Cable executives aren't worried about cord cutting. In fact, they're forecasting they'll end the year with a net gain in subscribers from where they were at the end of last year.
At the UBS media conference earlier this month, the CEOs of Time Warner Cable (NYSE: TWC) and Charter Communications (CHA) both indicated their expectations that their video subscriber numbers will return to full-year growth this year. Time Warner Cable has lost 22,000 subscribers year to date, and Charter has lost 28,000 subscribers. The last time either company saw full-year video subscriber growth was 2006.
But it looks like the tables are turning. Still, it may be too early for investors to cheer. It's important to look at the bigger picture instead of focusing on just one number.
Where are these subscribers coming from?
Cord cutting isn't slowing down this year. If anything, it's accelerated. eMarketer expects cord cutters to grow 10.9% (550,000) this year, to total about 4.9 million households. Leichtman Research Group estimates pay-TV operators lost about 190,000 video subscribers last quarter. Jackdaw Research believes subscriber losses totaled more than 500,000 over the past 12 months.
So if people are still cutting the cord, how are the cable operators increasing subscribers? They're taking them from the competition. For years, telecom companies AT&T (T -1.21%) and Verizon (VZ -0.57%) have eaten into cable's share of the pay-TV market. Likewise, satellite companies such as DISH Network (DISH -5.40%) have been able to take share of the market as well in recent years. But competitors are giving up on their aggressive expansion and promotion plans because of the increasing number of cord cutters.
AT&T, for example, posted its first video subscriber loss this year in the second quarter. Without the addition of DirecTV's 20 million subscribers, AT&T would have lost 92,000 subscribers last quarter.
Verizon continues to grow its FiOS TV customer base, but its expansion is ending and it's sold some of its properties to a smaller telecom company.
DISH Network, meanwhile, has experienced subscriber losses as it reduces the amount it spends to acquire new subscribers. Year to date, customer acquisition costs per subscriber declined 15.8%. Part of the impetus behind launching Sling TV, DISH's over-the-top streaming service, is that it lowers the company's subscriber acquisition costs, which it can't maintain as churn increases because of cord cutting.
Without as much expansion and promotions from the competition, cable operators have been able to win back subscribers.
Battling for a bigger piece of a smaller pie
Cable companies find themselves battling to win back share of a notably smaller market from where it was 10 years ago. The growth in cord-cutting options and competition has led to promotions such as skinny bundles, which effectively boost subscriber numbers but do little to relieve pressure on revenue and profits.
The cable companies deny that those skinny bundles have had a major impact on total subscriptions. Time Warner Cable says the number of takers on its TV Essentials skinny bundle is in the low 10,000s. But even that amount is significant when you're losing subscribers.
Cable companies will have to maintain an aggressive stance if they intend on maintaining their momentum in 2015. AT&T just became the largest pay-TV provider in the world with its acquisition of DirecTV, and Verizon and DISH are each exploring streaming-video options instead of the more costly footprint expansion. One year of subscriber growth does not mean everything's back on track.