With the advent of cord-cutting, cord-shaving, and over-the-top services like Netflix and Amazon Prime Instant Video, television providers are in desperate need for some positive news. And with the latest data from Strategy Analytics, they may have it. Well, sort of.
Over the past year, the average revenue per use, or ARPU, for DirecTV, Charter Communications (NASDAQ:CHTR), Dish Network (NASDAQ:DISH), and Time Warner Cable (NYSE:TWC) has gone up, which sounds like great news. The problem is that those ARPU percentages haven't increased because users are subscribing to more premium channels, upgrading packages, or binge-renting Nicolas Cage films -- but rather that subscribers at the lower-priced tiers are ditching pay-TV altogether.
In the second quarter of 2015 alone, about 479,000 people dropped their television subscription. And that's a conservative estimate. Leichtman Research Group puts the number at 470,000 and SNL Kagan says the drop is closer to 625,000, which would be the largest quarterly decrease in pay-TV subscribers ever.
Pay-TV has a serious, and growing, problem as it continues to lose customers, and the industry isn't addressing the situation fast enough.
Movin' on up
But let's humor the television providers for just a moment and take a look at how ARPU is on the rise:
DirecTV appears to be the clear winner here with both the highest revenue per user and the largest increase year over year. Strategy Analytics noted that even digital subscriptions and over-the-top, or OTT, services haven't turned things around quite yet for the TV industry. DISH Network still lost 81,000 subscribers in the second quarter, even after factoring in the company's own OTT offering, Sling TV.
And while it'll likely take some time for those OTT services to start paying off for TV providers, one of Strategy Analytics' directors, Jason Blackwell, thinks the benefits are right around the corner. "Going forward, we believe there are clear opportunities for the Pay TV providers as they begin to roll out over-the-top (OTT) video services similar to Dish Network's Sling TV offering."
That is, of course, if the pay-TV players move fast enough.
An inconvenient truth
The report mentions the growing trend of pay-TV providers looking to OTT services to fill in the cord-cutting gaps, but not everyone is convinced the television industry is taking the trend seriously.
A recent FierceCable article said that executives from Time Warner Cable, Disney, and Cablevision all expressed in their latest earnings reports that there's still plenty of time before subscribers really start moving to OTT services.
Disney's Bob Iger had this to say about making ESPN a fully over-the-top service sold directly to consumers:
"So when we look at the universe, we don't really see dramatic declines over the next say five years or so and therefore we are not taking what I would call radical steps to move our products into over-the-top businesses to disrupt that business because we don't think right now that is necessarily the greatest opportunity. We just don't think it's necessary."
Perhaps Iger and others are looking at different numbers other than the ones Strategy Analytics -- and just about every other cable TV research firm -- just released, but I doubt it. It seems more likely that after decades of the pay-TV industry relying on content bundles and expensive packages they can hardly grasp the idea of separating content and services. And why would they? Over the past two decades the cost of pay-TV subscriptions has nearly doubled.
Some companies are embracing the changes, however. Dish's Sling is the notable exception, as is HBO's recent launch of the stand-alone HBO Now subscription. These are both small steps in the right direction, even if not all pay-TV providers see the writing on the wall.
Chris Neiger has no position in any stocks mentioned. The Motley Fool owns and recommends Amazon.com, Netflix, and Walt Disney. 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.