Market Insight

Technology and content mark successes and failures for cable operator

January 09, 2014

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The top two cable operators, Comcast and Time Warner Cable (TWC), have reported their Q4 subscriber results, weeks before they are due to report full Q4 results. Speaking from two very different positions Comcast wowed and TWC continued to disappoint. For the first time since 2007 - after 26 straight quarters of losses - basic video subscriptions at Comcast were in the black, while 215,000 basic video subscribers fled TWC service. Comcast's gains, which were not publicly given, were stated as being modest.

Comcast's evolution of its digital network is a significant factor in softening the heavy losses that it experienced from 2007 to 2010. In nearly every quarter since Q4 2010 to the present, the company has continued to improve in the number of basic video subscribers lost, when compared with the same period of the prior year. The resumption of positive basic video subscriber was inevitable, not being a question of if, but when.

The story for TWC is very different, with the CBS dispute still leaving a bad taste in many people's mouths. While it is important to note the dispute, the fact remains that TWC has been evolving its network at a somewhat slower pace than its contemporaries. At the end of Q4 2013, IHS estimates that digital penetration of basic subscribers for Comcast and TWC was 98% and 79% respectively. While it did make positive gains in both phone and internet subscribers in 2013, the loss of 826,000 of video subscribers is staggering.

Certainly in the boom and bust cycles of the business of pay TV, being the incumbent as cable is set you up for the inherent losses as markets reach stable penetrations between cable, satellite, and IPTV players. The win for Comcast in Q4 2013, and the loss for TWC represents valuable lessons for not only fellow cable operators, but for other pay TV operator and programmers.

By evolving its digital network, Comcast embarked upon a strategy of making itself indispensible to its subscribers, with the majority of their subscribers take more than one service. Some 78% of Comcast households took a double play in 2013, and 43% triple play. The company's success is attributable to several factors: aggressive increases in internet speeds, advanced home gateway technologies like X1 and X2, large on-demand libraries, significant TV Everywhere rights acquisition, and compelling promotional pricing.

On the other side, TWC is still reeling from the effects off of its very bitter retransmission fee dispute with CBS TV stations in Q3 2013, which resulted in signals being pulled from the channel lineups in several major markets. Coupled with the companies less vigorous approach to transitioning subscribers from analog to digital, and the recipe for a more than 7% drop in basic video subscribers in 2013 is complete.

To exacerbate the problem, the company is facing significant competition from IPTV players, especially U-verse. In cities like El Paso which have long been TWC and Satellite only, IHS has noted the swift conversion of cable customers to IPTV. In El Paso, TWC had a relatively low digital penetration along with relatively higher than average monthly prices, a ripe fruit waiting to be plucked by AT&T.

Positive subscriber growth at Comcast in Q4 2013 is a sign that the nations largest pay TV operator is indeed moving in a positive strategic direction. Going forward the company will likely have some quarters with positive subscriber growth, but the overall trend will continue to be yearly losses in basic video subscribers, albeit at a reduced pace.

For the coming year, we expect IPTV subscriber growth to continue, and satellite to remain flat. And while the nations largest cable operator is showing signs of renewed subscriber growth, it will not be not enough to propel cable as a whole out of negative subscriber growth territory, but it will help improve cable's overall subscriber losses.

Comcast Time Warner Cable
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