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Subscriber declines threaten cable industry's pricing power

21 августа 2009

Cable companies' fight to keep subscribers at a time of tougher competition and the slumping economy threatens the industry's well-proven ability to secure larger price increases than other consumer businesses.

Companies like Comcast Corp. and Time Warner Cable Inc. have reported strong revenue growth despite losing customers, thanks in part to their pricing power. However, increased competition from telecommunications giants Verizon Inc. and AT&T Inc. likely will keep cable's annual price increases in check and could pressure margins amid rising programming costs.

Gregory Crawford, former chief economist at the Federal Communications Commission and now an economics professor at the University of Warwick in the U.K., expects the price hikes by the cable industry later this year and early 2010 will be roughly half the size of the increases made in recent years.

The FCC reported in January that the average price of basic cable TV service rose 5% last year, 4.6% in 2007 and 3.9% in 2006. From 1995 to 2008, the commission said the price of basic service more than doubled, compared with a 38.4% increase in the consumer price index over that span.

Representatives for Comcast, Time Warner Cable and Cablevision Systems Corp. declined to comment on expectations for price increases.

Even if overall price hikes for the industry are lower this year, customers in certain markets could still see above-average increases, while others that have price guarantees in their cable contracts could see no increase at all.

Major cable companies have been losing increasing numbers of TV subscribers over the past year, although their average revenue per subscriber has increased as their remaining customers have upgraded service, added phone or broadband service and paid higher prices. This has allowed the industry to report continued revenue and profit growth even as they have lost customers.

Specifically, since 2004, Comcast's revenue has risen 69%, Cablevision's by 52% and Time Warner Cable's has more than doubled, despite cable's penetration of U.S. households falling to an estimated 56.8% in 2008 from 62% in 2004, according to PricewaterhouseCoopers.

But in the second quarter the drop-off in subscription growth was worse than expected, in many cases. The depressed U.S. housing market weighed particularly heavy, making it difficult to gauge how much the slowdown was attributable to new competition, which consumer advocates have long hoped would put a lid a cable prices.

For example, the nation's largest cable operator, Comcast, lost 213,773 video subscribers during the quarter, 55% more than it lost in the year-ago period.

The third quarter is typically a stronger season for the industry as college students returning to school drive new cable hookups. Ian Olgeirson, senior analyst with media research firm SNL Kagan, said it will be a pivotal time for cable companies.

"If they're unable to produce some sort of rebound above and beyond what you'd expect to see on a seasonal basis, you start to face a new reality where the subscriber declines for cable operators are happening faster than we thought they would," Olgeirson said."At some point, it could require some sacrifice on pricing."

Smaller price increases would make it tougher for cable companies to fight rising programming costs. In the first half of 2009, for example, Comcast saw a roughly 12% increase in programming costs per subscriber, according to Morgan Stanley, which the company was able to offset through cost cuts and higher subscription prices.

Источник: Total Telecom

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