Big 2015 Change in U.S. Linear Video Market: Cable Gains, Telcos Lose

The 13 largest linear video providers, representing about 95 percent of the market lost a net 385,000 accounts in 2015, marginally worse than the net loss of about 150,000 subscribers in 2014 and a net loss of about 100,000 subscribers in 2013, Leichtman Research says.

Keep in mind that those 13 suppliers have a collective 94.2 million subscribers, so even a loss of 385,000 net accounts represents just four-tenths of one percent of the base of customers.   

The big net change: cable TV providers did much better, telcos did much worse.

The top nine cable companies lost about 345,000 video subscribers in 2015, compared to a loss of about 1,215,000 subscribers in 2014.

Satellite TV providers added 86,000 subscribers in 2015 (including Dish Network OTT subscriptions). In 2014 the satellite providers gained 20,000 subscribers.

Excluding the Sling TV gains, DBS providers lost about 450,000 linear subscribers in 2015.

The top telephone providers lost 125,000 video subscribers in 2015, compared to a gain of about 1,050,000 net additions in 2014.

In the fourth quarter of  2015, the top linear TV providers added about 110,000 subscribers, more than the 90,000 added in the in fourth quarter of 2014.

The largest cable companies added about 125,000 subscribers in the quarter, the first quarter for net additions since the first quarter of 2008.

DirecTV net adds of 214,000 subscribers in the quarter were higher than in any quarter since the fourth quarter of 2010.

AT&T U-verse lost 240,000 subscribers in the quarter, compared to a gain of 73,000 subscribers in the same quarter of 2014.

Providers	Subscribers at End of 2015	Net Adds in 2015
Cable Companies
Comcast	22,347,000	(36,000)
Time Warner Cable	11,035,000	43,000
Charter*	4,430,000	11,000
Cablevision	2,594,000	(87,000)
Mediacom	855,000	(35,000)
Cable ONE	364,150	(87,067)
Other major private companies**	7,435,000	(153,400)
Total Top Cable	49,060,150	(344,467)
Satellite TV Companies (DBS)
DirecTV	19,784,000	167,000
DISH^	13,897,000	(81,000)
Total DBS	33,681,000	86,000
Telephone Companies
AT&T U-verse	5,640,000	(303,000)
Verizon FiOS	5,827,000	178,000
Total Top Phone	11,467,000	(125,000)
Total Top Pay-TV Providers	94,208,150	(383,467)

source: Leichtman Research

80% of U.S. Industries Have Yet to Reap Advantages of IT

source: Progressive Policy Institute

Machine-to-machine communications related to “Internet of Things” processes will account for roughly 35 percent to 47 percent of mobile data communications by 2030, argues Michael Mandel, Progressive Policy Institute chief economic strategist and a senior fellow at Wharton’s Mack Institute for Innovation Management.

By 2030, more than 1900 MHz of spectrum in the sub-mmW bands (three times the current availability) and at least 1.2 million cell sites (four times the current level) will be necessary, Mandel argues.

That forecast assumes dramatic increases in application of information technology to the 80 percent of private sector industries that have not yet reaped the gains of IT. 

Though “causation” arguably is difficult to establish, digital industries have had triple the productivity growth of the physical industries in recent years.

For the 14-year period between 2000 and 2014, productivity growth for digital industries has averaged 2.8 percent per year, compared to 0.9 percent for the physical industries.

“Today, tech/telecom spending per worker in the digital industries is almost seven times that of the physical industries,” Mandel says.

The gap matters, Mandel argues, because  physical industries make up roughly 80 percent of the private sector. In other words, only 20 percent of private sector industries have fully taken advantage of information technology.

Much information technology investment over the last several decades has mostly occurred in segments of work that involve “digital” products or output, such as such as professional services, finance, entertainment, or that involve digital buying, even if fulfillment is quite physical, such as retailing or other commerce.

Likewise, parts of life such as education, game playing and communication.

The perhaps-obvious corollary is that the benefits of information technology have yet to transform “physical” industries to the same extent as “digital output” industries.

Slow productivity growth is correlated with the failure of “physical” industries such as manufacturing, healthcare, and construction to make good use of digital technologies, Mandel argues. “Successfully digitizing physical industries will require a vast increase in remote sensors and remote-controlled devices such as cars, drones, and construction equipment,” he argues.

Those sensors and processes will monitor and control construction drones, self-driving snow plows, industrial processes and micro-pumps to precisely control insulin and other hormones in the body, for example.

