Gloomy times for cable TV, and you may suffer for it

Cable TV companies have been losing subscribers for quite some time now, but new analyst numbers released today suggest that their losses are accelerating.

That’s great news if you’re Netflix or AT&T U-verse, but it could mean more price hikes are on the way for current cable subscribers.

Cable TV took unprecidented subscriber losses in the July-August-September quarter—687,000 accounts closed—according to analyst firm Moffett Nathanson. That’s way more than the cable guys lost in the same quarter last year—466,000.

Many of the cable defectors went over to competing video services from AT&T (U-verse) and Verizon (FiOS). The telco TV players gained 400,000 new subscribers in the third quarter. Satellite companies made out OK too, picking up 174,000 new subscribers in the quarter. The other 113,000 missing subscribers cut the cord entirely.

The pay TV industry as a whole (cable, satellite, and telephone company TV) lost .02% of subscribers. It was its fourth consecutive quarter of no growth, causing analyst Craig Moffett to write that the industry “had its worst 12-month stretch ever.”

AT&T U-verse TV service is the biggest beneficiary of cable TV's recent subscriber losses.

One of the biggest reasons for the subscriber losses is quickly-rising licensing prices being asked by TV network and Hollywood content creator/owners. On average, analysts say, video content costs have been rising at a brutal 8%-10% per year.

So far, pay TV companies have been dealing with the high content costs by—you guessed it—raising prices for TV and other services. Cable, satellite, and telco TV companies as a group took in 5.1 percent more revenue this year than they did last year.

But high revenues don't mean high profits, as Moffett explains in today's investor brief: “Pay TV revenue growth reflect rapid Pay TV pricing growth . . . and that is precisely the problem. Rapidly rising prices are squeezing lower income consumers out of the ecosystem.”

The content cost issue was at the center of this summer's cage match between CBS and Time Warner Cable. CBS raised its content prices for the umpteenth time, and Time Warner finally drew a line in the sand. After months of no CBS programming on Time Warner, the two finally made a deal just before the NFL season started.

IDC video entertainment analyst Greg Ireland reminds me that the cable company is often just the public-facing whipping boy for the behind-the-scenes mischief of the content owners. So our ire over high cable bills should be aimed, at least in part, at the TV network and Hollywood conent owners, not just at the cable company.

Moffett says even the cable TV price increases might not be enough to cover out of control content costs. “Distributors are between a rock and a hard place,” Moffett says in a follow-up email to TechHive. “Pay TV rates are rising too fast to be sustainable, but not fast enough to keep pace with programming cost increases.”

Netflix and other Internet TV services are developing original shows to lure customers away from cable TV.

The result? Selling TV service just isn’t nearly as good a business as it used to be. Moffett describes profit margins on video service as being “in free fall.”

“To offset the margin pressure in video, some of the cable operators, notably Time Warner Cable and Cablevision, pushed price hard on broadband to compensate," Moffett says. "It worked, but it's certainly not a healthy trend.”

This summer Cablevision CEO Jimmy Dolan even hinted at taking his company completely out of the TV business.

As prices rise, and Netflix, Hulu and Amazon continue to improve their offerings, the cord cutting option will begin to look like the best option for more and more people.

To be clear, today's subscriber loss numbers aren't yet big enough to represent grave material losses to the pay TV companies. Sure, the cable companies may have lost a combined 687,000 subscribers, but the biggest one, Comcast, has more than 21 million TV subscribers by itself.

But if the loss numbers of the past four quarters are the begining of a long upward line, they could be pointing at day in the near future where quarterly subscriber losses are in the millions.

When that day comes we’ll know that radical changes are afoot in TV Land. It'll be what they used to call on the Mickey Mouse Club “Anything Can Happen Day.”

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