Comcast-Verizon Battle Intensifies as U.S. Hits Peak TV

Cable is making a comeback.

Comcast Corp. (CMCSA) added TV subscribers in the first quarter, its second consecutive gain after years of losing market share to phone companies. And Time Warner Cable Inc. (TWC), the target of its $45 billion takeover bid, reduced customer losses to the fewest in four years. Meanwhile, AT&T Inc. (T) fell short of analysts’ estimates for TV customer gains and Verizon Communications Inc. (VZ)’s FiOS TV had its worst quarter ever.

Cable companies are matching competitors’ pricing and unveiling new technology, like Comcast’s X1 set-top box, to keep customers in the fold. The battle among cable, phone and satellite providers is growing more intense as the pool of potential customers shrinks. About 97 percent of U.S. households already subscribe to pay-TV, and younger viewers are increasingly shunning those bills and instead watching video online.

“The outsized gains for the telco providers may be at an end,” Paul Sweeney, an analyst with Bloomberg Industries, said in a note yesterday. “The U.S. pay-TV market is saturated and it has become essentially a zero-sum game.”

Last year, the number of Americans paying for television fell for the first time. The industry lost 251,000 customers to about 100 million, according to research firm SNL Kagan.

With the traditional pay-TV market in decline, that’s leaving phone and cable companies to focus on retaining customers instead of chasing new ones. It’s a shift from the past few years when Verizon and AT&T built out their FiOS and U-verse TV offerings, reaching new customers while also stealing away cable customers.

Verizon Rebound?

Verizon’s Chief Financial Officer Fran Shammo said the company got tripped up in the first quarter and will return to bigger gains this quarter.

Meanwhile, Comcast’s Chief Executive Officer Brian Roberts said technology improvements are giving it an edge in the market. The largest U.S. television service provider, with 22.6 million customers, introduced the X1 set-top box that gives people the ability to watch TV shows stored online and interact with social media.

“We believe our X1 operating system provides our customers an unrivaled experience, making it easier to discover and enjoy tens of thousands of content choices,” Roberts said on an earnings call earlier this week. Comcast is accelerating the deployment to customers and is now adding 15,000 to 20,000 X1 boxes a day.

Time Warner Cable, which saw a slowdown in subscriber declines in the first quarter due largely to sales promotions, said it was gaining mostly at Verizon’s expense.

FiOS Performance

“The trend we saw in subscriber performance was very broad-based -- not only in our products but in geography,” CEO Rob Marcus said on an earnings call yesterday. “We saw improvement across our footprint, and the churn improvement we saw was very good in FiOS markets.”

Verizon’s weak FiOS performance came down to three reasons, Shammo said.

First, Verizon raised prices in the fourth quarter to offset programming increases. Second, the winter weather in the Northeast -- Verizon’s main region -- was bad enough to slow demand and installations. And third, cable companies aggressively used promotions to cut prices, Shammo said.

By the middle of March, Verizon started offering a discount for multiple services that included wireless customers, and that helped turn the tide, Shammo said.

“We saw the order pipeline grow, and our installs will go up,” Shammo said. “In my vision, we will have better subscriber additions in the second quarter than we did in the first.”

Satellite companies Dish Network Corp. (DISH) and DirecTV are scheduled to report first-quarter results in the next two weeks.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net John Lear

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