Are Households Spending More, or the Same, On Communications, as a Percentage of Income?

It is hard to tell exactly what percentage of household or personal income U.S. residents now spend on communications services, including entertainment video, mobile, fixed voice and Internet access.

One issue is that U.S. statistics collected by government agencies often do not break out “Internet access” as a category, though “mobile” and “fixed network voice” are counted. So there always is the possibility that Internet access should be added to estimates of “telecommunications spending as a percent of income” (household or individual).

Likewise, spending on “entertainment” often includes movie theater tickets, spending on pets and other amusements, not just linear or OTT video subscriptions.

Historically, one might have argued that U.S. households spent about two percent of income on communications (exclusive of video entertainment).

By about 2008, 2.5 percent of income was a reasonable description of consumer spending on communications.

Since then, it might be reasonable to argue that spending on mobility and Internet access services has grown. The caveat is that mobile average revenue per user likely has fallen, even if the number of users and connected devices has grown.

Internet access (fixed network) average revenue per account probably has been relatively flat. But some estimate Time Warner Cable has been able to obtain higher ARPU, growing from $40 a month in 2009 to over $54 per month in 2014, as users have migrated to faster tiers of service that cost more.

source: nScreen Media

All that noted, there likely is a bias towards a slightly-higher consumer spending percentage for fixed network communications services, since at least 1990.

But it is complicated. Much-higher spending on mobile services is countered by widespread abandonment of fixed network voice services.

Competition in the high speed access market is fierce, which arguably limits revenue increases, but higher-speed services costing more money also are gaining traction.

Video account prices tend to climb every year, but take rates also are dropping.

And, overall, most triple-play providers are bundling services, and offering consumers effective price discounts when buying such packages.

source: Bureau of Economic Analysis

A study by iYogi in indicated in 2012 that U.S. consumers spend as much as four percent of income on phone and Internet services, and certainly more than they spend on utilities. That math is not hard.

Utilities are “whole household” services, while mobile services are “per person.” Any household with multiple mobile users is likely going to spend more on mobility than utilities (electricity, gas, water).

source: iYogi

source: Michael Mandel

The main point is that it is very hard to tell whether the percent of income U.S. residents spend on communication services is growing or flat. The only unlikely trend is that aggregate spending is declining.

The other imponderable: is typical household income growing, flat or shrinking? Holding everything else constant, growing income reduces the percentage spend on communications. Shrinking income boosts the spending percentage.

Most of you would likely agree that there is only so much incrementally higher spending any household or individual will undertake, no matter how much more income grows.

On the other hand, most of you also would tend to agree that declining househld or personal income will likely lead to less spending on communications. That might, or might not, change the "percentage of income" metrics.

The bottom line is that upside spending growth is limited, while downside spending is more linearly related to income drops.

Mobile Represents 73% to 80% of U.S. Household Spending on Communications

In most U.S households, and definitely for households with more than the “mean” number of household members (2.5), spending on mobile services virtually certainly outpaces spending on all other services, as well as topping spending on component subscriptions (high speed access, all entertainment video and fixed network voice).

From 2007 to 2014, expenditures for mobile phone services increased from a range of 38.7 percent for one-person consumer units to 70.9 percent for consumer units of five or more persons, according to the U.S. Bureau of Labor Statistics.

One-person consumer units have the lowest share of cellular expenditures compared with telephone service expenditures for all household size groups, but the share increased from 49 percent in 2007 to 64.3 percent in 2014.

In contrast, fixed network voice accounted in 2014 for just about 27 percent of household spending. The perhaps-obvious question is how much is spent on high speed Internet access, something hard to glean from Bureau of Labor Statistics data.

source: Bureau of Labor Statistics

In households with five or more people, mobile accounts for about 80 percent of spending on “telecommunications.”

source: Bureau of Labor Statistics

source: Bureau of Labor Statistics

From 2007 to 2014, expenditures for mobile phone services increased from a range of 38.7 percent for one-person consumer units to 70.9 percent for consumer units of five or more persons.

One-person consumer units have the lowest share of cellular expenditures compared with telephone service expenditures for all household size groups, but the share increased from 49 percent in 2007 to 64.3 percent in 2014.

PC Market Still Growing in Latin America, Africa, Middle East; Ultraportables and Chromebooks

The personal computer market still is growing, despite perceptions of demise, according to researchers at ABI Research. In part, that perception is driven by the ways researchers categorize PC sales, now driven by portable units.

