Cable Cites Housing Slump for Woes

Lack of new homeowners=lack of Q2 subscriptions?

As pay-television operators report second-quarter results, a recurring theme is the underwhelming growth rate in subscriptions. A shrinking subscriber base in the second quarter isn't unusual, due to college students cancelling their subscriptions until fall and people moving.

But this year the decline was a bit sharper than analysts anticipated—and both cable and satellite operators said fewer new homes spelled fewer new subs.

“There is one other factor that's a little different this year that we're trying to get our arms around, and that's clearly the housing market is undergoing a major correction and housing starts are down,” said Time Warner Cable President Glenn Britt on a conference call last week. “Particularly if you look at basic [video subscribers], where there's small changes one way or the other, that may well be having an impact.”

Time Warner Cable's net loss (excluding additions) of basic video subscribers in the quarter was 57,000, somewhere between the dips at Comcast (95,000) and Charter (29,900).

Satellite services felt the crunch too, though to a lesser degree. DirecTV added 128,000 subscriptions, in line with expectations. But the company identified weak housing as “one of an array of factors [affecting growth].”

Echostar Communications, however, fell short of target. The company recorded 170,000 net additions in the quarter, its lowest level in ten years, and lower than what analysts were expecting.

Echostar fingered the housing market too.

Telco operator Verizon Communications, meanwhile, added 167,000 new subscribers to its FiOS TV service in the quarter.

Bullish expansion by homebuilders and liberal mortgage lending policies fueled the housing boom. But now it is leading to increased default rates, foreclosures and a retraction in lending. There's no telling how many money-strapped home owners have cancelled their cable just to help pay the mortgage.

As homebuilders adjust to the market, the number of homes being completed is on the decline. According to Department of Commerce data, monthly housing completions were down 6% in June and down 28% from a year ago.

It appears the housing sector will remain weak in the coming months. The number of new homes that have started construction was down 22% in June, while construction permits slid 27.5% from a year ago.

The effect in the pay-television industry could be a dulling of Q3 growth rates, which usually provide a rebound from second-quarter retraction. If growth rates fall short of expectations, the so-called “housing effect” might be referenced with more frequency among pay-TV operators.

Some analysts stressed perspective on the disappointing earnings results. “To be sure, weaker housing is hardly a disaster in the making for pay TV,” Sanford Bernstein analyst Craig Moffett wrote in a research piece, noting that DBS and telco providers are still growing and taking market share, “But growth expectations will need to be adjusted.”