Cable Subscribers Fall Again, What Can the Industry Do to Win Back Customers?

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While the death of the cable TV industry has long been talked about there is finally some proof that it's actually happening.

The U.S. multichannel segment posted its first full-year loss of subscribers in 2013, according to research firm SNL Kagan. The segment -- which consists of cable companies, satellite providers, and telephone companies that sell TV -- lost 251,000 subscribers in 2013, dipping to approximately 100 million combined subs.

That drop could be taken as a one-time anomaly, but SNL Kagan's researchers do not believe that to be the case.

"While seasonally driven quarterly declines have become routine for industry watchers, the annual dip illustrates longer-term downward pressure even as economic conditions gradually improve," the report stated.

Cable companies are being hit the hardest

SNL Kagan estimates cable operators lost nearly 2 million video subscriptions for the full year and 388,000 in the fourth quarter to finish 2013 with fewer than 54.4 million basic subs. The satellite companies did better -- likely contributing to the decline of cable as DISH (NASDAQ: DISH  ) and DirecTV (NASDAQ: DTV  ) "controlled churn and produced net subscriber gains for the year, forestalling an annual decline for perhaps another year," SNL Kagan reported. 

Satellite gained 101,000 subscribers in the fourth quarter and posted a total year gain of 170,000 subscribers. 

Services offered by telephone companies also posted gains led by AT&T's (NYSE: T  )  U-verse. "The combined multichannel video subscribers served by Verizon Communications's  (NYSE: VZ  ) FiOS and AT&T U-verse reached 10.7 million at the end of the fourth quarter, behind net adds of 286,000. CenturyLink's (NYSE: CTL  ) PrismTV gained 9,000 subscribers to end at 175,000 customers, and Consolidated Communications Holdings's (NASDAQ: CNSL  ) IPTV product added 1,000 customers.

These numbers show that it's not the idea of paying for television that customers are abandoning, but the idea of paying the high prices of the traditional cable companies.

Where are cable's customers going?

In addition to leaving for satellite (which is generally cheaper than traditional cable) and phone company services, some customers are simply cutting the cord. Instead of subscribing to a traditional package of channels, these users are buying services like Netflix  (NASDAQ: NFLX  ) and Hulu and changing how they consume media. In some cases customers may be dropping cable due to cost and simply going without.

In 2012 AllThingsD reportedon the struggles of the cable industry and quoted Bernstein analyst Craig Moffett, who released a research note saying that cord cutting was real.

"The growth rate remains below the level of even anemic new household formation, suggesting that penetration is falling even as the pay TV subscriber base is still growing. And that, in turn, suggests that yes, there are homes that are cutting the cord. Whether they are doing so because of online video options (as the technology press would have it) or poverty/affordability (as we would argue) is unclear," he wrote.

Cable faces new competition

In addition to satellite, telcos, Netflix, and Hulu, cable companies are also facing new options for customers like WWE's (NYSE: WWE  )  network,  a digital streaming service that does not require a cable subscription. While the WWE has a niche audience some upcoming services seem likely to disrupt the current cable model and make it easier for people to cut the cord and still get the channels they watch most often

Disney has announced a deal with DISH that will allow customers to get ESPN -- arguably the most-loved cable channel -- and the popular (among kids and tweens) Disney suite of channels on a streaming-only basis. DirecTV and Disney are talking as well and rumors abound that a number of other popular channels and content providers are considering services that are not tied to the traditional cable model.

What are cable companies doing?

In an interview with USA Today's editorial board on March 18, Comcast CEO Brian Roberts said "the nation's largest cable provider lost customers 26 quarters in a row until it eked out a gain in the fourth quarter last year."

To stem the loss in the video business, the Philadelphia-based company is offering more on-demand and other video options stored in the cloud and looking to introduce new subscription tiers, he told the paper. "Our (profit) margin has gone back on video," he said, citing rising programming costs as a contributing factor."

Cable needs to change

Whether customers are leaving cable for other services or leaving due to price, it seems unlikely that they will be coming back. To keep their user base, cable companies must find a way to become price competitive and to give customers what they want -- and only what they want.

Cable companies have made money by offering packages of channels that get customers to pay for ones they don't want along with the ones they do. That practice worked for years because a la carte pricing was not offered anywhere else. Now it's becoming easier for customers to get the programming they want without paying for things they don't. 

If the cable companies don't make a major pivot and start giving customers a way to lower their bills by only paying for content they actually watch, then than the industry may go the way of the music business.

You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

Read/Post Comments (2) | Recommend This Article (2)

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 March 24, 2014, at 3:00 AM, Ray186 wrote:

    Personally I'm just waiting for the next price increase to cut the cord. Too much money for too much crap I will never watch.

  • Report this Comment On March 24, 2014, at 9:16 AM, cloud4g wrote:

    Cable and satellite companies who do not find a way to build or partner for 'seat to the street' broadband everywhere has already lost the race to hold onto marketshare. There is no 'winning customers back' without offering them mobile broadband as an option.

    The disaffection of the public with cable service has been headlines for several years: cable companies acted like the local monopolies that they are, offering a level of service that a normal local service business, such as a plumber or electrician would result in bankruptcy. If they were not to show up for appointed service or get repeated call backs, customers would simply choose a competitor. There is now a new competitor to cable in the form of mobile broadband.

    The reason cable cannot win back share without mobile BB is a) a growing percentage of young are opting to buy just mobile SmartPhone/pad/dongle service. While older users tend to resist change, some are opting for basic service supplemented by mobile devices. c) Of course, the coverage of the population has been saturated.. cable reached maturity some time ago and is now in decline.

    There is some possible clear sky ahead: Comcast is experimenting with subscriber WiFi hotspot service that allows subs to roam across other subs extended WiFi hotspot coverage. That has the possibility of expanded coverage once 802.11ac becomes used in additional bands of spectrum, possibly including some 600-700MHz White Spaces spectrum which is capable of longer range. However, that would be years in the making.

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Daniel B. Kline

Daniel B. Kline is an accomplished writer and editor who has worked for the Microsoft's Finance app and The Boston Globe, where he wrote for the paper and ran the business desk. His latest book "Worst Ideas Ever" (Skyhorse) can be purchased at bookstores everywhere.

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