Why reports of pay TV's demise are exaggerated

 The pay TV industry is proving surprisingly resilient, despite forecasts that it is doomed.

While the overall sector lost about 795,000 net video subscribers last year versus a pro-forma decline of about 445,000 in 2015,  providers such as DirecTV satellite service from AT&T (T) and Comcast (CMCSA), the largest cable provider, gained 1.22 million and 161,000 customers respectively. Meanwhile, the FiOS video service, by Verizon (VZ), added 59,000 subscribers.

Americans are changing the way they watch television

The six largest U.S. cable companies lost about 280,000 video customers in 2016 -- their smallest declines in a decade -- while satellite TV services added 190,000 subscribers, reversing a drop of about 450,000 a year earlier, according to market researcher Leichtman Research.  

So-called skinny bundle services, which offer limited channels at discount prices, are gaining traction with Dish Network’s (DISH) Sling TV gaining 645,000 customers and DirecTV, now adding 200,000 after aggressive promotion. That’s an increase from the net increase of 535,000 subscribers during 2015.

“The pay-TV market has seen significant change in the past two years, with the introduction of Internet-delivered services, and share shifts among traditional providers that are driven as much by providers’ decisions as by changes in consumer demand,” said Bruce Leichtman, president and principal analyst for Leichtman Research, in a press release.

The numbers of cord-cutters, people who quit pay television, remain a concern for both the industry and investors, though experts such as Leichtman argue that the issue has been overblown by the media.  He estimates that about 3 percent of all pay TV customers will exit the industry in 2017, little changed from 2 percent a decade ago. One reason why consumers are reluctant to leave their cable and satellite provider is that they can’t get the same viewing experience from streaming.

“It implies a massive exodus,” Leichtman said in an interview, referring to cord cutting. “The exodus rate of pay TV is about half the rate of those who are exiting” Netflix (NFLX).

Are cord-cutters satisfied?

Comcast was the only top cable provider to gain video customers, thanks to its X1 platform, which enables customers to operate their remotes with voice commands. This allows the company to reduce its churn rate -- people quitting its service -- for 12 straight quarters. The company expects X1 to be available to 60 percent of its customers by the end of 2017.

Like other cable companies, the Philadelphia-based company also is benefitting by offering bundles of services such as cable, phone and high-speed Internet.

“Bundling is huge,” he said. “That ability to bundle broadband and cable TV is winning for cable.”

Indeed, Leichtman estimates that the top cable companies added 3.3 million broadband customers in 2016, the most since 2007.  Both Comcast and Charter both gained more than 1 million. Telephone companies, however, lost 600,000 subscribers last year, compared to a decline of 185,000 in 2015. AT&T shed 173,000 and Verizon lost 47,000.

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