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Pay TV Market Shrinks in 10Q2

September 13, 2010 | Author: Ibex Marketing

Few people love to pay their cable bill. Even fewer celebrate every time the monthly fee goes up again. Still, we’re used to seeing a game of musical chairs when it comes to TV subscription services. Someone gets fed up with their local cable, and decides to switch to satellite service. Others are tired of the shortcomings of satellite, and switch to local cable. Still others are enamoured with the bright, shiny options offered by the telcos in their market. But the numbers have stayed more or less the same. Until now.

According to the September issue of The Bridge, the total number of subscribers for the fourteen largest subscription TV services declined by about 151,000 in the second quarter of this year. The telco services added about 383,000 to their rolls, reaching about 5.7 million. Satellite services stood nearly still, gaining 81,000 to stay at 33 million. But the largest cable companies lost about 615,000 subscribers, dropping down to 54.8 million.

Now, for these cable companies to lose about 1% of their total subscribers is not going put them out of business by the end of the year, but this does represent a disturbing trend. And the same Bridge article also cites research by SNL Kagan across a broader range of subscription TV services; it shows that the net loss in the second quarter of this year was larger than the Bridge’s numbers, down about 216,000 subscribers.

One quarter’s results does not make a trend, but this is certainly worth watching. Is it caused by the lousy economy and high unemployment, causing people to cut back on expenses where they can? Are too many homeowners — the foundation of pay-TV services — losing their homes to foreclosure? Are more people being enticed to “cut the cord” by streaming Internet options such as Netflix and Hulu? Have people discovered that they can get plenty of programming for free in most metropolitan areas from over-the-air digital broadcasts?

It’s likely that the true cause is a combination of all of the above. The danger is that as U.S. TV-watching households start to discover alternatives to the expensive subscription services, some of these subscribers may be lost forever. Cable and the telcos still are in a position to profit off the broadband connections that make some of these alternatives viable, but this still could the warning signs of a fundamental shift in their business models.

So while it’s clear that the sky is not falling, pay TV services would do well to watch the horizon and see if these puffy white things grow into storm clouds.