Paid TV subscriptions dip for the first time

In the second quarter of 2010 paid TV subscriptions fell for the first time ever, with cable taking the biggest hit, according to the research firm SNL Kagan.

A weak U.S. economy is the main reason the firm cited for the dip in subscriptions, as more consumers look for ways to cut down on monthly expenses. Last year's digital TV conversionmay have also played a role in lower growth rates with some people canceling service after promotions on new digital TV packages ran out, the firm said.

The entire paid TV industry, which includes cable, satellite, and phone companies, lost 216,000 customers in the second quarter. A year ago, the industry gained 378,000 new customers, according to SNL Kagan. Six of the eight largest U.S. cable operators reported their worst quarterly video subscriber losses. In total, cable lost 711,000 subscribers in the quarter, the firm reported. Meanwhile, satellite providers DirecTV and Dish networks added about 81,000 new paid TV subscribers. And phone companies, Verizon Communications and AT&T also gained 414,000 new subscribers.

The dip in subscribers comes as the paid TV business is trying to find its footing in a market that is rapidly changing toward one that delivers more content over the Internet and on different devices rather than strictly on the big screen in the living room.

But analysts at SNL Kagan were careful not to attribute too much of the subscription loss to a switch toward Internet TV.

"Although it is tempting to point to over-the-top video as a potential culprit, we believe economic factors such as low housing formation and a high unemployment rate contributed to subscriber declines in the second quarter," SNL Kagan analyst Mariam Rondeli, said in a statement. "We are also seeing churn resulting from the broadcast digital transition, which boosted video uptake early last year, as many have abandoned their paid subscriptions once initial promotional contracts expired."

Still, how people watch television is changing. Young people, especially, are watching less traditional TV. A recent Nielsen study shows that audiences for broadcast networks like ABC, Fox, NBC, and CBS, which once dominated television programming, are getting older. Twenty years ago, the median age for ABC viewers was 37; today it's 51. Fox's median age has also jumped, from 29 to 44. And NBC and CBS, which have always had older viewers, are also seeing the median age of their viewers rise. (CNET News is published by CBS Interactive, a unit of CBS.)

Instead, some people are cutting the paid TV cord and instead are watching more video online. Some are watching it on mobile devices and laptops, while others are hooking devices to their TVs and streaming video directly to their TVs. There are already several over-the-top Internet video options on the market, or services that allow people to view some TV programming and movies over their home broadband connections.

Netflix, which also rents DVDs, is one of the fastest growing video on-demand services on the Net. The company's Internet streaming service can be accessed through a variety of consumer electronics devices including the $100 Roku box, Samsung Blu-ray players, and every major game console on the market. It recently acquired rights to movies from the channel Epix, which is three studios: Paramount, Lions Gate, and MGM. The deal, which is reported to be more than $1 billion for five years, will allow Netflix to stream movies from the Epix library to its 15 million subscribers. The deal significantly expands the Netflix streaming library.

Netflix doesn't offer live TV programming nor does it offer recently broadcast TV shows, but there are other options available for consumers such as Hulu, which is a joint-venture among NBC Universal, Walt Disney Company, and News Corp. Hulu recently launched a subscription service costing $10 a month that provides access to premium TV and movie content. The service is geared toward offering online video on more devices like iPhones and iPads and even TVs.

Google is also expected to launch new technology to make it easier for people to watch online video on their TVs. And rumor has it that Apple is working on a revamped AppleTV product to also provide TV streaming through its iTunes service.

Cash-strapped Americans seem to be hungry for alternatives to paid TV services. But content owners are leery about shaking up their business models too much. While more content is finding its way online every day, content owners are still holding the most valuable content back or delaying online releases in an effort to control how their TV shows and movies are distributed. These companies generate much more revenue from licensing content to paid TV service providers than they can offering the same content online.

As a result, even though people are eager to turn to the Internet for TV, they still must sacrifice some things, such as live sports. Some of the live content can be viewed free via over-the-air TV, but not everyone is able to get those TV signals.

While it's still too early to say that Internet TV will kill paid TV, consumers are clearly voting with their wallets. Some paid TV companies realize they can't fight the Internet trend, and they're offering more ways to watch content traditionally delivered to set-top boxes and TVs.

Comcast is trying to embrace the new model with its TV Everywhere initiative that allows subscribers to watch certain cable content on other devices, such as laptops. Verizon's Fios TV service will also soon allow its subscribers to take video-on-demand content with them on the go on all kinds of devices, including mobile phones. Verizon even plans to offer streaming live TV on iPads and other devices in the home.