Rob Marcus, Time Warner Cable CFO says Time Warner Cable is on track to lose customers in the third quarter, with the weakness attributed to the economy. If that winds up happening at some other leading cable, satellite or telco companies, we could have a trend developing that could suggest the multichannel video industry finally has hit the wall, and has stopped being a growth industry.
According to researchers at SNL Kagan, the multichannel video entertainment market, which basically has grown in virtually unbroken fashion for decades, suffered its first-ever decline in the second quarter of 2010.
There was some continued shift of market share from cable and towards satellite and telco providers. But those shifts also were accompanied by an apparent net loss of 216,000 subscribers in the multichannel marketplace as a whole, compared to a gain of 378,000 in the second quarter of 2009.
Observers who have been watching what has been happening in some other legacy businesses, especially fixed-line voice services, are familiar with similar processes: gains for competitors and losses for the top incumbents. But there is more at work that market share gains and losses. Over the last decade, the total number of customers available for anybody to get has been dropping.
"Cable TV" has been a mature market for some time, but still has managed to eke out small gains, year after year, despite gains by satellite and telco competitors. But that appears to have hit a possible inflection point in the second quarter. More data, over more time, will be needed to confirm the possible trend, but it would be a historic watershed if the market actually shrank for the first time.
Cable was down a combined 711,000 subscribers, with six of eight top cable companies recording their worst losses ever. By contrast, satellite providers added a combined 81,000 subs and telcos netted 414,000.
Cable's combined share of the market was down to 61 percent from 63.6 percent in the second quarter of 2009.
Telcos now claim six percent of the video market, up from 4.3 percent year over year. It is tough at this point to figure out how much the economy and moribund housing market had to do with the results. Both those trends would normally be expected to slow the market.
But most observers also are watching for signs that alternative channels, ranging from online video to DVD rentals, are having an effect as well. So far, there has been scant evidence of any significant shift of viewing habits.
Some people, for all sorts of reasons, seem willing to live without paying for cable, satellite or telco-provided multichannel video entertainment. But most people appear not to see the advantage of cord cutting.
To be sure, there is an argument that the second quarter was a statistical anomoly. There has been no break in the growth trend line for multichannel video subscriptions, argues Michael Turk, a political and communications consultant. He chalks up the second quarter decline of 711,000 total industry subscribers as an artifact of "artificially" higher sign-ups as the broadcast digital TV transition occurred, a process that lead to higher-than-typical signups, followed by slower demand in the aftermath, but well within the historical growth profile.
The digital TV transition a year ago caused cable operators to offer temporary subscription discounts as a way of luring formerly-resistant consumers. It is possible that the expiration of deeply-discounted offers has lead some customers to churn off.
More likely, the temporary offers had similar effects as auto and housing credits recently have had: demand was simply pushed forward, leading to a decline of growth rates in subsequent quarters as the promotions expired.
If one subtracts out those who dropped cable when their discount expired, cable actually netted about 100,000 new subscribers in the second quarter of 2010.
But Time Warner Cable's guidance about the third quarter suggests there might be something to the notion that the video business has topped out.
Marcus said that Primary Service Units (or PSUs, a measure of voice, video and data customers) will likely fall below second quarter levels, for example.
"Video in particularly has been challenged," Marcus said. "Video net losses are pacing ahead of where they were in last year's Q3, voice growth is slower than it was last year and HSD [high-speed data] while the strongest performer, is still lower than last year. The net-net of all of that is that we may actually see a PSU loss for Q3."
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