Goodbye, Fat Cable Bills

Even couch potatoes have had enough.

Media market research specialist SNL Kagan is reporting that the country's pay television industry suffered its first period of net subscriber losses this past quarter.

All but two of the eight leading cable providers posted their worst quarterly defections ever, combining to shed 711,000 accounts. Satellite television giant DIRECTV (NYSE: DTV  ) and aggressive marketing by AT&T's (NYSE: T  ) U-verse and Verizon's (NYSE: VZ  ) FiOS have usually been there to catch the fleeing, but telcos and satellite television providers only tacked on 495,000 new subscribers, sequentially. Add it up and pay television lost 216,000 homes during the quarter.

SNL Kagan is advising GigaOm's NewTeeVee to view the slip as an anomaly. It expects the industry to actually gain 900,000 net subscribers during the second half of the year.

I wouldn't bet on it.

SNL Kagan explains the blip, in part, on folks that signed up for cable packages when broadcasters kissed analog goodbye. Now that their low introductory rates are over, consumers shocked over their gargantuan cable bills are cutting the cord.

I get that, but there are other things likely in play.

On the macro level, the housing industry's collapse has created a glut of vacant homes. Families are unloading their vacation getaways. Speculators aren't juggling properties. Empty homes don't need cable.

It's also impossible to ignore the allure of digital distribution.

Netflix (Nasdaq: NFLX  ) continues to flesh out its digital catalog, offering unlimited streams along with DVD rentals for as little as $8.99 a month. Networks offer many of their shows as free ad-supported streams. Commercial-free downloads are available cheaply on a piecemeal basis.

The pay television industry may be doomed on both ends. Lower-class audiences may not be able to pay the annually escalating fees. Middle- and upper-class homes with Wi-Fi connectivity may not need to, especially now that everything from a TiVo (Nasdaq: TIVO  ) box to a Microsoft (Nasdaq: MSFT  ) Xbox console can scour the Web for video. Even if most subscribers don't cancel their accounts entirely, the incentives are certainly there to shed premium movie channels and broader programming packages.

So where exactly will these 900,000 new families of couch potatoes come from? Rural families mourning the loss of their Movie Gallery DVD rental shop? A booming economy that finds the affluent snapping up second homes again? The digital revolution may get in the way of the expected bounce.

Seriously, I can't be the only one to think that pay television -- in terms of sheer subscribers and the amounts that they are willing to pay -- peaked during the quarter.

Can pay television in this country bounce back? Share your thoughts in the comment box below.

Microsoft is a Motley Fool Inside Value pick. Netflix is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is guilty as charged on still paying for cable, though he will likely scale back his premium package later this year. He does not own shares in any of the stocks in this story, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it knows that roaming charges weren't billed in one day.


Read/Post Comments (25) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 24, 2010, at 12:11 PM, alamoflyfisher wrote:

    I am a recent satellite drop out! Over the air HD local channels coupled with a Netflix account meets my needs. The change has resulted in a net savings of $78 per month or $936 per year.

  • Report this Comment On August 24, 2010, at 12:25 PM, pondee619 wrote:
  • Report this Comment On August 24, 2010, at 12:45 PM, Indyjh wrote:

    As a recent Comcast defector, I know why I left. Our cable/internet bill was going up almost 20% per year for the last two years. Its just not worth it. Direct TV isn't any bargain either, but they have more channels and more of them are digital. In two years when the promotional rate expires, we'll switch again. I know I'm not alone on this.

  • Report this Comment On August 24, 2010, at 12:46 PM, timmythetiger wrote:

    The industry can do itself a favor and stop bundling everything (How many people need or even want a digital phone? I thought the cell phone companies won that battle already...) and let customers pick services a la carte. Having a subscriber pay only for channels they want and for services they want might bring in less revenue, but losing subscribers is exponentially worse to a stodgy industry built on old-fashioned subscriber based-metrics.

  • Report this Comment On August 24, 2010, at 1:53 PM, ejclason2 wrote:

    I have lived without cable for over 13 years. And with over the air HD-TV and Netflix it's getting easier all the time.

    If pay TV ever wants to get my business, they'll need to do what timmythetiger suggests and offer a la carte channel selection. There are about 1/2 dozen cable channels that I would like, but I'm unwilling to pay for all the other channels that are in a package. Maybe shrinking subscriber bases will force pay TV to get creative and offer a la carte channels.

  • Report this Comment On August 24, 2010, at 2:30 PM, TMFHousel wrote:

    I dropped cable a few months ago and hooked my TV up to a laptop. Hulu has been my new best friend. I don't miss cable in the slightest.

  • Report this Comment On August 24, 2010, at 2:38 PM, xuincherguixe wrote:

    I don't miss TV all that much either. I have more time for reading now. Should have disconnected years ago.

