US Cable Industry Losing Subscriber War Against Satellite

05 August 2004

The ever-mounting threat from US satellite television to the nation's cable industry has reached a pinnacle as cable subscriber numbers have started to fall for the first time.

Recent research from media business consultants Kagan Research shows that 900,000 subscribers deserted cable companies over the last two years, with 171,000 disappearing from three of America's largest firms -- Comcast, Cox Communications and Time Warner.

And that's not all. As the stock market wakes up to such losses, its apprehension is sending cable shares tumbling. In an attempt to counter this, cable firms such as Cox, have opted to buy all publicly-held shares and 'go private' [WAMN:03-Aug-04].

The success of satellite is such that it is received by almost a quarter of US households that pay for TV, and subscribers are flocking in their droves. Echostar Communications expects to add two million new subscribers this year, and ceo Charlie Ergen is in no doubt of the origin of all this fresh blood: "There's no question we are primarily getting our customers from cable."

Offering a relatively cheaper like-for-like service, satellite companies have also been adding to their assets with the inclusion of audience-grabbing local television channels such as neighbourhood news.

Rupert Murdoch's DirecTV is one satellite company that has been accumulating local channels for the last five years. More recently, it has upped competition by offering interactive features, extending its control over rural areas [WAMN: 04-Aug-04] and linking with the BellSouth telephone company, which will now offer a combined service of local, long-distance, wireless, internet and video.

In an attempt to compete with this, cable firms have been updating their images, introducing new features such as digital video recorders and priding themselves on their superior high definition programming and fast internet connections.

In doing so, they have succeeded in holding on to high-end subscribers, with a subsequent rise in revenue – Comcast upped its second quarter revenue by ten per cent year-on-year to $4.84 billion (€4bn; £2.7bn).

But investment bank and asset management business UBS Securities cautions against the false sense of security this offers cable firms: "It's no longer sufficient for the cable industry to focus on price hikes … it has to strike the right balance of building margins and market share."

Data sourced from: The Wall Street Journal Online; additional content by WARC staff