Cutting Cable: Companies Losing Customers

(AP)  Porter McConnell gave up on pay TV last summer after noticing that monthly rates kept creeping up.

Now with no satellite or cable TV, she watches her trusty old TV set with an antenna or she goes online to catch her favorite programs. Once in a while, she buys shows from Apple Inc.'s iTunes service. McConnell also upped her subscription to Netflix Inc.'s movies-by-mail service so she gets two DVDs at a time instead of one, for $15 a month.

"Part of it is, I've got to economize," said the 30-year-old Washington, D.C., resident who works at a nonprofit.

McConnell is the kind of consumer who makes cable and satellite TV operators lose sleep. While a weak economy invariably makes people pinch pennies, this is the first time that viewing shows online has become a viable competitor to pay TV, making cutting the cord easier.

Cable operators are starting to notice. Glenn Britt, chief executive of Time Warner Cable Inc., voiced his concern Wednesday in a quarterly earnings discussion with analysts.

"We are starting to see the beginning of cord cutting," he said. "People will choose not to buy subscription video if they can get the same stuff for free."

It's tough to pin down how many people actually have given up cable - most of the evidence remains anecdotal - and which customers moved to a competitor.

Still, Time Warner Cable, the nation's second-largest cable operator, lost 119,000 basic video customers in the fourth quarter, even after excluding subscribers it gave up from the sale of some cable systems. The company also posted slower growth in new digital cable TV, Internet and phone subscribers.

More details will emerge as other cable and satellite TV operators report earnings in the coming weeks.

This is not to say that the cable business is in trouble. It's a mixed picture in this economy. While there will be some people who will completely give up their pay TV service, many folks will keep the subscription but cut back instead on going out to the movies. They also might give up a movie channel or two and buy fewer pay-per-view shows.

But pay TV providers are right to be alarmed. Not only has a flood of TV shows and movies become available online, but the video quality has gotten better. Netflix is expanding its service that lets subscribers stream movies and shows from the Internet at no additional cost. And more and more people have home broadband - 57 percent of American adults, according to the Pew Internet and American Life Project.

Throw in the worst economic slowdown in nearly a century and people question whether they still want to pay for cable or satellite. As of January 2008, the average monthly home cable bill was $84.59, up 21 percent from two years earlier, according to the Federal Communications Commission.

"You've got these factors aligning at the right time," said Bobby Tulsiani, senior analyst at Forrester Research. "This time there is a real, viable alternative" to cable.

To be sure, there can be drawbacks to canceling pay TV. Watching shows on a PC still isn't as comfortable as watching TV while relaxing on a couch. The quality of Internet video, while improving, still isn't as good, especially for live events, in which video and audio might not be in sync. While some game consoles, Blu-ray players and other devices enable video to be seamlessly delivered over the Internet to a TV, hooking up a computer to the TV to watch the full gamut of online shows on a big screen can take some technical savvy.

These downsides mattered to 36-year-old Peter Tierney, who lost his job two weeks ago as a Web producer for a New York advertising agency.

With a wife and son to support, he called Time Warner Cable to cut his premium Japanese channel and whittle down his $180 monthly cable bill.

Tierney ended up saving nearly $70 a month, after Time Warner Cable gave him discounts good for two years and he canceled the premium channel.

"It's hard for two people to watch shows on the computer at the same time," Tierney said. "I can't sit on the comfy couch. I have to go to my desk and sit on my chair."

Indeed, a Forrester survey to be released in about a month found out that most people aren't planning to ditch their cable subscriptions soon.

But the Internet is coming on strong as a new way to watch video, especially for the younger set.

Tulsiani noted that the success of Hulu.com, a joint venture NBC and Fox that officially launched last year and offers free TV shows and movies, has attracted other entrants. Perhaps to hedge its bets, Philadelphia-based Comcast Corp. - the nation's largest cable company - runs a similar site called Fancast.com, while full TV episodes now are available through the networks' Web sites. YouTube made deals last November to carry full shows in an alliance with CBS and MGM.

This is what worries Time Warner Cable's Britt. He warned that if cable networks keep moving content online for free, it would hurt them and cable operators like Time Warner. Because with fewer subscribers, cable operators will pay less money to programmers for the right to air their content.

But the networks' hands largely are tied. People are illegally swapping files of shows and movies over the Internet already, so the networks might as well make money off it with advertising and take some control over their content.

While cable and satellite TV companies worry about any consumers cutting service, it would appear younger people pose the biggest threat, given the wide generation gap in online TV viewing. About 72 percent of people ages 18 to 29 have watched a video online, compared to 34 percent of people ages 50 to 64, according to Pew.

Consider Thomas Senger and his family.

