It's not happening fast, but it is happening.
Pay television subscribers are leaving the big cable companies -- Comcast (NASDAQ:CMCSA), Time Warner Cable (UNKNOWN:TWC.DL), Charter (NASDAQ:CHTR), and Cablevision (UNKNOWN:CVC.DL). In addition to the top four providers, the next nine largest pay-TV companies (which covers about 95% of the market) saw subscriber drops in the second quarter of 2014, according to Leichtman Research Group.
These companies lost about 300,000 net video subscribers in Q2 2014, compared to a loss of about 350,000 video subscribers in Q2 2013, the research company reported. Even the two satellite pay-TV providers lost customer for the period, with DirecTV (NYSE:DTV.DL) losing 34,000 customers while Dish dropped 44,000 subscribers.
It's a slow trickle, but it's a downward trend unlikely to reverse itself.
|Pay-TV Providers||Subscribers at
End of 2Q 2014
|Net Adds in
|Other Major Private Cable Companies*||6,570,000||(85,000)|
|Total Top Cable||49,908,109||(509,954)|
|Satellite TV Companies (DBS)|
Changing technology and increased choices may make it impossible for the cable companies to stop losing customers altogether, but they might be able to stop a massive drop in paying customers. To do that, the pay-TV providers will need to understand why people are leaving.
Cable companies are not well liked
Pay television services consistently rank near the bottom of all companies on the American Customer Satisfaction Index. In the 2014 ACSI report, customer satisfaction with subscription television service fell 4.4% to an ACSI score of 65 after peaking at 68 a year ago.
"The sharp decline positions subscription TV among the least satisfying industries measured in the American Customer Satisfaction Index," the survey said. "Only Internet service, which is provided by many of the same companies, scores lower at 63."
Cable does not rank well even when compared with other household services including energy utilities (76) and fixed-line telephone service (73). To make matters worse, the largest cable companies Comcast (63) and Time Warner Cable (6) score at the bottom of the list for the already not-liked category.
People like cable companies less than they historically have at a time when technology has given them entertainment alternatives including streaming services like Netflix and Hulu.
The cost is too high
My fellow Fool Jamal Carnette wrote a piece earlier this month on the exploding prices Americans pay for cable. In it, he cited data from NPD Group showing that in 2015, the average subscriber will pay $123 per month for pay TV. That's up from $86 a month in 2011.
Cable prices have inched up steadily over the years, which is easy for an industry without competitors to do. Now that streaming options exist, an increasing number of customers are deciding that paying around $10 for even a few different streaming offerings makes a lot more sense than paying for cable.
There are choices now
When cable first launched on a widespread basis, the Internet was not yet a thing, and pay TV, which was generally offered by a single provider in each community was the only way to access programming beyond the traditional over-the-air stations. That's certainly no longer true. Anyone with high-speed Internet, a computer, or a streaming device like Google's Chromecast or Amazon's Fire TV Stick (both of which cost under $40) can access an enormous amount of low-cost or even free content.
Brian Dietz, a spokesman for the National Cable and Telecommunications Association, told The Washington Post that the rise of streaming services like Netflix and satellite television providers has eaten away at cable's marketshare.
"The top four biggest video subscription services in the U.S. are an online video provider [Netflix], a cable company and two satellite companies," said Dietz.
Netflix, which claimed 37.7 million U.S. subscribers in its latest earnings report, has even more paying customers than the combined 33 million or so who would be served by a combined Time Warner and Comcast. The difference, of course, is that Netlifx customers pay $7.99 to $8.99 a month (depending upon when they joined) and cable customers pay much, much more.
Cable won't be able to stem this tide
If cable does not make massive changes to how it operates as an industry, the number of people leaving is likely to increase as options for consumers increase and improve. Fifty-three percent of respondents to a recent survey by consulting firm cg42 said they'd leave their current cable company if they had a choice, The Washington Post reported.
"You have a soup of misery," cg42 managing partner Steve Beck told the paper. Of all the industries the company has studied, he added, "these are the highest levels of [company] vulnerability and [consumer] frustration we've ever seen."
Cable is not well-liked, expensive, and slowly being replaced by cheaper ways to watch TV and consume video content. Those are difficult, but not impossible things for the industry -- or even individual companies -- to change.
Daniel Kline has no position in any stocks mentioned. His first cable box was wired and had a push button for each channel. The Motley Fool recommends Amazon.com, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Amazon.com, Google (A shares), Google (C shares), and Netflix.
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