WRAPUP 1-Americans drop pay-TV; business matures in weak economy

Thu Aug 2, 2012 2:06pm EDT

* DirecTV makes first customer loss of 52,000

* Time Warner Cable loses 169,000 video customers

* TWC looks to Internet for growth

By Yinka Adegoke

NEW YORK, Aug 2 (Reuters) - Stubbornly high U.S. unemployment, a weak housing market combined with a mature business prone to regular programming blackouts has seen more than 400,000 American homes drop their pay-TV service since the start of the year.

DirecTV Group, the No.1 U.S. satellite TV provider, revealed its first ever quarterly customer losses on Thursday, with some 52,000 homes dropping the service in the second quarter. That was more than analysts expected from a company long seen as the best run video provider in the industry.

Also on Thursday, Time Warner Cable Inc, the No.2 cable provider said it lost more subscribers than analysts expected with 169,000 customers leaving the service. While a small per centage of Time Warner Cable company's 12.3 million total customers, this is a 10th straight quarter of customer losses. [ID: n L4E8J22FP]

"Basic video subscriber losses aren't getting better," said Bernstein Research analyst Craig Moffett of Time Warner Cable. He said in a client note that the company had done alright overall but "it is hard to shake the perception of an opportunity lost."

The biggest U.S. TV distributor, Comcast Corp, lost 176,000 video subscribers, which was considered an improvement as the rate of losses was better than recent quarters. Of the big four distributors Dish Network Corp , the other major satellite provider, said it lost just 10,000 subscribers, also considered an improvement.

To be sure the second quarter is traditionally the weakest quarter for customer additions in the pay-TV business as people move homes ahead of the summer and students leave college campuses. Also the newer entrants to the TV market -- Verizon Communications' FiOS TV and AT&T Inc's U-verse -- added 275,000 customers during the quarter.

The numbers usually improve somewhat in the third quarter but the overall trends are ominous for traditional pay-TV distributors.

The maturity of the nearly fifty-year-old cable TV market has raised the stakes leading to more bitter and prolonged battles between distributors and their program maker partners. These disputes now typically end up with customers losing some of their favorite programming for days on end and adds to customer weariness with pay-TV.

DirecTV for example lost 17 channels from MTV and Nickelodeon parent Viacom for 10 days last month. The loss of that many high profile networks for such a long period is bound to have an impact on DirecTV's third quarter results due three months from now.

The steady parade of customer losses has led to speculation that customers are 'cutting the cord' and dropping the expense of paying for TV altogether.

Time Warner Cable Chief Executive Glenn Britt disputed this suggestion saying the numbers "are still quite small."

"We actually think a bigger issue in the market is that there is a group of customers that are in really serious financial shape, they have been out of work for a long time," said Britt.

Time Warner Cable, which added 59,000 Internet subscribers during the quarter, has been emphasizing its growth ambitions with the Internet.

"Our real opportunity for residential growth rests with our high-speed data product," said Time Warner Cable President Rob Marcus. "We have been postulating that that's the case for some time now."

The idea of cord-cutting has gathered steam as several major technology companies have held talks with program makers about putting together TV packages that will be delivered via the Internet. The idea would be to use cheaper, smaller TV packages to attract customers to buy or use their services. So far Google Inc, Intel Corp and Amazon are among those known to have held talks.

Netflix Inc is an example of one company that is already offering such services for streaming to customers on demand. Rather than see Netflix as a rival, Time Warner Cable has been promoting its Internet service as being robust enough to deliver Netflix to customers.

"That is the mindset that informs our marketing efforts," Marcus said.

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