The 23-year-old security officer decided not to get cable recently after moving out of his parents' house and into his own apartment in Bayonne, N.J. He doesn't watch that much TV anyway and prefers playing video games or viewing DVDs with friends.

"It's pointless to pay for something that I watch over the Internet," he said.

But that's not an option for his grandparents, who don't know how to use a computer and watch a lot of TV. His parents are more savvy about the Internet, but not enough to change their viewing habits. Senger said his mother likes to watch the QVC shopping channel live. She and his stepfather also watch TV while eating dinner - a tough proposition over a PC screen.

"Both of them will still need TV," Senger said.

[pdmac1946]

I was paying $125 a month for satellite service with HD DVR. When I looked closely at it I found that about 90% of the shows I watched were on National networks ( ABC, CBS, NBC, FOX, etc). I had a new roof top antenna added to my house and bought a TiVo HD DVR with a wifi network adapter. Now I get most of my shows in HD and if I want to rent movies or buy other channel tv shows I have Netflix and Amazon on Demand through TiVo. I pay $24 a month. I still get the quality of TV I want, and I am all ready for the DTV conversion.

[avigil2]

My cable bill used to run about $13 for just plain basic cable. I only got the network channels which is just fine cause I subscribe to Netflix and catch up on all my movies that way. When a cable or TV show comes out on DVD, I watch them back to back. No commercials and no having to wait week to week to find out what happens next. But now I''ve got DVR (which is the best invention since, well, the iPod) and internet service. I miss my $13 cable bill.

[fiberglass3]

I agree that Time Warner is it''s own worst enemy. They continues to crank the prices up and complain that they have lost customers. Much the same as $4.20 / per gallon gasoline. We find other ways to solve the problem. Can''t understand the higher prices with FIOS coming on strong. An interesting marketing ploy is that 2-3 weeks after you make the change, Time Warner calls to see how they can get you back. By then it''s to late. The decision was already made.

[jetranger7]

I say they could cut their prices for expanded basic cable by $10.00 a month and still do just fine, and make it more affordable to all of us, that is what you Corporate Idiot Figureheads told them a few years ago in a congressional hearing wasn''t it, by De-regulating the Cable Industry it would make it more affordable for everybody, or were you guys just Lying again as usual !! Don''t you Corporate Pinstriped Suited Penguins ever just get tired of your Lies you tell, and then have those lies exposed !! Well guess what I''ll bet I can go see that Hearing on C-Span in their archives thru the internet, how much ya wanna bet ?

[timetrips1]

I subscribe to basic cable (very basic) about 15 channels and it still costs me $20+ per month. The only reason I even get that is they won''t sell me High Speed internet service without it. Otherwise what comes in over the antena is sufficient. And my big screen projection tv has hookups for computer output and I can watch internet movies, and now most ABC, NBC and CBS sitcoms right from their sites. I do have TIVO and love it (though it is quite expensive on the initial investment), and it won''t be long until it can download the major network shows right off the internet connection. Once that happens I''ll switch to the phone companies DSL connection and dump cable all together. With TIVO it will download and let me know when a show is available to watch. No hassels.

P.S. I''ve had a major grudge against my cable company ever since they switched the SCI-FI channel up into the area you have to pay additional for. I refused and downgraded my service. Soon I''ll be able to eliminate them all together.

[schoolmarm22]

We''ve never had cable and have never really missed it. In our area it costs $58 a month for basic cable and there just isn''t enough quality programming to make it worth the cost of subscribing. We check out movies at our local library a few times a month for free, buy a few off of the cheap rack at Walmart, and use coupons to rent new releases at the video store. We also use hulu.com to catch up on network programs. Cable isn''t a necessity, even though some of our friends think so. Funny how they always gripe about the cost. though.

[usanative1]

I asked a rural cable installer how business was he replied. LIke a wh---res dream up and down and depending what corner you are standing on ? You can go around the world for under a hundred bucks.Im still lmao!

[jetranger7]

I Just found out that 4 of my neighbors here in Kansas City Mo. are also cutting their Cable with Time Warner, because its just costing too much per month and they don''t have time to watch it anyway because of having to work such long hours to keep up with basic household services- housepayment- utilties- food- etc,, I say good ridence- except now the cable operators will be asking the government for a bailout- watch and see of course really we''ll be bailing them out- the US Tax Payers !!! Rip-Off !!!

[r9119111]

So has the great GOP trickle down economy finally produced a leaner, meaner, more scrutinizing public? If the GOP doesn''t get smarter and put more money into the hands of the average consumer, more and more corporations will collapse. Now, whom should we blame for that? Rush, would probably say, "Those idiot consumers have stopped spending. What freaks!"

[nybras]

Dropped cable after complaining about the picture quality for 3 mo. They never replaced the cable as requested. I hope they go out of business.