Wednesday, February 29, 2012

It's Not Cord Cutting, It's Cord Switching

Customers love their TV content. But ask a cable company executive and they all point to a drop in basic subscribers quarter over quarter. They don't call it cord cutting; rather, a bad economy, unemployment, and low housing starts. Except those customers still want their TV content and they are in fact cord switching to telco and satellite providers. In fact, they have captured subs from cable operators as well as found new consumers, too.

"The growth was driven by telecom-based services AT&T (NYSE: T) U-Verse and Verizon FiOS, which added 208,000 and 194,000 video customers during the fourth quarter, respectively. Satellite companies DirecTV (NYSE: DTV) (up 125,000) and Dish Network (NSDQ: DISH) (added 22,000) also contributed to this growth." So while Comcast, Time Warner Cable, Cablevision, Charter and others lost basic subs, telco and satellite grew.

If the cable excuses hold, then the reasoning to why seems clear. Telco and satellite are offering similar services at a lower cost. Consumers may be regarding cable tv providers as a commodity industry and in such cases, the lowest price prevails. Cable companies have tried to adapt by building out lower priced entries into basic subscriber packages but it may not be enough for consumers to switch back.

And Cablevision in their recent Q4 financials announced that they may not even try this route. "Cablevision also will eliminate deep discounting for new customers, which should ease the financial impact on the company." It may lower costs, but it will lower revenue and sub numbers too. For now, they may not be cord cutting, but will only continue to switch to the lowest cost provider of TV services.

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