FCC Report: Cable Subs Slipping
Though value-adding MSOs thrive; DBS services posting big gains
By Bill McConnell -- Broadcasting & Cable, 1/5/2003 7:00:00 PM
After decades of nonstop growth, cable subscribership appears to be declining, the federal government noted last week.
| Cable Stumbles | |||
|---|---|---|---|
| When all the numbers are in, the FCC predicts cable's subscribership will have declined in calendar 2002, while DBS's will have grown. | |||
| '98* | '01* | '02* | |
| *Fiscal year ended June 30 Source: FCC |
|||
| Cable subs | 65.4m | 68.5m | 68.8m |
| Of multichannel subs | 85.3% | 80.2% | 76.5% |
| '98* | '01* | '02* | |
| DBS subs | 7.2m | 16.1m | 18.2m |
| Of multichannel subs | 9.4% | 18.3% | 20.3% |
The prediction was included in the FCC's 9th annual report on video competition, which tracked industry trends for fiscal year ended June. The agency felt comfortable announcing a possible decline for the year ended in December after official numbers and forecasts provided by cable operators showed that subscriber growth had slowed significantly. "Calendar year 2002 may be the first year in which the industry as a whole has had a net loss of subscribers," the FCC report said.
At the end of June, cable had 68.8 million subscribers, up 0.4% from 68.5 million the year before. But the FCC did not predict where cable would stand on Dec. 31, 2002. Direct-broadcast satellite households grew from 16 million to 18 million households, 20% of multichannel homes.
Although the revelation that the total number of cable households may decrease during calendar 2002 may sting some operators, industry analysts were not surprised.
Fierce competition from DBS and poor performance by two or three giant MSOs conspired to hurt numbers for the entire industry, said Niraj Gupta, cable analyst for Salomon Smith Barney.
"Two or three companies have serious problems," Gupta said, particularly Charter, Adelphia and recently acquired AT&T Broadband.
"Combine that with the inherent disadvantage rural cable operators have relative to satellite and you get declining numbers," Gupta said. Rural cable operators have high per-customer costs because they must wire large, lightly populated areas, whereas the per-customer costs for DBS differs little between rural and urban areas.
Gupta predicts that cable may show flat or declining numbers again in 2003 while Comcast struggles to build out the inadequate infrastructure of AT&T Broadband. But over the long term, cable will hold its ground by offering more services than DBS, which hasn't, for instance, figured out how to provide high-speed Internet access effectively.
He also predicted that cable's superior services will allow it to capture high-margin customers who will pay for add-ons and will leave more price-sensitive customers seeking cheap, video-only service to DBS.
In the meantime, companies that have added capacity for new services such as digital tiers, broadband and video-on-demand—Cox, Time Warner Cable, Insight and Comcast's non-AT&T systems—are holding their own or growing, he said. Those buildouts also are creating a bright spot for the industry: strong growth in revenues.
Industry revenue grew approximately 16%, fueled by viewers' increasing preference for cable programs and advertisers' subsequent increase in cable ad buying as well as consumer expenditures on premium channel, pay-per-view and high-speed modem services.
Cable's sluggish subscriber growth caused multichannel providers on the whole—cable, satellite TV, SMATV service to apartments, condos and offices, and wireless cable—to lose TV household share. That, in turn, reversed years of strong growth in pay-TV penetration.
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