Pay-TV Continues on Decline in North America

14 May 2013

Despite achieving slight growth in the fourth quarter, the North American pay-TV market is on a path of moderate decline because of the rise of competing over-the-top (OTT) services, compelling cable, satellite, and Internet Protocol television (IPTV) operators to launch new services such as TV Everywhere to attract and retain customers, according to a new TV Intelligence report from information and analytical provider IHS Inc.

The overall market for pay-TV grew by 78,000 subscribers in the fourth quarter of last year, up a mere 0.07 percent. While that gain may be perceived as negligible, it was a welcome change compared to two straight quarters of decline for basic video subscribers. The slight increase also saved the North American pay-TV market from what could have been its first-ever industry wide annual decline in basic video subscribers.

Most of the gains for the pay-TV business were in the telco-owned IPTV space, with minor growth from satellite and a continued drop for cable.

For two straight years, cable has seen subscriber losses during each quarter. And while satellite has held relatively firm, the space has grown less than a percentage point per quarter, with some quarters incurring losses.

The big winner has been IPTV, which climbed 4.2 percent in subscribers during the fourth quarter of 2012, and has maintained about a 4.0 percent or higher growth for the past two years.

At the end of 2012, 10 percent of all North American pay-TV basic video subscribers used IPTV, reflecting the success of advertising campaigns and the appeal of its services to consumers. And although growth for IPTV players is slowing, expansion will remain significant for years to come until the installed base reaches 4.5 million subscribers by 2017, representing 14.0 percent of all pay-TV households.

Different strategies for different operators

Operators continue to struggle to combat rising programming costs, carriage-fee increases and the threat from OTT services. In order to stave off competition, cable operators continue to implement strategies to attract consumers, such as bundling Internet services like TV Everywhere. IHS believes factors like the new TV Everywhere applications, increased support for connected devices, and the use of Smart TVs as well as Blu-ray players will be advertised heavily in an effort to retain subscribers.

However, bundling Internet allows consumers to more easily access alternatives to pay-TV, including OTT services such as Hulu and Netflix. With more than 23 million subscribers in the U.S. and growing, Netflix remains one of the biggest threats to pay-TV. And despite Comcast, Dish, Time Warner Cable and AT&T adding streaming video on demand (SVOD) services to their arsenal, these pay-TV operators are still struggling with how to secure licensing for content at a low enough price that it won't break their bank.

Satellite falls to earth

Not immune to subscriber losses, satellite players are embarking upon different strategies to retain and grow their subscribers. DirecTV in the United States and Shaw Direct in Canada have done a good job of securing their subscriber base, albeit for very different reasons. Shaw Direct has the benefit of geographic isolation to keep its numbers up, while DirecTV has used it sports rights to leverage subscriber retention.

U.S. based-Dish Network and Bell Satellite of Canada have been less stable as Dish battled with AMC, which cast the network in the dark on Dish for months, helping to fuel two straight quarterly losses for Dish. For its part, Bell Satellite lost one-third of its 95,000 subscribers to conversion to Bell's IPTV service.

While some of these strategies are working for both cable and satellite, they won't stop the losses. IHS believes that pay-TV penetration will continue to decline from the 86 percent it held in 2009, which means that cable and satellite will battle over the remaining households and try to secure a larger portion of the existing market.

Canada's defense

Canada has one of the highest pay-TV penetration rates in the world, at nearly 90 percent at the end of 2012. But much like the U.S., Canada's pay-TV penetration rate is on a shallow decline, as new households are less likely to take a traditional pay-TV subscription because of the high price and the emergence of OTT solutions.

For the most part, Canadian cable operators have been fairly successful in fending off the threat of OTT, but still have been hit hard by aggressive IPTV competition. Bandwidth caps have been in place for years by all Canadian cable operators, effective as they are at throttling the usage of OTT services such as Netflix. Today, many Canadian operators have taken up a more American-style model of operation, opting to loosen bandwidth caps and move significantly into the Internet service-provider (ISP) business.

While OTT has been made less of an issue, the success of IPTV services, such as TELUS' Optik TV and Bell Canada's Fibe TV, have come at the expense of incumbent cable operators, and more recently from satellite providers. Not surprisingly, IPTV is expected to be the one bright spot for Canadian pay-TV moving forward.

Read more >> TV Media Intelligence

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