Telco TV, OTT Grow at Cable’s Expense

If there were any doubts that cable’s facing a cord-cutting crisis, you can put them to rest.

A new report from SNL Kagan shows some serious declines in cable subscriptions – and even worse news for cable companies, they’re happening in the nation’s biggest markets. In fact, the number of cable subscribers in the past year has declined in every one of the top 15 markets, accounting for the loss of 900,000 paying customers. That’s an overall drop of almost 4 percent in those markets from Q1 2010 to Q1 2011.

Atlanta and Dallas saw the biggest declines in terms of percentages – 8 percent and 7.7 percent, respectively. New York City was hit the hardest in sheer numbers; nearly 200,000 cable subscribers have cut the cord in the Big Apple in the past year.

In many cases, cable’s demise has been an opportunity for telcos. While the total number of telco TV subscribers is still less than 20 percent of cable subs, total subscribers grew by 800,000 across all of the top 15 markets where telcos offer television services (Phoenix and Minneapolis-St. Paul have no telco TV offerings), almost filling the void left by cable. Los Angeles, where both AT&T’s U-verse and Verizon’s FiOS TV services are now available, experienced a 50 percent increase in subs, while AT&T helped boost telco TV in Chicago by almost 50 percent. Telco TV has really made its presence felt in Dallas, Houston and Los Angeles, where cable’s market share has already dropped below 50 percent. Cable still reigns in New York, Boston and Seattle – where its market share is above 71 percent – but that dominance is clearly slipping.

Cable’s losses were enough to drag so-called “traditional" television – cable, telco, satellite – down as a whole. Nine of the top 15 markets saw drops in multichannel (cable, telco TV and satellite combined) subscriptions. Atlanta took the biggest beating – down 5.2 percent – followed by Phoenix, Detroit and Chicago, in that order. Satellite was a mixed bag cross the top 15 markets – up in some, down in others – ending with an overall increase of 0.1 percent, not enough to have much impact on “traditional" video’s ups and downs.

There are a number of reasons why this is happening: Just look at your bill. The rising cost of cable service is the No. 1 complaint on Internet message boards and social-networking sites. Poor customer service and “too many commercials" are usually cited as other reasons. While telcos are no stranger to customer-service complaints, the relatively new TV offerings from AT&T and Verizon in many markets at least provide an alternative to what used to be cable’s virtual monopoly – not to mention that it’s an opportunity for the carriers’ telephone customers to combine charges on one bill.

Yet the number of people watching video certainly isn’t declining. OTT providers like Netflix are picking up a lot of the slack. Recent research by MRG predicts over-the-top video services revenues to jump from $1 billion in 2010 to a whopping $20 billion in 2014 as more customers choose to pay a nominal monthly fee for access to commercial-free content.

So all of this might lead you to believe that cable is doomed – but not so fast. Digital TV Research predicts in a new report that U.S. digital cable revenues will show nice growth, rising from $43 billion in 2010 to $62 billion in 2016. The reason?: Cable companies will continue to convert analog cable subscribers to digital services (resulting in a loss of $7 billion in analog subs, but still a $12 billion net gain) and get more customers to subscribe to bundled services.