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Is There Any Growth Ahead for Pay-TV Subscribers?

Research from Parks Associates suggests pay-TV in the U.S. for 2014 will grow slightly, ending the year at about 103.1 million households buying services, up from the 102.5 million subscribing to pay-TV in 2013.

If subscribers are to grow on a sustained level from the plateauing the industry has experienced over the last several years, companies will have to offer features most don't provide at this time, according to Parks.

For example, DISH Network (NASDAQ: DISH  ) is one of the few companies offering remote access to DVR content. The reason it isn't offered by others is because of restrictions associated with licensing deals.

John Barrett, the director of consumer analytics at Parks Associates, said this: "Remote access to DVR content was the most popular among pay-TV households without that service. Our research shows 31[%] of pay-TV subscribers want remote DVR access, while 27[%] are interested in TV Everywhere and 26[%] in personalized recommendations."

The future of pay-TV
With DISH Network providing remote access to DVR content, it's worth looking at this part of the company to see if it does make a difference in adding new subscribers.

In its latest quarterly report, DISH added 35,000 new net subscribers for its pay-TV service, pointing to some growth possibilities in that regard. However, those possibilities are so few and far between that it makes one wonder if demands of consumers are able to be monetized.

For the year, DISH was able to add 54,000 new subscribers as of the third quarter.

Parks Associates concluded companies offering services desired by consumers aren't marketing them as effectively as they could. There is also the concern over any additional costs that may be associated with new services. Many complaints have been made by pay-TV subscribers over the rising costs of services.

Comcast adds subscribers for the first time since 2007
Comcast (NASDAQ: CMCSA  ) CEO Brian Roberts recently reported the company has increased its subscriber base for the first time in 26 quarters. He is probably being overly exuberant when he asserts it is "a real beginning of an exciting reversal of trends." That's highly doubtful, although it may point to slight growth or maybe a holding pattern for the industry.

Roberts claims the boost in subscribers is from the investments the cable giant made in its "digital video technology, TV Everywhere and the new X1 next-generation guide," according to Variety.

If that is the case, it does support the thesis that adding features will help the industry grow, although at best at an incremental pace.

The streaming threat
There has been a lot of talk of the streaming threat from companies like Netflix and and its Amazon Prime service, but there is another streaming threat emerging that may be more ominous for the pay-TV industry. It is in regards to companies like World Wrestling Entertainment (NYSE: WWE  ) , which announced it has decided to offer a new streaming service instead of developing a pay-TV cable channel.

This is a serious threat to the existing pay-TV model because it removes much of the incentive for fans subscribing to pay-TV for the purpose of primarily watching WWE events to remain subscribers.

WWE fans will have access to all 12 pay-TV events via the new streaming service for the price they had to pay to watch a couple of them in the past through pay-per-view services. This is a continuation of the decision by various sports organizations to air content 24/7.

What is likely to happen is each of these types of services will shave subscribers off of existing pay-TV services, which when added together will pressure the industry. Consumers are being forced to decide which content they want to pay for and which content they want to let go. This is something that must be closely watched by investors.

Going forward
Usually when there is small growth in an industry or by a company that is then loudly proclaimed, it points to the probability the industry or company is struggling to grow. That is definitely the case with pay-TV, and it is very unlikely it will be able to grow subscribers in any meaningful way in the near or long term.

Additional features will help to slow the loss of subscribers more than generate growth over time. Consumers are concerned about and resistant to any more pay-TV price increases, and so including more features in the service will placate them some, helping to keep churn to a minimum.

There may be a season of level subscriber performance over the next couple of quarters to a year, but I don't see the pay-TV industry rebounding meaningfully in any way on the subscriber side. That will eventually lead to higher prices because content fees are going up, and that looks like it will continue for at least a couple more years, possibly longer.

That's good news for content providers and bad news for content distributors.

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Gary Bourgeault

A former investment adviser, I now invest only for myself. My main area of interest I like to write about is the entertainment sector.

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