Cable, Satellite Households Could Rise From Plateau

May 9, 2005  •  Post A Comment

Is the universe of households receiving either cable or satellite growing?

Craig Moffett, a cable analyst at Bernstein Research, raised the question last week after two of the nation’s top cable operators actually added subscribers in the first quarter (see story, Page 20)-at the same time that the country’s two satellite operators did.

Such an occurrence raises the possibility that what had long been viewed as a maturing market might actually have some growth left in it.

The universe of households receiving either cable or satellite has been stuck at between 85 million and 90 million for years, with most observers regarding the market as fairly mature. That helped explain why when satellite subscriptions went up, cable’s numbers declined. It also points to why cable and satellite operators alike are shoring up their product offerings ahead of the arrival of their newest competitor: the telephone companies.

But the subscriber numbers reported last week by Cablevision Systems, Charter Communications and Time Warner Cable proved to be bright spots, with Cablevision and Time Warner reporting gains while Charter recorded a smaller-than-expected decline. Add in the cable operators that reported before these three companies, and by Mr. Moffett’s count, the industry lost just 21,000 basic cable customers.

At the same time, DirecTV and EchoStar Communications, which both issued first-quarter earnings data last week, also reported substantial increases in subscribers, with DirecTV adding around 505,000 net new customers while EchoStar added 325,000 customers. Combined, the satellite industry added 830,000 customers.

To be sure, the number of households in the United States is growing, thanks to low interest rates, brisk home sales and robust new-housing construction. Furthermore, there is still some growth from consumers making the switch to cable or satellite after relying solely on over-the-air broadcast signals. Mr. Moffett also noted that satellite companies could be receiving new customers as a result of their crackdown on people illegally receiving service.

“But even considering all these factors in concert, the yawning gap between satellite growth and cable contraction seems … large,” Mr. Moffett said in a research note.

These observations came as DirecTV and EchoStar reported first-quarter numbers.

DirecTV posted a narrowed first-quarter loss and a strong revenue gain, thanks in large part to the addition of more than half a million net new subscribers during the three-month period ending March 31. DirecTV reported a loss of $41 million, compared with year-ago red ink of $639 million, while revenue advanced 26 percent to $3.15 billion.

The company attributed the improved results to the addition of 505,000 net subscribers during the quarter as well as the full economics of the former National Rural Telecommunications Cooperative customers who were folded into DirecTV’s results starting in the 2004 third quarter. Those factors helped offset a decline in set-top box revenue derived from Hughes Networks Systems, which sold the set-top box manufacturing business last June.

DirecTV said significant portions of the subscriber growth came as a result of the partnership DirecTV has with a number of telephone companies, which combined to add more than 150,000 customers, as well as its Spanish-language Para Todos product, which was responsible for 120,000 net new customers in the quarter.

Meanwhile, EchoStar swung to a first-quarter profit of $318 million, compared with a year-ago loss of $43 million, driven by strong subscriber growth as well as a $134 million gain related to an insurance settlement for a problem satellite. Revenue surged 28 percent to $2.02 billion, as the No. 2 satellite operator added nearly 325,000 net new subscribers.

The company said it was able reduce customer churn even as it raised subscriber rates in the quarter, bringing its rate of customer defections to 1.44 percent from 1.48 percent a year ago.