Analyst: Can't discount OTT pressure when looking at continuing cable subscriber losses

OTT and cable subscriber lossesWhether it was the economy, cord cutters or some as-yet-to-be-determined factor that prompted 741,000 customers to ditch their subscriptions to cable TV in the third quarter, it nonetheless was a surprise to SNL Kagan senior analyst Ian Olgeirson.

"It's a hard one to pinpoint at this juncture," he said in a telephone interview with FierceIPTV. "Obviously, a second quarterly decline in a row, especially since until the second quarter we'd never even seen a single quarterly decline, is a little unusual."

SNL Kagan said third quarter was the largest dip since it started tracking subscriber numbers in 1980. The cable industry lost some 714,000 subscribers in the second quarter, as well, in what has become a torrent of subscriber defections.

"It's disconcerting from a multichannel operator standpoint, as well," Olgeirson said. "Especially that it happened in the third quarter, which is supposed to be a strong quarter for operators."

And, although the cable companies are maintaining that a weak economy, high unemployment rate and elevated churn rate of former over-the-air customers are to blame, Olgeirson said operators can't ignore the possibility that an increase in over-the-top substituters could be playing a role.

"It is becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance," he said, "particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains due to seasonal shifts back to television viewing and subscription packages.

"I would be surprised if in December we see another negative quarter... of course we were saying that in the second quarter bout the third quarter as well. But, if we do, then operators can't continue to use the broadcast transition to digital as an excuse as a real source of churn. We'll have a better sense of how deeply the cord cutting really is affecting the space."

Telco multichannel offerings, meanwhile, continued to show growth in the quarter, Olgeirson said, adding 476,000 customers and pushing its market share to 6.4 percent, a 36 percent increase from a year ago. Satellite operators also have seen their share of the market improve from a year ago, albeit slightly, to 33.2 percent, up about 1 percent, after adding 145,000 subscribers.

Both types of service, he said, benefit from pent up consumer demand for a second alternative to cable.

"As telcos launch their products, they tap into that demand," he said. "The bottom line is that cable operators do have the most to lose in terms of subscribers."

Cable's dismal showing for the quarter ended up pushing overall subscriber numbers down about 119,000 for the quarter. In 2Q2010, the multichannel market dropped for the first time ever, losing 216,000 subscribers.

Olgeirson said he knows operators are aware that cord cutters pose a risk to their businesses, and he said efforts like TV Everywhere are a vital retention tool for operators.

"There are a lot of big business models tied up in the distribution of content that are put into jeopardy by the rapid erosion of the multichannel space," he said. "Multichannel service operators have taken steps to try and combat that; steps that include things like Comcast's TV Everywhere platform."

Of course, he said, the picture remains a little murky for service providers.

 "If you look at the actual demographics of cord cutters you hear about, they're well-educated, young and financially secure," Olgeirson said. "That flies in the face of who operators say they are. We'll be able to get a better idea of that in the fourth quarter."

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