U.S. Pay-TV Subs Weaken as OTT Gains Popularity

EL SEGUNDO: There was a steep drop in the number of net U.S. subscriber additions for pay-TV operators in the second quarter, due in part to the weakening economic conditions and increasing competition from OTT services like Netflix.

IHS Screen Digest reports that net U.S. subscriber additions for pay TV fell by 350,000 in Q2, marking the largest subscriber drop in history. U.S. basic video subscribers to pay-TV services was at 10 billion in the second quarter, representing a drop of 348,000. These results were slightly worse than the 340,000 decline during the same period in 2011.

U.S. satellite also dipped during the first quarter, down by 62,000. This decrease was due mostly to the loss at DIRECTV of 52,000, which was its first-ever decline.

Cable shed around 600,000 in its second quarter, which is the biggest decline among all U.S. pay-TV segments. Cable subs have decreased during each of the last 21 consecutive quarters.

The popularity of OTT services continue to grow. In an effort to combat this threat, pay-TV operators, especially in cable, have been increasing their acquisitions. Last year saw the largest number of cable deals occur in recent history, at 23. IHS ultimately believes that the number of pay-TV video subscribers will remain flat to slightly negative for the rest of the year, and through 2016.

“Poor economic conditions played a role in declining subscriber additions for pay-TV operators in the second quarter,” said Erik Brannon, an analyst for U.S. television at IHS. “Another challenge was in the competitive threat posed by OTT services, such as Netflix. Consumers are spending an increasing amount of time using Netflix at the expense of traditional services like cable and satellite, which may lessen the incentive to retain a pay-TV subscription.”

“Pay-TV players are betting that by adding extra value for their subscribers—with new offerings like TV Everywhere, faster Internet speeds and deep discounting promotions—they can stem the tide of subscribers defecting to OTT, and entice new ones to join,” Brannon added.

“Still, while OTT presents a challenge to pay-TV, the magnitude of the threat is largely overblown. Pay-TV losses in the second quarter of 2012 were only slightly worse than the second quarter of 2011, largely due to seasonality, and also the economy.

“Our view that the business will remain sound has not changed,” Brannon concluded. “However, it is important to note the widening gulf in the number of TV households vs. pay-TV households.”