U.S. Cable, Satellite Video Providers Lose, Telcos Gain

The second quarter of any year normally is the seasonally “worst” quarter for a U.S. video entertainment services provider, so some circumspection is required when analyzing second quarter results, which were, perhaps predictably, less than good in 2012.

Altogether, about 400,000 U.S. households dropped their video entertainment service in the first two quarters of 2012, figures from the leading U.S. providers suggests, but there are growing signs that a historic stage in the market has been reached.

U.S. cable operators have been losing customers for a couple of years, it seems.

But satellite providers and telcos have continued to add customers, until now. DirecTV (News - Alert) Group, the largest U.S. satellite TV provider, posted a first-ever quarterly customer loss in its recent report, losing 52,000 net accounts in the second quarter.

DirecTV says it did so deliberately, as a byproduct of tightening credit standards. That typically will slow net customer additions. But you can make your own decision about whether that is the real story.

Time Warner (News - Alert) Cable lost 169,000 customers in the second quarter, the 19th-straight consecutive quarter of video customer attrition.

Comcast Corp, lost 176,000 video subscribers in the second quarter. Dish Network Corp lost 10,000 subscribers.

Notably missing from that list of incumbent video entertainment providers are the top telcos, which are taking share from satellite and cable providers.

Verizon (News - Alert) Communications' FiOS TV and AT&T U-verse added a combined 275,000 customers during the second quarter.

There continues to be some debate about whether the biggest problem, aside from market share shifts to telcos, and away from cable, is “cord cutting,” the dropping of existing service, or “cord avoidance,” where potential consumers simply decide they don’t need the product.

It matters which of the two is driving the consumer sluggishness. At least in principle, an improving economy or packaging changes could encourage consumers who like the product, but think they can’t afford it, to buy.

The problem with the “cord avoiders” is that they simply do not want to buy the product at all or have product substitutes they believe are suitable.

The second quarter of 2012 does not seem to represent the decisive tipping point some believe is coming, where there is a sudden, unexpected break in consumer demand for video entertainment services. But the fact that DirecTV lost customers for the first time ever, signals that satellite services now might expect to have passed the peak of their market share. Only the telcos can expect to continue growing, at this point.

But market share shifts among existing competitors are not the biggest concern. The “scary” prospect is a dramatic future break in the demand curve, likely lead by online substitutes. That break is not imminent, but pressure is mounting.

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