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U.S. Pay-TV Industry Threatened by Soaring Customer Churn

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Research firm SNL Kagan recently reported that the U.S. pay-TV industry lost 430,000 customers in the third quarter of 2016. In the first three months of 2016, U.S. subscription-based video services lost a record 1.3 million customers. Notably, the U.S. pay-TV market comprises three kinds of service providers, namely, cable MSOs (multi-service operators), satellite TV operators and fiber-based telecom operators.

Despite the adversities, the cable TV industry's customer churn rate improved on a year-over-year basis. Notably, cable TV operators were most susceptible to the challenges arising from fiber-based TV and online video streaming services. The cable TV industry lost around 94,000 subscribers, down a considerable 50% year over year. The cable TV industry observed its best quarter in 10 years in the third-quarter 2016.

Interestingly, the satellite TV operators gained about 46,000 customers in the third quarter. However, the biggest chunk of pay-TV customer loss came from telecom operators, which lost a whopping 382,000 subscribers in the same time frame.

In the third quarter of 2016, AT&T Inc. (T - Free Report) , one of the largest pay-TV operators in the U.S. with 25.292 million TV customers, gained 323,000 TV customers in the U.S. through its satellite subsidiary DIRECTV. However, its U-verse telco TV service lost 326,000 customers. Meanwhile, DISH Network Corp. (DISH - Free Report) , the satellite TV provider, lost 277,000 customers.

On the other hand, Comcast Corp. (CMCSA - Free Report) saw its video customer base go up by 32,000, ending the period with 22.428 million TV subscribers. Verizon Communications Inc.’s (VZ - Free Report) Fios TV subscribers increased 36,000 to 4.673 million. Both Comcast and Verizon currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Optimum and Suddenlink, owned by global cable giant Altice, together lost 41,000 subscribers while Cox Communications gained 3,000 subscribers.

The availability of low-priced online video-streaming services is the primary reason behind this depressing situation. Multichannel TV offering, the core business area of pay-TV operators, is steadily slipping out of their hands. In order to counter competition, attaining scale, productivity and effective cost management has become essential for pay-TV operators. However, many core pay-TV operators have shifted their focus on delivering content through the Internet to counteract the churn rate. Notable among them are DISH Network, Verizon and Comcast to name a few.

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