Though all of the data is not available (some firms are private and do not have to report), it does appear that the second quarter decline was not a one-time anomaly.

Dish Network lost about 29,000 net subscribers during the third quarter of 2010. CableVision Systems Corp. lost 24,500 basic video subscriptions in the quarter. Comcast earlier reported a loss of 275,000 subscribers in the third quarter, while Time Warner Cable says it lost 155,000 video subscribers, representing a collective loss of 483,500 customers.

Verizon's FiOS TV service had an increase of 204,000 net new subscribers, while AT&T's U-Verse had an increase of 236,000 new video subscribers. That represents a gain of 440,000 subscribers. DirecTV added 174,000 net new U.S video customers. So telcos and DirecTV gained a net 614,000 net new customers.

Based on what happened with the major public companies, telcos and satellite companies (at least DirecTV) gained 130,500 more customers than the cable companies and Dish Network lost.

So here's an exercise to figure out what might have happened. Comcast, Time Warner Cable, Cox, Charter Communications and Cablevision Systems between them represent about 80 percent of all U.S. cable video customers.

Comcast and Time Warner represent 59 percent of all U.S. cable video customers. So asume every cable operator lost customers at the same rates as Comcast and Time Warner.

That would suggest overall cable industry losses at about 728,800 customers. If the telco and satellite competitors gained 614,000 net new customers, that leaves 115,000 customers who simply stopped buying.

But what that that means for the "video cord cuttting" thesis is unclear. We don't know whether the estimated 115,000 lost customers corresponds to reality. If the number is mostly correct, we don't know whether the change in behavior is permanent or temporary.

But it seems possible that the overall size of the U.S. multichannel video market is contracting at the moment. It seems to have done so for two quarters in a row, an unprecedented event. Whether that means a shift to over-the-top video consumption, a shift to over-the-air viewing or something else cannot yet be determined. Nor can we tell whether the behavior is temporary or permanent.

But the cord cutting thesis cannot be discounted. Up to this point consumers seem to have responded to tougher times by cutting back on premium services, pay per view and other ancillary services that have been driving cable video revenue growth. Over the last two quarters, consumers might be cutting even more than that, abandoning video service altogether and perhaps shifting scarce discretionary income to other services deemed more important, such as mobile or broadband services.