By SHALINI RAMACHANDRAN - Updated May 9, 2013, 7:22 p.m. ET
Faced with rising programming costs, pay-TV providers are getting pickier about the customers they want to keep.
Quarterly results from Dish Network Corp. DISH -2.04% Thursday, as well asComcast Corp., CMCSA -0.73% Charter Communications CHTR +0.08% andDirecTV DTV +1.74% in the past week or so, show that pay-TV companies are focusing more on holding on to the subscribers that generate the most revenue and profit, even if that means letting less-valuable customers fall to the wayside. Each of the companies reported higher video revenue, thanks in part to rate increases, despite lower subscriber numbers.
Dish executives told analysts on a conference call Thursday that the company expects to see higher monthly revenue from customers who have its new Hopper digital video recorder and that these customers tend to buy more services and additional packages.Dish, for instance, reported a 65% drop in video-subscriber additions in the first quarter, acquiring 36,000 new customers compared with 104,000 a year earlier. However, the operator's subscriber-related revenue increased 4% to $3.4 billion, driven primarily by a rate increase for cable packages implemented in February, as well as higher fees for equipment.
Dish appears to be "moving toward a higher-quality subscriber strategy," said ISI Group LLC analyst Vijay Jayant in a research note.
The results highlight a reality of pay TV today: With the market saturated, providers have to rely on raising prices or selling extra services to increase revenue. And given steadily rising programming costs—levied on a per-subscriber basis—lower-end video customers who aren't taking such services as digital video recorders and broadband are less attractive to retain.
Comcast and Charter had higher rates of subscriber losses but increased video revenue. A big chunk of the subscribers disconnecting from both companies were people who only subscribed to video rather than to "triple play" packages of video, broadband and phone.
Associated Press
Pay-TV providers, like DirecTV, are focusing on keeping higher-value subscribers. Above, an installer in Los Angeles.
Charter said earlier this week that most of its video-subscriber loss of 24,000 came from "single play" subscribers who were receiving cheaper analog video, an old video-transmission technology that Charter has stopped marketing. The company said the decision was made in part to free up bandwidth for more advanced video services and faster Internet speeds.
One byproduct of chasing higher-value customers, executives say, has been to drive some video subscribers to disconnect entirely. That is feeding the cord-cutting phenomenon still debated throughout the entertainment industry.
"We probably lose a little market share to cord cutters…who can't afford $80 a month any more," said Dish Chairman Charlie Ergen on an earnings conference call Thursday. "They put up…an antenna and go to Netflix and pay $7.99, and they get enough TV" for their budget.
Some cable operators say that most of the video-only subscribers who are disconnecting are going to satellite firms. But UBS UBSN.VX +0.58% analyst John Hodulik said perhaps "nobody is getting the cost-sensitive customers."
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