Comcast reported its Q4 '13 and full-year results this morning, which included the company adding 43K video subscribers vs. a loss of 7K in Q4 '12. It was the first time Comcast added video subscribers since Q1 '07. When the biggest pay-TV operator in the U.S. reports a glimmer of health in its core video business, the question begs, are fears about cord-cutting reduced?
While I've always believed that cord-cutting was over-hyped, the reality is that Comcast's positive move does not in and of itself mean concerns about cord-cutting are lessened. That's because Comcast's gain likely says less about cord-cutting dynamics than it does about pay-TV industry share-shifting. For years, the industry pattern has been that telcos and satellite operators have been taking video subscribers from cable TV operators.
Overall that's almost certain to happen in Q4 '13 as well. The difference is that Comcast will not be among the operators giving up subscribers (though it still did for the full year of 2013, losing 305K subscribers, slightly better than the 336K it lost in 2012). Likely it just means marginally lower additions for telcos and satellite. However, overall the industry trend is for flat to modest declines in video subscribers. Pay-TV is a saturated business with a relatively high monthly cost. That means there's little subscriber growth left, with existing or former subscribers simply switching providers.
Further, the range of over-the-top alternatives causes pressure, particularly among younger "cord-never" viewers. To date that pressure has been relatively muted though; consider that at the end of Q3 '13 the pay-TV industry had about 3 million more subscribers than 5 years earlier. Meanwhile Netflix grew its domestic subscriber base to nearly 33.5 million by the end of 2013. Clearly most Netflix subscribers are still pay-TV subscribers too.
How things unfold from here though remains an open question, which is why cord-cutting is still very relevant. One of the key lessons from Comcast's solid Q4 is that significant investments in upgrading the core video offering do have a pay-off. Comcast's X1 (and forthcoming X2) show the benefits of integrating IP and cloud delivery in the set-top box, particularly to improve the user experience and guide. Other operators need to follow suit to make themselves less vulnerable to video subscriber defections.
In short, the competitive bar keeps rising for pay-TV operators. Comcast's Q4 shows operators can succeed, but with change all around, time is of the essence.
Categories: Cable TV Operators