Broadband Cable Association of Pennsylvania


August 8, 2012

The most intense debate in television today-whether the lure of Netflix and YouTube is causing viewers to disconnect their cable-TV service-is likely to intensify after new figures showed a slight decline in overall pay-TV subscribers in the second quarter. Publicly traded cable, satellite and phone companies had a combined net loss of about 200,000 subscribers in the quarter, earnings reports showed, about 0.2% of the roughly 100 million pay-TV subscribers. Sanford C. Bernstein estimates the overall industry shed more than 400,000 subscribers during the period when results for closely held operators are included. A sustained decline in the number of people subscribing to pay TV has ramifications for pay-TV operators and for TV channels, most of which share in the fees paid by subscribers. Big entertainment companies generate much of their profits from subscription fees paid to TV channels.

TV executives so far are divided on cord-cutting. Some, such as Dish Network Corp. Chairman Charlie Ergen, acknowledge that people are switching to cheaper alternatives. He even cites his own children's behavior as proof. Others, particularly on the entertainment side, dismiss the idea. The debate has influenced negotiations between pay-TV operators and channel owners over fees, such as the recent blowup between DirecTV and Viacom Inc., as operators warn that demands for higher fees could fuel cord-cutting. The second-quarter numbers won't conclusively settle the argument. The April-through-June quarter is traditionally a weak period for pay-TV operators, as college students disconnect their service, typically returning in the fall, companies say. Last year, and in 2010, the pay-TV industry made up for declines in the second and third quarters with gains in the first and fourth quarters. Both years posted net growth of about 200,000 subscribers. Even so, Craig Moffett, an analyst at Sanford C. Bernstein, points out that the year-on-year growth rate is below the level at which new households are being formed, suggesting "there are homes that are cutting the cord."

In the past few years, the number of free or inexpensive online video options have grown rapidly. Inc.'s Prime service and Netflix Inc. offer old episodes of some popular TV shows. Google Inc.'s YouTube has made a big push to invest in creating channels of original content associated with celebrities like Jay-Z. And several TV channel owners, including Viacom, put full episodes of certain shows on their own websites and on Hulu's online video portal. Prior to 2010, the pay-TV industry never saw a quarterly subscriber decline. Since then, declines have surfaced in five different quarters, according to Bernstein research, startling an industry that for decades had added customers at a brisk clip. The proportion of households subscribing to pay television increased to about 86% currently, from 61% in 1992, according to the National Cable & Telecommunications Association.

Satellite-TV and phone companies have been encroaching on cable operators' turf for several years, but they too are being affected by the overall market slowdown. In the latest quarter, DirecTV lost subscribers in the U.S. for the first time in its history. Verizon Communications Inc.'s FiOS and AT&T Inc.'s U-Verse, both of which are newer in providing pay-TV services than cable or satellite, continued to add subscribers-but the rate of growth fell 30% from a year earlier. Comcast Corp., Time Warner Cable Inc., Cablevision Systems Corp. and Charter Communications Inc. have lost a combined total of more than 400,000 subscribers in each second quarter since 2010, more than double the less-than-200,000 losses between 2002 and 2008, Bernstein's data shows. In addition, video revenues declined for several cable operators in the latest quarter. For most of the past few years, cable companies were able to boost video revenues despite declining subscriber numbers by selling remaining video subscribers extra services like digital video recorders or premium channels.

Cable operators are still enjoying growth in their Internet-access broadband business. Time Warner Cable said last week that the number of Internet-only subscribers increased 28% from a year earlier. Charter Chief Executive Tom Rutledge said on Tuesday that the company has about a million customers-out of about five million total-who subscribe to broadband only. He said he sees the potential to sell that group more products as a "big opportunity." In contrast, "there's a lot of inertia in the video business," he said. Charter reported 5% total revenue growth, driven by a 10% growth in broadband revenue.

For satellite companies, which don't provide Internet access or phone service, slowing growth in their core video service is more worrisome, and has companies looking for new revenue streams. DirecTV is leaning more on its fast-growing Latin American arm, as well as higher prices and extras like pay-per-view in the U.S. Dish, which reports its second-quarter earnings on Wednesday but has already disclosed its subscriber decline, is attempting to diversify into wireless to reduce its reliance on traditional TV. Wall Street Journal

As predicted here, Republican state Rep. Randy Vulakovich of Shaler soundly defeated his Democratic opponent in a special election on Tuesday to fill the remaining two years of Jane Orie's term in the state Senate. With 100 percent of the precincts counted, Vulakovich received 71 percent of the vote, compared with 28 percent for Sharon Brown, 59, of McCandless. A total of 17,046 votes were cast, 13 percent of registered voters. Write-in candidates received 1 percent of the vote. Absentee ballots were not included in the vote totals.

Vulakovich's victory will keep the 40th District seat in the hands of Republicans, who have held it since 1991 and have the edge in registration. Of the registered voters in the 40th Senate District, 46 percent are Republicans and 42 percent are Democrats, with the remaining 12 percent of voters belonging to other political parties. Vulakovich, 62, said his initial goal will be to get the district "back to normal" after the disarray that resulted with Orie's conviction on corruption charges. "I'm really looking forward to getting started so we can put the 40th District back together again," Vulakovich said. "It was like a bad dream, but I've got staff lined up to get to work so that we can hopefully wake up one day soon and things will be back to normal."

Brown, a health care consultant, could not be reached for comment. The district covers Bradford Woods, Etna, Franklin Park, Hampton, Marshall, McCandless, Pine, Richland, Ross, Shaler, West Deer and West View in Allegheny County; and Adams, Buffalo, Callery, Connoquenessing, Clinton, Cranberry, Evans City, Forward, Harmony, Jackson, Mars, Middlesex, Penn, Seven Fields, Valencia and Zelienople in Butler County. A former police officer, Vulakovich has said he will resign the 30th House seat that he has held since 2007. He won his party's endorsement on June 16 to run for Orie's unexpired term by beating early favorite Melissa Hart, a former congresswoman. Orie, 50, of McCandless resigned her Senate seat on May 28, before being sentenced on corruption charges. She was sentenced in July to 21/2 to 10 years in prison and ordered to pay nearly $180,500 in restitution and damages for using her state-paid staff for campaign work and knowingly introducing forged documents at an earlier trial. Pittsburgh Tribune-Review