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Prognosis WeakFor Sub Growth

Despite ending the third quarter on a
positive note, the troubles that brought the pay television sector
its worst first half in history this year haven’t gone away for
long, according to analysts.

The pay TV sector added 6,000 customers
in the third quarter, a big improvement over
the 382,000 subscribers it lost in the second
quarter of this year.

Improvements in cable video losses — cable
companies lost about 517,000 customers
in the third quarter, compared to a loss of
659,000 in the second quarter — and strong
performance from satellite and telco operators
pushed the sector back into the black in
the period.

Satellite subscribers increased by 216,000
in the period, all attributable to DirecTV,
which added 327,000 net new customers in
the span. Those gains off set the 111,000 net
subscribers lost by No. 2 satellite-TV company
Dish Network. Telco video providers Verizon
Communications and AT&T were a little
weaker over that timeframe, adding 307,000 new customers
versus 386,000 additions in the second quarter.

In a research report, Sanford Bernstein cable and satellite
analyst Craig Moffett wrote that while the quarter was an improvement
both over last year (when the sector lost 186,000
subscribers) and sequentially, there is no reason to break out
the party hats and noisemakers just yet.

Moffett noted that over the past 12 months the number of
pay TV subscribers has increased by 0.1%, down from an already
low 0.5% in 2010. For Moffett, that indicates that any
growth in one segment of the sector is basically coming from

“With meager growth of 0.1% year-over-year, the industry
is, more than ever, a zero-sum game,” Moffett wrote. “Subscriber
gains for one player means losses for another. And at a
time when video programming margins are relentlessly compressing,
subscriber growth is critical to the story.”

Wunderlich Securities media analyst Matt Harrigan said
the sector is slightly worse than a zero-sum game, assuming
housing formation a little above 0.1% even with older children
moving back with their parents, some slight cord-cutting and
involuntary churn from cash-strapped customers.

“Certainly, getting back to 2 million household formations
[annually] would change everything, but it’s hard to believe
that happens anytime soon,” Harrigan said.

Miler Tabak media analyst David Joyce pointed to
broader economic issues.

“It’s a zero-sum game at best for now, with unemployment
at about 9% and underemployment around
17%,” Joyce said. “Consumers are tapped out and will
be/have been cutting premium channels, [pay-perview],
[video-on-demand] and wireline phone before
they do their promotion hop.”

Joyce also was not optimistic that housing formation
would rebound soon.

In his report, Moffett wrote that satellite TV has
the most exposure to declines in video because of
its one-product offering. And telcos, which have
been aggressive in their video buildout, will likely
see a decline in video growth as their fiber builds
reach conclusion. Cable operators may fare better,
he wrote, because they have a robust broadband
product that is still growing.