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Research firm SNL Kagan recently reported that for the first time in history, the U.S. pay-TV market witnessed net subscriber loss in 2013. The U.S. pay-TV market comprises three types of service providers: cable MSOs (multi-service operators), satellite TV operators and fiber-based telecom operators.

Though the cable TV operators were facing severe competitive brunt for a long time, net subscriber gain by the satellite TV and telecom operators were more than offsetting those losses. However, the situation took a complete downturn in 2013.

In 2013, the U.S. pay-TV industry lost 251,000 subscribers despite gaining net 40,000 subscribers in the fourth quarter. The primary reason for this dismal situation is the availability of low-priced online video-streaming services offered by Netflix Inc. (NFLX - Analyst Report), Amazon.com Inc. (AMZN - Analyst Report) and Hulu.

In order to survive the competition, attaining scale, productivity and effective cost management become essential for the pay-TV operators. This might have led to the proposed merger nation’s two largest cable TV operators, namely, Comcast Corp. (CMCSA - Analyst Report) and Time Warner Cable Inc. (TWC - Analyst Report). The proposed deal is currently awaiting regulatory approval.

According to SNL Kagan, in 2013, the cable TV operators lost nearly 2 million video subscribers including 388,000 in the fourth quarter alone. Currently, cable MSOs together provide video services to approximately 54.4 million customers in the U.S., commanding a market size of 54%.

Satellite TV operators also facing tough times, but are still adding subscribers. In 2013, satellite TV operators gained 170,000 subscribers compared with 288,000 in 2012. Currently, satellite TV operators provide video services to around 34.3 million customers in the U.S., commanding a market size of 34%.  

On the other hand, telecom operators, which provide fiber-based high-speed video services, are gradually gaining popularity. In 2013, telecom operators registered a net 1.5 million video customers compared with 1.3 million in 2012. Currently, telecom operators provide video services to over 11 million customers, holding nearly 11% of the total market.

Internal dynamics of the pay-TV market are slowly shifting toward fiber-based video offerings of large telecom and satellite TV operators. Moreover, the strong presence of online video streaming providers is posing significant threat to the existing pay-TV business model. Video offering is the core business area of the cable TV operators, which is slipping out of their hands.

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