DVR subs achieve majority status among digital households

By Ian Olgeirson

DVR users crossed into the majority in the third quarter, albeit barely, as the tally of digital subscribers in the U.S. with the hard drive-equipped set-tops for the first time outnumbered those without the time-shifting boxes.

U.S. cable, DBS and telco video customers with leased DVRs reached 45.5 million at the end of the third quarter, accounting for 50.4% of the combined digital subs, according to SNL Kagan estimates for the segment. Adding subscribers from stand-alone devices such as TiVo Inc. increased the total U.S. DVR households to 46.6 million.

The third-quarter gains for DVRs integrated with multichannel subscriptions were slightly higher than the net adds in the previous quarter at nearly 750,000 new subs, but down from the increase in the third quarter 2011. The cable industry's contribution was significantly softer than in the year-ago quarter, while DBS continued to emphasize the hardware and the telcos rebounded with improvement in overall subscriber gains that trickled down to higher DVR net adds from the year-ago period.

DBS providers are doubling down on DVRs, with a specific emphasis on multiroom functionality. DISH Network Corp. is heavily promoting the Hopper box despite ongoing legal challenges to the Auto Hop ad-skipping feature, and DIRECTV recently rebranded its whole-home solution as the Genie to accompany a marketing push. The move followed DIRECTV's third-quarter reports that 90% of new subs were taking an advanced box, weighted toward HD DVRs.

The emphasis coincides with lackluster overall sub growth, restricting DVR gains for satellite services. SNL Kagan estimates the DBS providers combined to add more than 320,000 new DVR households, a figure that was up sequentially but down year over year. We estimate the DBS segment finished the quarter with a penetration of total customers exceeding 55%.

The telcos' orientation toward DVRs for new customers remained consistent, with the only variable coming from a modest rebound in overall video gains. The resulting trend line tipped the estimated DVR penetrations to more than 64% of video subscribers.

The cable industry's approach to the hardware is less straightforward. While rhetoric about network-based solutions is on a general upswing among larger operators, it remains philosophical in nature with no new deployments beyond Cablevision Systems Corp.'s DVR Plus using the remote-storage DVR model.

Third-quarter net adds were down significantly. SNL Kagan estimates U.S. cable operators added just 168,000 new DVR households in the quarter, down year-over-year and even sequentially from the seasonally weaker second quarter. The industry reached 20.6 million DVR customers at the end of the quarter.

The relatively slow growth can be attributed to declining digital gains as well as maturing penetrations for a segment of the service that continues to carry higher monthly fees than those available to DBS and telco customers.

Time Warner Cable Inc. offers an example of the trends, but with the emerging willingness to discount. It added 8,000 new DVR households to finish the quarter with nearly 5.1 million subs. The gain marks a slowdown sequentially, but a significant rebound from a year-ago loss of 35,000 DVR subs, not accounting for the impact of the Insight Communications Co. Inc. acquisition.

However, the MSO also evidenced a surge in promotional pricing with a decline in average revenue per unit. Time Warner Cable produced its third straight quarter of falling DVR revenue per sub, dropping to its lowest level since the end of 2010 at $11.03 per month. Time Warner Cable's bump in DVR penetrations to 53.4% of digital subs was fueled by a decline in digital households for the MSO, absent a broad all-digital transition.

Comcast Corp. reported adding just 101,000 new advanced-services customers to reach nearly 11.3 million, including households with DVRs as well as stand-alone HD boxes. While its advanced-services penetration held steady at 53.4% of digital at the end of the third quarter, the figure includes homes equipped with one or more HD set-tops but no DVRs.

Suddenlink Communications added 13,800 new DVR subs in the quarter, nudging up its penetration of digital subs to 47.1%. The MSO's net adds were nearly 4x its second-quarter gains and almost double the increase it produced in the year-ago quarter to finish the third quarter with 392,000 DVR households.

Execs credited the lift to traction from its integrated TiVo deployments, available to 80% of the footprint at the end of the third quarter. In addition, Suddenlink launched the TiVo Stream (a Sling-like approach for multiscreen delivery) in its Lubbock, Texas, system Oct. 8 and is preparing to deploy the less-expensive TiVo mini boxes for additional outlets in 2013, marking a growing commitment to the DVR pioneer.