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Distressing Time for U.S. Pay-TV as Customer Churn Soars

Zacks Equity Research

Research firm Leichtman Research Group recently reported that 13 major U.S. pay-TV operators lost a total of about 150,000 subscribers in the third quarter of 2014 compared with 25,000 in the year-ago quarter. This also marks the highest customer loss for the industry in any third quarter.

Notably, the U.S. pay-TV market comprises three kinds of service providers, namely, cable MSOs (multi-service operators), satellite TV operators and fiber-based telecom operators.

According to Leichtman, in the third quarter of 2014, the top nine cable TV operators lost nearly 439,000 video subscribers. Currently, cable MSOs jointly provide video services to approximately 50 million customers in the U.S., commanding a market size of 52.3%.

Time Warner Cable Inc. (TWC) lost 182,000, Comcast Corp. (CMCSA) lost 81,000, Cablevision Corp. (CVC) lost 56,000 and Charter Communications Inc. (CHTR) lost 24,000 subscribers.

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Meanwhile, satellite TV operators are also facing tough times as DIRECTV (DTV) and DISH Network Corp. (DISH) lost a total of 40,000 subscribers. Currently, satellite TV operators provide video services to around 34 million customers in the U.S., commanding a market share of 35.6%.

On the other hand, telecom operators, who provide fiber-based high-speed video services, are gradually gaining popularity. In the reported quarter, Verizon Communications Inc. (VZ) and AT&T Inc. (T) net gained 216,000 and 114,000 video subscribers, respectively.

However, the gain of 330,000 customers actually reflects an 18% drop from the prior-year quarter’s customer gain. Currently, telecom operators provide video services to over 11.6 million customers, accounting for nearly 12% of the total market.

The primary reason for this dismal situation is the availability of low-priced online video-streaming services offered by Netflix Inc. (NFLX), Amazon.com Inc. (AMZN) and Hulu. Video offering is the core business area of cable TV operators, is slipping out of their hands.

In order to survive the competition, attaining scale, productivity and effective cost management has become essential for pay-TV operators. Proposed mergers between Comcast with Time Warner cable and AT&T with DIRECTV aim to attain these goals. Both the deals are currently awaiting regulatory approval.

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Read the Full Research Report on VZ
Read the Full Research Report on CMCSA
Read the Full Research Report on CHTR
Read the Full Research Report on TWC


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