  • Report this Comment On August 24, 2010, at 2:39 PM, dargus wrote:

    I'm with timmythetiger and ejclason2. I've gone without cable for over a year now and still see nearly everything I want to, even if I'm forced to wait a bit. I'd love to buy a handful of channels, but I'm not willing to pay a minimum of $50 for basic cable, and at least $80 for digital. Stop forcing consumer into bundles of channels.

  • Report this Comment On August 24, 2010, at 3:02 PM, calncorp wrote:

    I just recently signed up for Comcast internet only, and the salesman seemed visibly saddened he couldn't sell me cable also. But did he really expect to?

    First point: In my new home (actually a college apt for myself and 1 friend) we brought one, ~22 inch, no-hd, no-flatscreen television. But we each brought one laptop (both having a min. HD resolution) and I brought a desktop (with a very high-res screen).

    Second point: To get in the door, the salesman lead with the internet - a great deal at ~$30/mo. Then he offered digital tv including some premium channel - for just $50/mo extra!

    So wait Mr. Salesman, you want to sell me internet to provide infinite content on our multiple devices at insane speeds, for less money than to sell me Comcast-selected content, filtered heavily by the gov't and littered with commercials? And you want me to buy *ahem* BOTH?

    This is why a lot of providers are going to start hearing - "I'll just take the internet please!"

  • Report this Comment On August 24, 2010, at 4:33 PM, boogaloog wrote:

    Maybe people are finally getting sick of sitting on the couch watching mindless drivel while getting fat munching on the nearest piece of fat-laden processed food? I got rid of my xbox a couple years ago, and cable last year. The less I have the less I want. I used to watch about four hours each weekday, and 10-12 hours each day on weekends. I now watch three or four 30 minute sitcoms a week, and am realizing I don't even enjoy the time I spend watching them. I'm down to only watching when I need to kill a little time (i.e. not quite ready for bed, but don't want to rev up my brain by starting something new). It all started as a financial decision, but it has been a blessing to my relationship with my wife & daughter.

  • Report this Comment On August 24, 2010, at 5:06 PM, TMFBreakerRick wrote:

    I have nothing to add to this thread, other than to point out how refreshing all of the reader posts have been.

    Well done, everyone!

  • Report this Comment On August 24, 2010, at 5:17 PM, outoffocus wrote:

    Well if they weren't screwing people over with unsubstantiated cost increases and unnecessary bundles, maybe they wouldn't be losing subscribers. I almost dropped my FIOS because of that. But instead I just called and complained and they lowered my price and upgraded my service. I tell you what, if (God Forbid) I ever get layed off, the cable would be the first to go and I would just keep the internet. The internet is a necessity, cable is a luxury.

  • Report this Comment On August 24, 2010, at 8:56 PM, SmoothHughes wrote:

    Between Netflix and all the content available thru my internet connection I am really questioning my $100 monthly outlay to DirecTV. The service is great but I pay for mostly channels I don't watch. The best TV shows we get with Netflix, albeit with a delay. The only programming I would miss if I cut the DirecTV cord is some sports and over-the-air HD should cover most of that. I think the pay-for-package-channels model is in real trouble long-term.

  • Report this Comment On August 25, 2010, at 8:52 AM, BMFPitt wrote:

    If I could get live NFL and NHL streamed in HD to my XBox, I would drop my DirecTV in a heartbeat.

    Sadly, this isn't going to happen anytime soon. (You can get NHL streamed live, just not anywhere near HD quality when viewed on a decent size screen.)

  • Report this Comment On August 25, 2010, at 10:13 AM, Ivan0310 wrote:

    I haven't had cable-tv since college when the bill was being split four ways and we had all the bells and whistles. I don't watch TV enough and when I do it's usually episodes from Hulu being piped into my TV through an HD connection from my computer in the next room.

    DTV conversions with OTA HD reception, home WiFi networks and the recent advent of powerline adapters for everything from internet to audio and video will be the downfall of pay-for television. People can't live without their internet now-a-days, but they can come up with an infinite number of cheaper/free alternatives to their cable and satellite. Let's just hope that net neutrality triumphs in the end.

  • Report this Comment On August 25, 2010, at 12:32 PM, kwl1763 wrote:

    I for one will be keeping my cable. I get internet cable bundle and yes the cable portion costs around $50 a month with DVR.

    With the exception of sports (mostly just NFL even at that) I watch maybe 3-4 a WEEK of live TV. I record maybe another 4-5 hours on the DVR and watch usually right before bed.

    It's worth the $50 a month for me even though I am a "light" user.

    Satellite with my same package (DVR, HD, 5 rooms) would be almost twice as much. I used to have Directv and loved it but it cost significantly more when I added up internet and TV together. I miss Sunday ticket in a huge way but the price in the past few years has just come to a point it's not worth it to me.

