Will Third Quarter Confirm Notion that Multichannel Video Business has Peaked?

The second quarter decline in multichannel video subscribers--the first ever in industry history--might not have been a statistial abnormality.

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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Time Warner Cable, Cablevision Could Lose Franchises if Franchise Fees Drop 22.5% or More

New York City would have the right to terminate its franchise agreements with Time Warner Cable and Cablevision Systems if franchise fees paid to the city decline 22.5 percent or more from the level recorded in the peak year of service.

The latest provision applies for the period 2010 to 2020. Verizon's franchise expires in 2020 as well.

TWC, Cablevision Franchise Deals With NYC Include 'Cord-Cutter' Provision

U.S. Households Will Spend 17% Less on Electronics than in 2009

U.S. households will spend 17 percent less on consumer electronics devices in 2010 than they did in 2009. That rate of decline is the largest drop among the 20 countries surveyed by the International Data Corporation.

The emerging BRIC markets (Brazil, Russia, India, and China) are expected to lead the recovery with household consumer elecronics spending gains of more than 20 percent year over year.

U.S. consumers still own more devices (an average of 15.4 major devices per household) than in other geographies. Moreover, U.S. consumers still tend to buy higher-end devices with more features and functions than consumers in other markets.

As U.S. households shift toward notebooks, PCs will increasingly be viewed as personal devices, fueling long-term growth in notebook PCs as well as PC peripherals, IDC predicts.

With only 28 percent of U.S. households owning a smartphone, growth in this category is a sure thing, IDC says.

Although HDTV ownership has already crossed the 50 percent mark among U.S. households, the market is expected to grow, as well.

Each of those trends should be favorable for providers of mobile and fixed communication services.

IDC

Apple iPad to offer newspaper subscriptions?

Apple may soon introduce the ability for app makers to charge on a subscription basis, which would make devices like the Apple iPad an ideal device for newspapers and magazines.

That should set up an interesting test of demand. Will non-users decide they want to become subscribers of newspaper or magazine products? Or will iPad content subscribers be existing subscribers who simply want the convenience of online access?

Sources say that Apple will share the demographic data with the publishers and this is critical because that’s what a newspaper or magazine needs to effectively court advertisers.

Apple iPad getting newspaper subscriptions soon

FTTH Penetration Grows, But Relatively Slowly

The number of U.S. locations with a fiber-to-the-home connection available continues to grow. The number of customers who decide to buy services from those FTTH passings is growing much more slowly.

In part that is because there is a gap between facilities being made available and services being marketed.

But even when it is marketed, some of us would say the take rate is lower than we would have anticipated.

At the moment, about 36 percent of homes able to buy FTTH services actually do so. You can attribute much of the resistance to consumer willingness to stick with cable operator access services and the comparable value of cable triple play services, compared to telco alternatives.

New HTC Sense Brings the Phone to the Living Room

HTC has unveiled two new phones and the next generation of the Sense interface, aiming to bring the phone to the living room with DLNA support.

The Desire HD and Desire Z (otherwise known as the G2) both run the new Sense software that implements DLNA (Digital Living Network Alliance) standards for streaming video to televisions, wirelessly.

The new phones offer 720p HD video recording and editing, so adding wireless streaming to the big screen fits into HTC’s aim to turn its phones into lifestyle devices.

DLNA support is not just restricted to video streaming, as the HTC implementation will allow exchanging any content among phones and computers that are DLNA-ready. This opens up the ability to share media content with any capable device in the home.

The new features start to blur the distinction between "home networking," Apple TV, Tivo and Netflix functions and capabilities.

New HTC Sense

Acer Launching Android 3.0 Tablets in 5, 7, and 10-inch Form Factors

Acer appears to readying Android-powered tablets in 5-inch, 7-inch, and 10-inch screen sizes. The 5-inch version is aimed at the same niche area as the Dell Streak. The largest version obviously will compete with the iPad.

The interesting developments to watch are how popular each of the form factors turns out to be. To the extent that a tablet is primarily a content consumption device, the issue then becomes which form factor is deemed most useful.

Personally, I find the 10-inch form factor unwieldy, for that purpose. On the other hand, a 4.5-inch screen often strikes me as a bit too small, though that isn't the only consideration.

Overall size, weight and battery life are important considerations as well. At the moment, I'd say the big issues are battery life and size. About seven inches seems to me the best compromise between extended battery life and screen size. Any bigger and I don't want to carry it routinely. Any smaller and I'll just use my Evo.

Acer Launching Android 3.0 Tablets in 5, 7, and 10-inch Form Factors