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Cable Companies See Rise In Cancellations

November 29, 2010

New research has found that the struggling economy has affected US cable television companies negatively as subscribers drop services in record numbers and increasingly move to cheaper online options.

The findings point to a growing number of potential customers for online services such as Hulu and Netflix, as well as the new Google TV and Apple TV, which offer lower prices and more flexibility, according to analysts.

According to research group SNL Kagan, US cable companies lost more than 740,000 basic video subscribers in the third quarter alone, the biggest decline since it began tracking the cable sector in 1980.

The leading US cable operator, Comcast, lost 275,000 subscribers during the third quarter, while Time Warner Cable, the second-largest, lost 155,000 during the July to September period.

The pay TV sector, which includes satellite television and TV services offered by a telecom, lost 119,000 customers after gaining 346,000 just a year earlier, according to SNL Kagan.

Along with 216,000 customers dropping services in the second quarter, the pay television sector has fallen 2.3 percent in the last six months to around 100 million subscribers, SNL Kagan said.

Cable TV execs placed blame on record unemployment and the economic downturn for the unprecedented losses.

“I think there’s much ado about very little in terms of all the talk about cord cutting,” Philippe Dauman, president and CEO of Viacom, told financial analysts. “We don’t see cord cutting as affecting our business,” said Dauman, whose properties include Comedy Central and MTV.

“I think it’s remarkable that in the teeth of a powerful recession that we went through that continued viewership of subscription television held up as well as it has,” he added. “And as the economy recovers we expect to see the number of television subscribers in the US grow at a better clip than it has over the last year and a half or so.”

As for Netflix, Dauman said it has “positioned itself, not as a substitute for television viewing but as a complementary service, and that is the way it is being used.”

Netflix, which last week offered a $7.99-per-month unlimited streaming plan of movies and television over the Web, has more than 16 million members in the United States and Canada.

Hulu, owned by The Walt Disney Co., News Corp. and NBC Universal, recently offered a new service as well — “Hulu Plus” — which offers online viewing of recent episodes, also for $7.99 per month.

While cutting corners during hard times is a major decision for many Americans who abandon pay TV, analysts said there are signs that some are replacing cable with the newly available online plans.

“It is becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance, particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains,” Ian Olgeirson, senior analyst at SNL Kagan, told AFP.

Jeff Kagan, a telecom analyst not affiliated with SNL Kagan, said several factors were behind the decline in cable subscribers, including the inability to buy channels separately rather than paying for ones they do not watch.

“In order to raise rates annually, the cable television industry always adds more channels and says it is still a good deal,” said Kagan.

“However, the average customer still watches the same 10 to 15 channels,” he said. “Adding more channels and charging more does not make it a better deal… It just makes it more expensive.”

US consumers have lived with high-cost monthly cable bills for years because there were no other options, but “now things are changing,” said Kagan.

“Suddenly there is competition in many markets from satellite television companies and the IPTV services from phone companies,” he said. “Suddenly the economy is rough and people increasingly want to save money.”

“Suddenly there are new services that are popping up like Google TV and Apple TV and more, taking us away from traditional television,” he added.

“Customers have finally had enough “¦ Now with choices they are making their move,” Kagan told AFP.

While many are unquestionably making their move to cheaper online options, the numbers still remain relatively low for now.

According to a study released last week by Frank N. Magid Associates, only one percent of US consumers have cancelled television subscriptions in favor of online content, and only 2.5 percent of consumers use Internet content exclusively.

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