  • Report this Comment On August 26, 2010, at 3:13 PM, blackmare wrote:

    Here in the Twin Cities, Comcast has the market under its thumb and they are awful. They outright lie about what their services cost, and I've even had them admit that they prefer NOT to change out bad pole equipment in neighborhoods they consider less important. Please note that this wasn't the ghetto, either, but simply a long-established middle-class Minneapolis neighborhood where we were all having constant outage problems.

    We ditched the cable, kept the internet and weren't sorry. I've just moved to a new place where there's (Comcast) cable again, but it's still in the promotional-rate stage and will be dropped when that expires. We'll be fine with the internet and maybe Netflix, thanks.

  • Report this Comment On August 27, 2010, at 8:44 AM, mentonnaise55 wrote:

    Why is it that we can have high speed DSL, unlimited calls to fixed telephones in Metropolitan France and most of Europe plus other major countries in the world, unlimited to fixed and mobile phones in USA, and all the best non-cable and cable TV channels of France plus CNN etc., for 30 Euros per month !!! Also includes wireless DSL elsewhere in France, if you are not at home. I think this is about $40 per month !!!

  • Report this Comment On August 30, 2010, at 3:40 PM, bighairydogcat wrote:

    Fool on! I love the comments here!

    I called DTV to cancel last month. The kind person found it in his heart to cut my bill from $80 monthly to about $54 to not leave. How nice, I also asked for a free HDTV DVR $200.00. They installed it next day for free!

    Get this. Bill too high, but want to keep service? Ask for customer retention, they all have this department who's sole purpose is to keep your cash heading into the coffers at almost any cost. Cheaper to keep you than to sign up new customers.

    So ask and ye shall receive Fools! Play your loyal customer trump card. I do. Why should all the new customers get all the good deals? That's what I always tell em, and then they pull back the prize curtain and shower you with freebies!

    Price goes back up? Same story. Call em back up and tell them how appealing the next guys deal now looks and be ready for some A-List gifting.

    But I agree with the article. Soon I will have no need for Cable/Satellite. Long live net neutrality !

  • Report this Comment On August 30, 2010, at 6:54 PM, dc46and2 wrote:

    TV sucks.

  • Report this Comment On August 31, 2010, at 7:49 AM, rav55 wrote:

    Get a broadcast antenna and a preamp for local news, weather, sports and MASH reruns.

  • Report this Comment On August 31, 2010, at 1:45 PM, SETriode wrote:

    My wife and I decided to ditch Dish Network two years ago. We bought a Tivo DVR with a lifetime subscription that receives over-the-air channels from our roof top antenna. Over-the-air high definition picture quality is superb and superior to satellite and cable, which use a high amount of compression in order to maximize bandwidth. Best of all, over-the-air channels are free! Additionally, we rent DVDs at the local video store and also utilize our local public library's selection of DVDs for free.

  • Report this Comment On August 31, 2010, at 6:01 PM, easyavenue wrote:

    I, too, am sick of Comcast and their monopoly in the Vancouver, WA area. And I gave up TV years ago. Now just have cable internet and am disappointed at having to pay my inflated bill every month. At least the customer service isn't too bad once you finally get ahold of someone. Make that the right person. I've spent 1/2 hour on hold with them before, more than once. But the real stupidity is granting them a monopoly. No incentive to get better. Maybe I should buy their stock....

  • Report this Comment On September 18, 2010, at 9:35 PM, siriusxmfan wrote:

    I bought a Large screen LCD TV earlier this year. I bought a TV Antenna and get over 50 Channels FREE! I am dumping directv and using tivo, they also gave met a netflix promo for 6 months. That, combined with my roku player gives me everything I need. And my family and I are just fine not paying a subscription everymonth that is hefty and giving us stuff we do not need. We also switched to tracfones from verizon earlier this year and saved a bundle there, again, We are doing just fine. Also switched out the house phone over a YEAR AGO to MAGICJACK. Just re-subscribed for another year. We americans pay way too much for things. I am one that finally "Woke up"

  • Report this Comment On October 12, 2010, at 3:42 AM, giqcass wrote:

    I actually suspended my account for six months. Directv called me just before the end of the suspension and I told them I still couldn't afford it. The guy asked me if I would restart my service if they gave a $200 credit. I told him no there was no point because I would just have to cancel in a few months anyway because I was laid off. He then upped the deal to $250 so I took it. They gave it to me with absolutely no strings attached and no contract. Just plane old free tv for three and a half months. My free credit has ran out so now I'm referring people to get free credits. I've reduced my bill by $20 per month so far.

    Here is what I'm doing.

    http://directv.jrandolph.info/

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