Americans drop pay-TV- business matures in weak economy

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NEW YORK (Reuters) – Stubbornly high U.S. unemployment, a weak housing market combined with a mature business prone to regular programming blackouts has seen more than 400,000 American homes drop their cable or satellite TV service since the start of the year.

DirecTV Group, the No.1 U.S. satellite TV provider, revealed its first-ever, quarterly customer losses on Thursday, with some 52,000 homes dropping the service in the second quarter. That was more than analysts expected from a company long seen as the best run video provider in the industry.

Chief Executive Mike White acknowledged “tough market conditions” and said the year-over-year decline in gross subscriber additions in the first half of the year will likely continue in the second half as the company continues to raise the credit standards required for new subscribers.

Also on Thursday, Time Warner Cable Inc, the No.2 cable provider said it lost more subscribers than analysts expected with 169,000 customers leaving the service. While a small percentage of Time Warner Cable company’s 12.3 million total customers, this is a 10th straight quarter of customer losses.

“Basic video subscriber losses aren’t getting better,” said Bernstein Research analyst Craig Moffett of Time Warner Cable. He said in a client note that the company had done alright overall, but “it is hard to shake the perception of an opportunity lost.”

The biggest U.S. TV distributor, Comcast Corp, lost 176,000 video subscribers, which was considered an improvement as the rate of losses was better than recent quarters. Of the big four distributors Dish Network Corp, the other major satellite provider, said it lost just 10,000 subscribers, also considered an improvement.

To be sure the second quarter is traditionally the weakest quarter for customer additions in the pay-TV business as people move homes ahead of the summer and students leave college campuses.

Also the newer entrants to the TV market — Verizon Communications’ FiOS TV and AT&T Inc’s U-verse — added 275,000 customers during the quarter. Including FiOS and U-verse, the pay-TV numbers look a lot better with a net loss of 125,000. But even the new kids on the block, are already starting to weary of rising programming costs and are noticeably slowing down in subscriber growth.

The numbers usually improve somewhat in the third quarter, but the overall trends are ominous for traditional pay-TV distributors.

The maturity of the nearly fifty-year-old cable TV market has raised the stakes leading to more bitter and prolonged battles between distributors and their program producing partners. These disputes now typically end up with customers losing some of their favorite programming for days on end and adds to customer weariness with pay-TV.

DirecTV for example lost 17 channels from MTV and Nickelodeon parent Viacom for 10 days last month. Executives said the loss of that many high-profile networks for such a long period will increase its rate of customer losses when it posts its third-quarter results due three months from now.

The steady parade of customer losses has led to speculation that customers are ‘cutting the cord’ and dropping the expense of paying for TV altogether.

Time Warner Cable Chief Executive Glenn Britt disputed this suggestion saying the numbers “are still quite small.”

“We actually think a bigger issue in the market is that there is a group of customers that are in really serious financial shape, they have been out of work for a long time,” said Britt.

White, a former senior PepsiCo executive, had a similar comment during DirecTV’s call with analysts.

“All of us in this industry, both on the media side and on the distributor side, need to spend a little more time in the customers homes, understanding what’s happening with their income and this economy.”

The U.S. unemployment rate has stayed above 8 percent for several quarters as the sluggish economy forces Americans to reconsider previously thought essentials.

Distributors including White and Britt have pointed to regular above-inflation rate programming cost increases as a danger to the pay TV ecosystem.

Time Warner Cable, which added 59,000 Internet subscribers during the quarter, has been emphasizing its growth ambitions with the Internet.

“Our real opportunity for residential growth rests with our high-speed data product,” said Time Warner Cable President Rob Marcus. “We have been postulating that that’s the case for some time now.”

The idea of cord-cutting has gathered steam as several major technology companies have held talks with program makers about putting together TV packages that will be delivered via the Internet. The idea would be to use cheaper, smaller TV packages to attract customers to buy or use their services. So far Google Inc, Intel Corp and Amazon are among those known to have held talks.

Netflix Inc is an example of one company that is already offering such services for streaming to customers on demand. Rather than see Netflix as a rival, Time Warner Cable has been promoting its Internet service as being robust enough to deliver Netflix to customers.

“That is the mindset that informs our marketing efforts,” Marcus said.

(Additional reporting by Liana B. Baker- Editing by Tim Dobbyn, Peter Lauria and Leslie Gevirtz)

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