Verizon, AT&T gain subs as MSOs gird their loins and the cord cutting debate revives

editor's corner
Jim O'NeilLike reality TV, the cord-cutting debate just keeps going and going, and cable operator subscriber reports in the next couple of weeks are likely to add a little fuel to that fire.

This should be an ugly couple of weeks for cable operators as second-quarter subscriber numbers are reported. The quarter traditionally is one of the weaker periods for MSOs, and analyst outlooks are predictably grim.

Bernstein analyst Craig Moffett called the coming weeks "dismal," and he said he expects Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and the rest of the MSOs to report losses of 300,000 or more for the quarter.

But while the outlook for MSOs may be grim, things already are a little brighter for tecos.

AT&T (NYSE:T) last week said it added about 202,000 U-verse TV subscribers this quarter, vaulting it past Cablevision (NYSE: CVC) and making it the eighth largest pay TV operator in the U.S. with 3.41 million subscribers. That amounts to 36 percent more subs than the company had a year ago.

"U-verse has transformed our consumer business," AT&T CFO John Stephens said during a earnings call.

The telco said its U-verse services now reach 29 million living units, with its target of 30 million reachable by the end of the year.

Verizon (NYSE: VZ), meanwhile, said its FiOS TV service also attracted more subscribers. The company said it added 184,000 new FiOS TV subs, bringing it to the 3.8 million mark and making it No. 7 on the pay-TV list.

And, even though the strong showing of telcos (and an expected 75,000 gain from DirecTV) should result in a net gain for the quarter, SNL Kagan last week threw a little water on the celebration.

It predicted that, although pay-TV subscriber numbers would grow, the growth wouldn't keep up with household formation, and that OTT and substitution services like Hulu Plus, Netflix and the weight of on-demand services coming out would continue to eat away at the subscriber base.

In fact, SNL Kagan said, it estimates 4.5 million households will look to online video instead of pay-TV for their entertainment by the end of 2011. Granted, that is only 4 percent of the market.

But the research company paints a grimmer picture down the road, saying the number could grow to 8.6 million in 2013 and 12.1 million in 2015, nearly 10 percent of U.S. homes.

"The evident subscriber plateau posted by multichannel service providers supports the moderate emergence of over-the-top substitution," SNL Kagan said. "The industry reversed the first-ever declines in the second and third quarters of 2010 to produce a small overall increase for the full year. The modest subscriber gain was neither convincing enough to dispatch the threat of cord cutting nor dismiss the impact of over-the-top substitution."

On Monday, meanwhile, Leichtman Research Group released its own study on cord cutting; it contends the phenomenon is overblown. Even though, it reports, cable added 853,000 broadband subscribers (and telcos added 425,000 more) in the first quarter, only five percent of them are cord cutters... today.--Jim

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