Cable TV confronts mounting subscriber losses

[jon]

FP Tech Desk
Cable TV confronts mounting subscriber losses
Jamie Sturgeon
Jul 12, 2012 – 8:25 PM ET
Financial Post

The picture darkened a shade or two for the cable television industry Thursday after a flurry of earnings reports showed subscriber losses across the board.

Astral Media Inc. and Corus Entertainment Inc., the owners of profitable and popular pay-TV networks such as HBO Canada and Movie Central, reported unexpectedly sharp customer declines in the third quarter ended May 31.

Meanwhile, one of their TV distribution partners, Cogeco Cable Inc., also booked TV subscription losses.

While still generating enviable profit, the dips are separate signs — and additional evidence — that cable's heyday appears to be drawing to a close, market observers say.

In place of the steady revenue and margin expansion cable operators once enjoyed almost automatically stand long-talked about — and now plainly visible — scraps for market share that are just entering their opening rounds.

Cogeco, the country's fourth-largest cable provider, lost nearly 5,000 basic TV subscribers in the latest quarter, a period Louis Audet, Cogeco's chief executive, called the start of a "new competitive phase."

Analysts peg the prime cause for the decline to Bell Canada Inc.'s new Fibe TV service. Bell, already a major satellite provider, has been focused on rolling out a new IPTV (Internet protocol television) system that can take on cable in denser urban areas.

Already applying heat on Rogers Communications Inc. in Toronto and Quebecor Media Inc.'s Vidéotron in Montreal, Bell has now begun encroaching upon Cogeco, which holds a dominant position in towns and cities between Windsor and Quebec.

"The battle never stops, and it never will," Mr. Audet said on a conference call. "That's quite all right, the consumer wins."

All of Canada's large "cablecos" are being forced to respond to the IPTV threat from Bell as well as from Telus Corp.

In Western Canada, Shaw Communications Inc. has weathered a bruising assault from Telus' Optik TV service, which has acquired one-fifth of the market in Alberta and British Columbia in recent quarters.

Yet the traditional cable business is also confronted by customers looking to the Internet for programming, a demand being filled by multiple players including new-entrant content providers such as Netflix Inc.

The disruptive threat of online distribution is affecting both television distributors such as Cogeco, Rogers and Bell as well as channel owners such as Astral and Corus who are seeing their bases challenged by the shift.

In the eastern part of the country, Astral said it lost 22,000 HBO Canada/The Movie Network customers from the second to the third quarters. In the West, Corus, which operates Movie Central/HBO Canada, shed 13,000 subscribers.

On a year-over-year basis, Corus, which operates Movie Central, said its base is off 4.8% to 975,000. Astral is down 1.5% to 1.847 million customers.

Executives for each media company said the pending launch of a new HBO "GO" service that streams programs online and to wireless devices, combined with new promotions, should ignite a pay-TV turnaround.

"We believe we've got the right strategies in place to return to a steady growth pace," Doug Murphy, Corus' president of television, said on a conference call.

Ian Greenberg, chief executive of Astral, which has been sold to Bell for $3.38-billion, dismissed analyst questions about whether the weakness stemmed from online competition.

"We believe our pay-TV total subscribership will be equal to last year at the end of the fourth quarter - which means we'll have to have a gain to accom-plish that," the executive said. "Last year in Q4, we lost subscribers. This year, we expect to increase subscribers."

Executives from each said a soft ad market also weighed on revenues, but Corus CEO John Cassaday said his firm was experiencing higher sales in recent weeks.

Despite the revenue pressure, Astral and Corus still preserved profit margins in the third quarter.

Cogeco reported betterthan-expected earnings, aided in part by growth in Internet services.

However, it cut its customer growth expectations for the year citing a "combination of category maturity, competitive offers, and the tightening of its credit controls and processes."

ref. - http://business.financialpost.com/2012/ ... hallenges/