Research Notes. Leichtman Research Group, Inc. Back to School. Did you know?

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1 Leichtman Research Group, Inc. Research Notes 3Q 2014 Actionable Research on the Broadband, Media & Entertainment Industries In this issue: Back to School Back to School E More Than Five of Every Six TV Households Subscribe to a Pay- TV Service Major Pay-TV Providers Lost About 300,000 Subscribers in 2Q 2014 About 385,000 Add Broadband in the Second Quarter of 2014 Industry by the Numbers ach year in late-august to early- September, the relatively small community that I live in becomes much more populated. This is because I live in a college town. The students, who tend to leave in late-may, come back into the dorms and off-campus housing about three months later each year. This same migration happens in hundreds of communities throughout the country. As seen later in these Research Notes, major pay-tv providers had a net loss of about 300,000 subscribers in the second quarter of On first glance this may appear to be a sign of a dramatic change in the pay-tv industry (particularly compared to a net gain of about 260,000 subscribers in the first quarter of 2014), but these second quarter losses have followed first quarter gains in each year since Given the relatively saturated pay-tv market nationwide, college students moving out are a key reason for these (now traditional) second quarter declines. Based on information from the US Department of Education, as well as the US Census Bureau, there are about million undergraduate and graduate students in the US (with about 60% of this group being full-time students). About 60% of all college students are ages These approximately 13 million college students ages comprise over 40% of all adults in this age group in the US. Overall, college students account for about 9%-10% of adults in the US. Did you know? 18% of adults ages moved in the past year compared to 8% of those ages 35+ According to the US Census Bureau s American Community Survey, about 63% of college students live with relatives, 25% do not live with relatives, and 12% live in dorms and other group housing. This represents about 2.5 million students living in college housing, and about 5.5 million more living in housing (likely off-campus) without relatives. College students behaviors related to pay-tv and other forms of media are frequently different from others, and are Page 1

2 evolving. A recent nationwide LRG survey (for the Cable, DBS & Telcos: Competing for Customers 2014 study) found that 22% of those enrolled in college do not currently subscribe to a pay-tv service compared to 16% overall. In addition, 10% of all college students have never subscribed to a pay-tv service compared to 5% of all others. The survey also found that college students report spending about 15% less time per day watching TV than do non-college students (a positive data point for parents who are paying for their adult children s education). But, they are far more likely than others to subscribe to over-the-top (OTT) video services than non-college students, and are more likely to have non-tv devices that allow them to watch video. 70% of college students get Netflix compared to 41% of others 20% get Hulu Plus compared to 7% of others 97% have a laptop or desktop computer compared to 87% of others 93% have a smartphone compared to 68% of others 64% have an ipad/tablet compared to 55% of others Given the relatively saturated pay-tv market nationwide, college students moving out are a key reason for these (now traditional) second quarter declines Yet, this should not be interpreted to mean that TV is extinct among this group. In fact, 84% use an HDTV compared to 78% of all others. Clearly this group of young college students is at the core of behavioral changes taking place in watching video on various platforms. Nearly as many college students now get some type of OTT service as subscribe to a pay-tv service (75% vs. 78%). This evolution is recognized by pay- TV providers. As an example, Comcast (the nation s largest pay-tv provider) recently launched Xfinity on Campus a service that lets college students watch live TV and On Demand content on their ip-enabled devices. The service is currently included with room and board for students living in oncampus housing at five colleges and universities, with trials at several more. Other pay-tv providers are also looking at personal video services, and other ways to best serve the college, and young adult, market. The impact of college students moving out and in each year is clearly seen in the pay-tv subscriber counts today. Equally as important is how the behavior of these students (and young adults in general) may change over time, and how these changes will impact the industry in the near-term, and in the long-term. Page 2