Also, sales growth also now is driven by buyers in Latin America, Africa and the Middle East, so growth might be as visible in Asia, North America or Europe.

To be sure, 2016 shipments of laptops wil fall nearly three percent, after a dip of one percent in 2015. But “ultraportable” shipments, which fell three percent in 2015, will grow nearly 11 percent in 2016.

And Chromebooks, which some might not consider “PCs,” grew 27 percent in 2015 and will grow about 21 percent in 2016, ABI Research forecasts.

Notebook PC Segment YoY Change (%)
	2015	2016
Chromebook	27.1%	21.2%
Laptop	-1.0%	-2.8%
Ultraportable	-3.2%	10.9%
Total	-0.5%	0.4%

source: ABI Research

Notebook PC Segment Shipments (Millions)
	2015	2016	2021
Chromebook	6.2	7.6	11.6
Laptop	129.7	126.1	116.3
Ultraportable	27.1	30.0	41.2
Total	163.0	163.7	169.1

ABI Research predicts that ultraportable PCs will constitute more than 24 percent of total notebook PC unit volume in 2021.

Chromebooks will continue to dominate the education market in 2016, as school initiatives drive toward 1:1 student deployments with a technology device.

And though the majority of Chromebooks historically shipped in the United States, the education trend is beginning to see growth in other regions, notably Western Europe.

ABI Research predicts that Chromebooks will represent nearly seven percent of all notebook PC shipments in 2021.

In all, data suggests regional growth from the notebook PC category will stem from Latin America, the Middle East, and Africa over the next five years.

Skinny Video Bundles a Logical Response to Growiing Consumer Resistance to Price Increases

Stability of consumer spending patterns is one reason why more linear video suppliers are embracing “skinny” content bundles whose primary attribute is that they cost less.

Since linear TV now is a core “telecom” product in consumer markets, that also means consumers will evaluate their buying choices through a very sticky lens. Households and consumers tend to spend only about two to three percent of income on all communications-related products.

When one category grows--such as mobility--some other category is dropped (such as fixed network voice). If spending on high speed access or any other component grows, then something else has to give.

Ever-higher linear TV bills are no exception. Facing such trends, consumers are going to cut back, to shift spending to mobile data and fixed high speed access.

Eventually, one might argue, they also might consider spending more on mobility and less on fixed services overall, if 5G starts to offer value-price bundles that support video consumption and high speed access requirements.

That--for decades--has been a hope of many mobile executives. The fundamental reality is that consumer budgets for all communication services (and that now includes many forms of entertainment video) is rather fixed. Prices cannot rise in any category without hard choices in other areas.

Device costs also are an issue. It is not clear whether $600 or $800 smartphones come out of a “consumer electronics” or “communication services” bucket. It likely is a combination of both categories. But that also means more attention will be paid to other services to deemphasize, so the pricey smartphones can be purchased.

Though U.S. households have gradually begun spending more on communications services over the past couple of decades, between 1990 and 2008, for example, the rise was fairly slight.

Consumers boosted spending from 1.8 percent of income to about 2.3 percent of personal income. Since 2008, some studies show a further increase.

At least one study of U.K. expenditures suggests communications spending could in some cases represent 12 percent of spending, while U.S. consumer spending on communications could have increased five percent, a possible historic increase level, between 2007 and 2010.

That five percent increase represents higher spending on linear TV, mobile and fixed services. Keep in mind, that does not mean the “percent of income spent on communications,” just the increase. Note that “telephone equipment” largely represents spending on mobile phones.

In fact, if spending on mobile phones and services has grown significantly, something else has given way. Since 2007, consumer spending on mobile services (per household, average of 2.5 persons per household) has been greater than spending on fixed services, according to the U.S. Bureau of Labor Statistics.  

By 2014, in fact, about 73 percent of all “telecom” spending per household was for mobile services.

in 2014, spending per household--including telecom and audiovisual equipment and services, amounted to about 4.4 percent of household spending. It is not immediately clear where spending for high speed access appears. If not captured by government data, then it is certainly possible that household spending on communications has reached five percent, or more, in some cases. It is hard to say for certain.

But the point is that consumer ability to buy communication services is rather finite. At whatever level you believe is current (2.5 percent to five percent per household), there will be resistance to increasing the percentage of spend much more.

That means prices cannot continue to climb, for every component service, without cutbacks, someplace.

So skinny video bundles appear an ever more likely response to consumer resistance to price hikes. Given a choice between spending less on Internet access, entertainment video, mobility or fixed voice, which priorities would you have?