Pay TV's Unsustainable Number: 17

While pay-TV providers have added significantly more content options over the years, users aren't buying into the model.

May 7, 2014 at 7:30PM

Pay-TV providers should obviously be interested in their video subscriber numbers. That figure gauges how well a company is doing relative to its competition and whether it's growing its business or seeing it decline. But there's another number that should be important to pay providers as well -- how many channels their subscribers are actually watching.

According to a preliminary report by Nielsen, that number stands at just 17 right now.

189 channels, but nothing on
That's bad news for Time Warner Cable (NYSE:TWC) and Comcast (NASDAQ:CMCSA), considering that pay-TV subscribers have an average of 189 channels.

The Nielsen chart below shows just how flat channel watching has been over the past few years relative to the increase in content options:

Comast Time Warner Nielsen
Source: Nielsen.

While video subscribers can't be expected to watch every channel they pay for, it should be a bit troubling for subscribers that they're paying for so many channels they don't watch. And providers should be worried that they're offering so much content users don't watch.

But this isn't news. We've all known that there's more than enough content on TV but not enough of what we want.

So why does it matter? Because users won't pay for unused content forever, and cable providers know it.

Fraying the cord
There's a lot of talk about cord cutting -- when users ditch traditional video providers for online content streaming -- but the shift is more like a slight fraying of the video cord right now.

In 2013, Time Warner Cable and Comcast lost a combined 1.1 million video subscribers, and the entire U.S. cable industry lost a total of 1.7 million video subscribers. But that number was almost completely offset by AT&T and Verizon gaining about 1.5 million total video subscribers the same year.

So while not everyone is ditching traditional television, cable TV providers are definitely taking it on the chin.

Foolish thoughts
The lack of increased channel watching despite the 46% uptick in content channels shows me that Time Warner and Comcast haven't quiet figured out how to retain customers in a changing video landscape -- at least not right now. That's bad news as the two companies move closer to a massive merger. Comcast is in the middle of purchasing Time Warner for $45 billion, pending regulatory approval.

While the potential merger could bring the best of both company customer retention strategies, it appears at this point it'll just bring all video subscriber losses under one roof. As customers opt for video streaming from Netflix or jump to AT&T and Verizon for their television needs, it's clear from the Nielsen numbers that simply adding more content isn't the answer. 

Cable isn't adapting, but you can benefit from its slow progress
Comcast and Time Warner have done little to embrace the sweeping video content changes ushered in by Internet. But investors don't have to ride out cable's demise. The Motley Fool's put together 3 stocks that are poised to benefit from television's evolution -- and they're not Netflix, Google, or Apple. Click here now to find out their names.


Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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