If once is a fluke and twice is a trend, then maybe we can finally confirm what we’ve been saying all along: Cord cutting is something the cable industry needs to start worrying about. According to the latest data from market research firm SNL Kagan, 119,000 pay TV subscribers dropped service in the third quarter, marking the second consecutive quarter — and the second quarter ever — that the industry has lost customers.
We were criticized when we reported that four of the top five cable companies announced during earnings that they had collectively lost more than 500,000 subscribers, in part because we didn’t take into account gains made by satellite and IPTV providers. Add those in, and the number of subscribers gained or lost by eight of the top nine multichannel video distributors was about even. But when you factor in subscriber losses from smaller, non-public Tier 2 and Tier 3 cable providers, the picture darkens for the cable industry.
SNL Kagan reported today that cable providers lost 741,000 subscribers in the third quarter, which compares to 711,000 subs lost in Q2, and is the largest drop that the industry has ever seen. While some of those subscribers transitioned to IPTV services from providers like AT&T (s T) and Verizon (s VZ), which added 476,000 customers in the third quarter, or satellite providers like Dish Network (s DISH) or DirecTV (s DTV), which together added 145,000 subscribers during the period, it wasn’t enough to stem the losses from cable.
That means over the last two quarters, 335,000 basic cable subscribers have decided to go without. That’s a drop in the bucket compared to the 100 million or so households that subscribe to cable and other pay TV services, but it points to a worrying trend for distributors, which are seeing their subscriber numbers slowly eroding.
It’s especially worrying because research firms like Nielsen and SNL Kagan have been quick to dismiss the idea that subscribers might actually be canceling their pay TV subscriptions, and also because the third and fourth quarters are typically the strongest periods for customer acquisition. Indeed, SNL Kagan analyst Mariam Rondeli told us last time around that the subscriber drop was “unique” and that the firm expected the industry to rebound in the latest quarter:
“[Rondeli] said that the continuing recession and its impact on the job and housing market seem to make people rethink their subscriptions. However, she doesn’t believe all is lost for cable and other forms of pay TV. ‘We do think the second quarter was unique,’ she told me. SNL Kagan expects the industry to gain a total of 900,000 subscribers in the third and fourth quarter.”
Rondeli also said that she doesn’t see over-the-top video as a driving factor behind the current losses, but she cautioned not to ignore online video.”
Now Kagan is changing its tune, and even said that online video might be behind the subscriber losses after all. In the firm’s most recent release, Senior Analyst Ian Olgeirson is quoted as saying: “[I]t is becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance, particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains due to seasonal shifts back to television viewing and subscription packages.”
So far, pay TV distributors and network operators have been loathe to acknowledge the trend, with executives from Comcast, (s CMCSA) Time Warner, (s TWX) Viacom, (s VIA) Time Warner Cable (s TWC) and others saying that they don’t see cord cutting — or online video — as a threat. But it’s clear that the $100 cable bill (which is increasing by 10 percent per year in many cases) is not sustainable, especially as users find other ways to find content, online and otherwise.
Check out the most recent episode of our new show Cord Cutters below:
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