Survey Indicates Pay-TV Growth Slowdown, Will That Lower Prices?

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The U.S. economy took a downturn in 2008 and the subsequent years saw a decline in fee per subscriber for pay-TV companies such as Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC). Satellite companies such as Dish Network (NASDAQ:DISH) were able to maintain growth due to their superior service and already competitive pricing. How will this trend in the future?

A recent research shows that pay-TV subscriber growth in the U.S. is slowing and consumers may be looking to reduce their spending on pay-TV. [1] How does this impact the cable companies? One might think that the pay-TV firms will react by reducing the pricing, but that’s not going to happen. Subscribers will have to feel the impact of price increment, and the choice will be theirs whether to stick to pay-TV or opt for alternative, yet weaker, options.

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The economy is improving, although slowly. With that expectation in mind, pay-TV companies are highly likely to at least maintain the current prices and not reduce them to gain subscribers. In fact, the companies have been competing more by offering enhanced services such as HD, DVR, online streaming and on-demand video. With additional spending on these services, the chances of pay-TV bills coming down are remote.

Furthermore, it is no news that the programming costs are rising and this rise could be in high single digits in terms of percentage. Given the saturation in the pay-TV industry, it has become difficult to achieve revenue growth so as to compensate for higher programming costs, which has resulted in declining margins. This provides a strong incentive for pay-TV companies to resort to price increases.

The conclusion is that there is a good chance that pay-TV subscribers will not get respite from rising subscription prices. The choice is theirs whether they stick or not. Prices are likely to come down only if subscribers opt for lower-priced packages, provided that the relevant service provider offers those options.

Our price estimate for Dish Network stands at $34.30, implying a premium of about 20% to the market price.

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Notes:
  1. Pay-TV Subscriber Growth Stalls As Economy Takes Toll, Investors.com, July 5 2012 []