U.S. Pay TV Market: No Where to Go But Down—Or Sideways

The U.S. pay TV market ended 2014 much like it began: operators in IPTV and satellite continued to add subscribers while cable companies continued to shed them.

Actually, it’s slightly more complicated than that. Dish Network ended the year down nearly 80,000 subs while DirecTV added almost 100,000 new customers to its rolls to keep the satellite category clinging to the growth side of the ledger.

The two major IPTV providers, AT&T and Verizon, added over 800,000 subs and continued their strong subscriber acquisition trend (AT&T sold off its Connecticut UVerse subs to fellow teleco Frontier, but still ended the year up).

Cable, on the other hand, continued its slow bleed. Cablevision shed 132,000 TV subs, Comcast waved goodbye to 195,000 subs and Time Warner Cable hemorrhaged 408,000 customers over the course of the year.

The question is where they went.

The notion that “cord cutters” are luring traditional pay TV subscribers away is belied—somewhat—by the growth in satellite and IPTV. Still, there’s more evidence that consumers are going elsewhere for their video entertainment.

Netflix, for one, spent 2014 piling up U.S. subscribers at a pace of more than 1.5 million a quarter. Moreover, Nielsen surveyed home video watchers and found a notable uptick in the number of consumers relying on over-the-air broadcasts for their content. According to Nielson, there are now over 12 million broadcast-only households in the U.S., up from 11.2 million in 2010. Meanwhile, Nielson found that pay TV subs are down a full 5 million from the highs in the second quarter of 2013 and broadband-only households continue to grow.

There is also increasing evidence that “cord nevers” are weighing on pay TV providers. New household formation in the U.S. has picked up steam significantly over the past several months, notching the largest gains since 2005. All those college grads allegedly loafing around on the basement couch have finally been tossed out (or found a job and went all too willingly). But new household formation has not, as of yet, ushered in a wave of new pay TV subs, bucking expectations.

There will be new strains on traditional pay TV operators in 2015 as well. Chief among them is HBO’s long anticipated new standalone service, which will deliver high quality programming to broadband customers without requiring a cable subscription. Dish’s own Sling TV, an effort to court “cord nevers” without alienating its own base of DTH subscribers, has already lured over a reported 100,000 trial users in just a month and may be another disruptive force in the market.

Despite the tough outlook, traditional pay TV penetration was already high enough in the U.S. that it really had nowhere else to go but down. But if Sling TV proves popular, it may provide traditional operators with an alternative route for disaffected customers: sideways, into less costly OTT options still owned and operated by the incumbents.