A huge fall in second-quarter subscriptions has highlighted the growing effect over-the-top (OTT) services like Netflix and Hulu are having on the US pay-TV market.
US pay-TV operators reported net subscriber additions fell by nearly 350,000 in the second quarter of this year – the largest single drop in television history, according to research by IHS Screen Digest.
Basic cable video subscribers stood at 100.9 million at the end of Q2 2012, down a total of 348,000 from Q1′s total of 101.2 million. This was attributed to the growing strength of OTT players, which offer on-demand programming at the click of a button, and a weakening economy.
Overall, cable TV subs for Q2 were down 600,000, marking the 21st contracted quarter in a row. IHS also reported a 62,000 fall in satellite TV subscriptions, which it claimed was “more significant” than the cable drop because it marked the first quarterly contraction since Q2 2011.
“Consumers are spending an increasing amount of time using Netflix at the expense of traditional services like cable and satellite, which may lessen the incentive to retain a pay-TV subscription,” said Erik Brannon, analyst for US television at IHS.
US cable operators and pay-TV platforms have been seeking ways to combat Netflix and Hulu and a growing number of new services on the market. Comcast Communications and Time Warner have been leading the way with their TV Everywhere initiative, aimed at giving subscribers access to content wherever they are and on any device.
“Pay-TV players are betting that by adding extra value for their subscribers – with new offerings like TV Everywhere, faster internet speeds and deep discounting promotions – they can stem the tide of subscribers defecting to OTT, and entice new ones to join,” Brannon added.
The news comes as Cartoon Network, the children’s channel operated by Time Warner-owned Turner Broadcasting System, last week unveiled a second-screen addition to its TV Everywhere app.
There was better news for US telco TV providers, which grew subs by 312,000. However, this does mark a slower rate of growth than the 394,000 added in the same period a year ago, IHS noted.
By contrast, VoD market leader Netflix has grown “steadily,” which has led to a reactionary spike in cable consolidation, with firms completing a record 23 deals in 2011. However, Brannon played down the challenge OTT presents pay-TV by claiming “the magnitude of the threat is largely overblown.”
“Pay-TV losses in the second quarter of 2012 were only slightly worse than the second quarter of 2011, largely due to seasonality, and also the economy,” he added.