3 More Than Five of Every Six TV Households Subscribe to a Pay-TV Service L eichtman Research Group, Inc. finds that 84% of households nationwide subscribe to some form of pay-tv service. While the reported number of pay-tv subscribers has been fairly flat over the past four years, occupied housing in the US has grown. Consequently, penetration of pay-tv among residential households has waned from its peak in 2010 following the digital transition. Did you know? Pay-TV subscribers with household incomes >$50,000 report spending 18% more than those with incomes <$50,000 Among TV households that do not currently subscribe to a pay-tv service, 6% plan to subscribe to a pay-tv service in the next six months including 20% of those who subscribed in the past year, 2% who subscribed over one year ago, and 4% who never subscribed. Overall, 35% of nonsubscribers never subscribed to a pay- TV service. These findings are based on a telephone survey of 1,260 households from throughout the United States, and are part of a new LRG study, Cable, DBS & Telcos: Competing for Customers This is LRG s twelfth annual study of this topic. Other related findings include: Nationwide, 22% of TV households with annual incomes <$50,000 are non-subscribers compared to 13% with incomes >$50,000 Mean reported monthly spending on pay-tv service is $89.78 an increase of 36% since % of cable TV subscribers, 12% of telco TV subscribers, and 11% of satellite TV subscribers are likely to switch from their current provider in the next six months 11% of non-subscribers cite the Internet or Netflix as the main reason for not currently subscribing to a pay-tv service compared to 3% in % of those who moved in the past year do not currently subscribe to a pay-tv service a higher level than in previous years The number of pay-tv subscribers in the US remains about as high as it has ever been, but penetration of pay-tv services in consumers homes has declined over the past few years, as subscriber growth has leveled-off, while occupied housing in the US has increased. Housing growth has been exclusively among renters, who tend to be more challenging for the pay-tv industry than home owners because of their comparatively lower income, younger age, and greater likelihood to move. Page 3

4 Major Pay-TV Providers Lost About 300,000 Subscribers in 2Q 2014 L eichtman Research Group, Inc. found that the thirteen largest pay- TV providers in the US representing about 95% of the market lost about 300,000 net video subscribers in 2Q 2014, compared to a loss of about 350,000 video subscribers in 2Q The top pay-tv providers account for nearly 95.5 million subscribers with the top nine cable companies having 49.9 million video subscribers, satellite TV companies having 34.3 million subscribers, and the top telephone companies having about 11.3 million subscribers. Other key findings for the quarter include: The top nine cable companies lost about 510,000 video subscribers in 2Q 2014 the fewest losses in any second quarter since 2Q 2009 o Cable ONE lost 6.5% of all cable subscribers in 2Q 2014 the highest percentage of losses in one quarter by any top provider in the past decade Satellite TV providers lost 78,000 subscribers in 2Q 2014 compared to a loss of 162,000 in 2Q 2013 Over the past year, the top pay-tv providers actually had a small net gain of about 20,000 subscribers, compared to a cumulative net loss of about 70,000 subscribers over the prior year The top telephone providers added 290,000 video subscribers in 2Q 2014 compared to 373,000 net additions in 2Q 2013 The top pay-tv providers lost about 300,000 subscribers in the traditionally weak second quarter, but cumulative net losses in 2Q 2014 were slightly fewer than in any second quarter since 2Q Over the past year, the top pay-tv providers actually had a small net gain of about 20,000 subscribers, compared to a cumulative net loss of about 70,000 subscribers over the prior year. About 385,000 Add Broadband in the Second Quarter of 2014 L eichtman Research Group, Inc. found that found that the seventeen largest cable and telephone providers in the US representing about 93% of the market acquired nearly 385,000 net additional high-speed Internet subscribers in the second quarter of These top broadband providers now account for over 85.9 million subscribers with top cable companies having nearly 50.7 million broadband subscribers, and top telephone companies having over 35.2 million subscribers. Page 4

