The U.S. multichannel segment posted its first full-year decline in subscriptions, according to SNL Kagan estimates for cable, DBS and telco offerings at the end of 2013. While seasonally driven quarterly declines have become routine for industry watchers, the annual dip illustrates longer-term downward pressure even as economic conditions gradually improve.
According to the tally for the trio of platforms, service providers collectively shed 251,000 in 2013, dipping to 100.18 million combined subs. The industry added 40,000 video subscriptions in the fourth quarter, slightly weaker on a year-over-year basis and not enough to offset the broader downward momentum.
Expanding the horizon to include the trailing 24 months buttresses the thesis of prolonged stagnation for multichannel subscriptions facing the dual forces of segment maturity and over-the-top alternatives.
The fourth-quarter subscription bump did not carry enough magnitude to lift the penetration rates sequentially. Housing formation was modest but still outpaced new subscriptions. The SNL Kagan approach that combines the U.S. Census Bureau categories of temporarily occupied and occasional use housing units produces a sequential net gain of 197,000 occupied units to nearly 115 million at year-end.
Overlaying the figure onto multichannel subscriptions from the three primary platforms results in a penetration rate of 84.5%, down just slightly from the previous quarter. The figure is also down year-over-year using revised housing estimates from the Census Bureau.
Losses from cable providers fueled the overall declines, but the estimated figures for the industry did show some improvement in the fourth quarter on both sequential and year-over-year comparisons. SNL Kagan estimates cable operators lost nearly 2 million video subscriptions for the full year and 388,000 in the fourth quarter to finish 2013 with fewer than 54.4 million basic subs.
The satellite providers forestalled potential annual declines in subscriber count, notching a six-figure increase for the fourth quarter and a 170,000 small-dish customer gain to end 2013 with 34.3 million on the books.
The telcos once again shouldered the weight and avoided overt signs of strain. SNL Kagan estimates the telco video gain was up slightly year over year at nearly 1.6 million. The fourth quarter was a bit softer than the year-ago period, a consequence of slowing footprint expansion, particularly from Verizon Communications Inc.FiOS.
Digital Cable
Cable operators resumed digital gains in the fourth quarter after two straight quarters of subscriber losses, with Comcast Corp. contributing the bulk of net additions, or 70% of the total, thanks to improved basic sub results. Overall, operators added an estimated 152,000 digital subs sequentially, inching toward the 47 million mark.
Time Warner Cable Inc. cut the heavy losses logged in the third quarter, when a high-profile retrans dispute with CBS Corp. weighed heavily on its video business. But the operator remained stuck in negative territory, posting the largest absolute loss among operators in the red, down 32,000 subscribers. To put this in perspective, Cable One Inc. was the second-largest decliner, shedding 10,000 digital customers.
Looking at sequential percentage changes paints a different picture. Time Warner Cable was down 0.4%, versus nearly 4% for Cable One. Interestingly, Cable One has consistently featured one of the lowest digital penetrations of basic subs: a metric that would logically suggest a greater potential for gains.
In comparison, Comcast ended the period with a 99.7% digital penetration rate of basic subs, the second-highest among major operators. This is up from 99.5% in the third quarter and 96.6% in the fourth quarter of 2013. This 3-percentage-point jump annually partly explains the company's healthy digital performance. Net basic sub additions — the company's first sequential net add in nearly seven years — are also part of the equation.
Overall, digital subs were up 0.2% annually in the period ended Dec. 31, 2013, reaching 46.9 million. An average 86.2% of basic subs were digital customers during the period. This is up from 83% in the fourth quarter of 2013. But we note that the digital penetration of homes passed dipped in the interval, down roughly 38 basis points.
Yet by the end of the fourth quarter the number of basic video customers not subscribing to digital had fallen to 7.5 million, for a 511,000 sequential drop. On an annual basis, digital progress is even more impressive: 17% of basic video subscribers, or 9.6 million, were not digital customers in the fourth quarter of 2012. The continued decline in basic subscribers has contributed to this trend.
DBS
DBS growth slowed in the fourth quarter as both DISH Network Corp. and DIRECTV focused on high-value customers. Despite the headwinds, DISH and DIRECTV controlled churn and produced net subscriber gains for the year, forestalling an annual decline for perhaps another year.
The segment gained 101,000 subscribers in the fourth quarter, contributing to a year-end gain of 170,000 subscribers. Nearly all of the annual gain was contributed by DIRECTV. Despite the loss of 162,000 subscribers in second quarter 2013, the DBS segment ended at 34.3 million subscribers.
DIRECTV, with 169,000 net adds for the year, ended 2013 with 20.3 million video customers in the U.S., reflecting both the reduction in churn, from 1.53% in 2012 to 1.50% in 2013, and the strategic shift of its acquisition strategy away from lower-value gross adds to an emphasis on high-value current and potential subscribers.
The company estimated one out of three callers interested in DIRECTV does not pass the credit requirement. DIRECTV says it has improved the calculated value of its new customers by 15% with 7% fewer gross adds since 2010.
DIRECTV projects positive net subscriber additions in 2014.
DISH added just 8,000 subscribers in fourth quarter 2013 to avoid an annual subscriber loss. The company ended the year with only 1,000 net subscriber additions.
DISH gross adds of 2.7 million for 2013 were down 73,000 compared to 2012. Churn was up slightly at 1.58% for 2013 compared to 1.57% the previous year. The company said the churn was impacted negatively in part to a price increase in 2013 that did not occur in 2012.
The improved take rate of the multiroom Hopper contributed to the gross adds and the management of churn with its higher value subscriber base. And with legal rulings in DISH's favor in regards to the Auto Hop feature, the product differentiation seemed poised for further aggressive marketing. However, coming to contract with Walt Disney Co. may mute the Auto Hop's selling points, with the delay for the feature expanded to three days.
While Auto Hop was initially billed as a consumer-friendly offering, the threat of lost advertising revenue by broadcasters has made it a key point in negotiations. CBS' carriage deal with DISH expires in 2014, and the broadcaster has said it wants to push the model to seven days, which would further steal Auto Hop's thunder.
What DISH may lose on Hopper functionality it could add back with future growth in the OTT arena. The agreement with Walt Disney paves the way for DISH to offer Disney channels online and develop a streaming bundle to offset DBS subscriber losses.
Telco Video
The telco segment finished the year strong, led by AT&T Inc.'s U-verse. The combined multichannel video subscribers served by Verizon Communications Inc. FiOS and AT&T Inc. U-verse reached 10.7 million at the end of the fourth quarter, behind net adds of 286,000. CenturyLink Inc.'s PrismTV gained 9,000 subscribers to end at 175,000 customers, and Consolidated Communications Holdings Inc.'s IPTV product added 1,000 customers to end the year with 110,000.
AT&T U-verse ended the quarter with nearly 5.5 million video subscribers and extended its lead over Verizon FiOS TV's 5.3 million. AT&T's has not stopped its expansion of the U-verse footprint. Its footprint expanded by close to 7% compared to 2012 and is on pace to reach its targeted 8.5 million new video and broadband customer locations by 2015. Penetration improved to 21% and U-verse is primed to increase market share.
Verizon, while outpaced by AT&T, also had positive subscriber results and added 92,000 net new FiOS video subs in the quarter. FiOS' video sub gain decreased by 43,000 compared to the fourth quarter of 2012.
Penetration improved to 35%. While its penetration exceeds that of U-verse, FIOS passes nearly 11 million fewer homes.
Multichannel Market Trends is a service of SNL Kagan, providing exclusive analysis and commentary.
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