Pay TV is for Real
Over-the-top player Netflix leads the Pay TV market with just over 24 million customers. Comcast came in at a close second with just over 22 million subscribers. However, there seems to be a steady exodus of customers migrating from cable providers to less-expensive OTT players and highly-ranked IPTV providers (Fig. 1).
Both Verizon and AT&T U-verse gained about 200,000 subscribers, while Netflix streaming service grew by over 1.8 million subscribers. Time Warner, Comcast, and Cablevision all shed subscriptions by the thousands.
Both the falling price of HDTVs and an increase in the number of households with DVRs is driving an up-tick in pay-TV subscribers. In fact, penetration of HDTVs increased by 8 percentage points over the past year, according to a report from JD Powers and Associates.Service providers with the ability to offer triple-play services have also seen a slight increase in monthly billing: an average of $149.52 in 2011 from $140.90 in 2010. But Ari Banerjee, Senior Analyst with Heavy Reading, says that although triple and quadruple-play services are a revenue generator, no one provider seems to be able to provide a comprehensive, high-quality service, which will be key to attracting and keeping subscribers over the long haul.
Personal Service Pays Off
"All the service providers today have unique challenges which they are trying to overcome," Banerjee said. “They need to do something to have the confidence of consumers buying triple play package from them."
For a fourth consecutive year, AT&T's U-verse and DIRECTV were the providers ranked highest in customer satisfaction by JD Powers and Associates Residential Television Service Satisfaction Study, which is based on responses from 23,880 U.S. customers. Both saw significant subscriber growth, where lower-ranked cable operators saw significant subscriber-churn. Providers positioned to provide portable, flexible, price competitive service will win and IPTV provides the flexibility to do just that. Also worth noting, is that higher billing triple- and quadruple-screen plays make up nearly 75 percent of the U-verse subscriber base.
But customer satisfaction isn't the whole picture. In fact, AT&T recently reported U-verse TV subscribers have fallen off this year compared to last. In the second quarter of 2010, AT&T added 236,000 TV subscribers, while over the same period in 2011, they added only 202,000.
It's hard to predict whether the weakening subscriptions are simply another casualty of the economic downturn (similar to falling subscribers to HBO or Showtime, for instance) or an indicator that consumers are still churning to low-to-no cost providers like Netflix (NADAQ: NFLX ) and Hulu. There are also plenty of questions left for content providers to answer regarding how to monetize their content with an IPTV model. Hollywood is freaked about their entire business model being turned on its end. But customers won't sign up for any video service that doesn't offer the premium content they want, leaving many potential video consumers in a wait-and-see mode.
