One oddity in the current multichannel television landscape is that all the major players are gaining subscribers despite what most observers would consider a pretty intense competitive environment in a mature industry. My rough calculations suggest that DirecTV and Echostar’s Dish Network will add about 2 million subs combined this year. Verizon and AT&T could add another half million and the major cable players could add a few hundred thousand.
With about 90% of the 110 million US households already having multichannel TV, it is hard to see where 2.5 million new subscribers are coming from each year. I discussed this with Spencer Wang, lead media analyst at Bear Stearns. Among the possibilities we came up with are a gradual increase in multichannel penetration, new household formation, households taking both satellite and cable, more subscriptions from bars and restaurants, or alternative venues like supermarkets or airplanes….

Growing penetration offers the most upside as 1% is over 1 million households. I think households with both cable (or telco) and satellite are probably growing rapidly. The triple play at $99 is usually no more than a household is already paying for two services so adding the third and keeping satellite TV could be account for a lot of new subscribers. Spencer reminded me that cable offers low priced analog service known as lifeline which is usually just local channels plus a few cable channels. This could lead to a lot of double counting but I don’t think that product is being marketed at all unless it is a retention tool when a subscriber switches to satellite.
I think this is an important question as the competitive environment in the satellite/cable/telco battle has not been quite as fierce as feared. Pricing is the best evidence and average monthly revenue per user for individual services or a bundle of services has been very stable over the past couple of years. I think this is a major reason why cable, telco, and satellite stocks have all done well.
How the companies react if net subscriber growth flattens or goes negative will be key to the future of the stocks. If the focus is on churn reduction and profit per subscriber as opposed to discount pricing the still feared showdown between cable and telco could continue to be more perception than reality. If pricing becomes weapon, the market will treat all these stocks very badly.
I am hopeful that a window of less competitive pressure will remain open through 2007 and 2008. If so the stocks look good across the board. But I’d sure feel better if I had a better idea where the new subscribers would come from so that all competitors can remain reasonably happy.