5 As of the end of 2Q 2014, the top cable providers now have more broadband subscribers than cable TV subscribers Other broadband findings include: Overall, broadband additions in 2Q 2014 amounted to 130% of those in 2Q 2013 The top cable companies accounted for 99% of the net broadband additions for the quarter versus the top telephone companies The top cable companies added about 380,000 subscribers, representing 128% of the net additions for the top cable companies in 2Q 2013 For the top cable providers (not including overbuilder WOW), the number of broadband subscribers exceeded the number of cable TV subscribers for the first time ever with about 49,915,000 broadband subscribers at the end of 2Q 2014, compared to about 49,910,000 cable TV subscribers The top telephone companies added about 2,000 broadband subscribers in 2Q 2014 compared to a loss of about 2,000 in 2Q 2013 AT&T and Verizon added 627,000 subscribers via U-verse and FiOS in 2Q 2014, while having a net loss of 636,000 DSL subscribers The top cable broadband providers have a 59% share of the market versus the top Telcos With the addition of more than 30 million broadband subscribers over the past decade, cable providers have clearly expanded well beyond their roots in cable TV service. As of the end of 2Q 2014, the top cable providers now have more broadband subscribers than cable TV subscribers. Did you know? U-verse and FiOS now account for 50% of the top Telco providers broadband subscribers compared to 34% two years ago Page 5

6 Industry by the Numbers Top Pay-TV Providers in the U.S. Cable Companies Comcast Time Warner Charter Cablevision Suddenlink Mediacom Cable ONE Other major private companies* TOTAL TOP CABLE Satellite TV Companies (DBS) DirecTV DISH TOTAL TOP DBS Telephone Companies AT&T U-verse Verizon FiOS TOTAL TOP PHONE TOTAL TOP PAY-TV PROVIDERS Subscribers at End of 2Q ,457,000 11,212,000 4,320,000 2,771,000 1,168, , ,309 6,570,000 49,908,109 20,231,000 14,053,000 34,284,000 5,851,000 5,419,000 11,270,000 95,462,109 Net Adds in 2Q 2014 (144,000) (147,000) (35,000) (28,000) (18,700) (18,000) (34,254) (85,000) (509,954) (34,000) (44,000) (78,000) 190, , ,000 (297,954) Sources: The Companies and Leichtman Research Group, Inc. * Includes LRG estimates for Cox and Bright House Networks Net additions reflect pro forma results from system sales and acquisitions Company subscriber counts may not solely represent residential households Top pay-tv providers represent approximately 95% of all subscribers Top cable companies do not include overbuilder WOW with 699,000 subscribers Note that LRG consumer research finds that about 1% of households subscribe to both cable and DBS Page 6

7 Top Broadband Internet Providers in the U.S. Cable Companies Subscribers at End of 2Q 2014 Net Adds in 2Q 2014 Comcast 21,271, ,000 Time Warner* 11,965,000 86,000 Charter 4,850,000 62,000 Cablevision 2,779,000 (9,000) Suddenlink* 1,103, Mediacom 987,000 3,000 WOW (WideOpenWest)** 769,600 12,900 Cable ONE 482,725 (1,443) Other Major Private Companies*** 6,475,000 25,000 Total Top Cable 50,682, ,657 Telephone Companies AT&T 16,448,000 (55,000) Verizon 9,077,000 46,000 CenturyLink 6,055,000 (2,000) Frontier^ 1,900,500 27,500 Windstream 1,153,800 (16,600) FairPoint 333,421 1,883 Cincinnati Bell 270, Total Top Phone 35,238,021 2,083 Total Top Broadband Providers 85,920, ,740 Sources: The Companies and Leichtman Research Group, Inc. * Subscriber totals slightly adjusted from prior quarters ** Includes a minor system acquisition, net adds are not reported on a pro forma basis ** Includes LRG estimates for Cox and Bright House Networks ^ LRG estimate, does not include wireless subscribers Totals reflect pro forma results from system sales and acquisitions Top cable and telephone companies represent approximately 93% of all subscribers Company subscriber counts may not represent solely residential households Page 7

8 Top Residential Phone Companies Company Phone Lines AT&T 15,314,000 Comcast* 11,003,000 Verizon 10,903,000 CenturyLink** 7,880,000 Time Warner 4,975,000 Cox** 3,250,000 Frontier 2,762,100 Charter 2,360,000 Cablevision 2,273,000 Windstream 1,670,300 Sources: The Companies and Leichtman Research Group, Inc. * Includes non-residential lines Leichtman Research Group, Inc. (603) Copyright 2014 Leichtman Research Group, Inc. All Rights Reserved Page 8