NEW YORK (Reuters) – Plain old-fashioned cable television just can't shake the economic blues.
Quarterly results on Thursday from Time Warner Cable, Cablevision Systems Corp and DirecTV showed wealthier families -- those that weathered the downturn -- are sticking with cable and satellite subscriptions, and in many cases upgrading to add services such as video recorders or faster broadband speeds.
But pay television providers are steadily losing thousands of customers on the wrong side of the economic divide, those who often subscribe to cheaper basic video service and now find themselves out of a job or buried in debt.
Cablevision, for instance, lost 24,500 basic video customers, during the third quarter, and Time Warner Cable lost 155,000 -- more than analysts had forecast for either operator.
Both companies did add phone and Internet customers -- but fewer than Wall Street expected.
"(Time Warner Cable's) story remains one of strength at the high end (strong video pricing, strong demand for broadband's higher speeds) and subscriber pressures at the low end," Bernstein analyst Craig Moffett wrote in a note.
By contrast, leading satellite television provider DirecTV, whose service often caters to more upscale customers, added 174,000 new subscribers in the United States, above most analysts' expectations.
"This is a two-track economy right now, without a doubt," DirecTV Chief Executive Officer Mike White said in an interview. "In this quarter, you saw that."
The pay-TV business faces challenges from a weak housing market and an increase in the number of free or cheaper Internet-based video services from Netflix Inc, Hulu and others.
"They're in danger of being priced out of oblivion for ordinary customers," Bernstein's Moffett said in an interview.
Executives are talking increasingly about the need to reinforce the business with new ideas, such as offering smaller TV packages to entice lower-income customers.
Time Warner Cable is exploring this option with programmers, CEO Glenn Britt told analysts on a conference call, and Cablevision President Tom Rutledge said the idea for smaller TV packages was a good one.
But to make the smaller packages possible, programmers would have to accept more flexible contracts, Bernstein's Moffett said.
"Ideally there should be packages that are below $30 with a 'best of cable,'" Moffett said, "but I don't know that they'll be able to get there."
EARLY SUCCESS NOW A DISADVANTAGE?
Quarterly income rose for all three pay-TV services.
At Cablevision, third-quarter profit was 37 cents a share, compared with 33 cents a year earlier. Revenue rose 5.6 percent to $1.81 billion.
The results reflect Cablevision's success in driving up average revenue per user, by 5.7 percent to $149.04 in the third quarter, in part by selling premium services and packages. The company's shares rose 2.7 percent.
At this point, the New York-based Cablevision already has one of the highest penetration rates in terms of selling combinations of video, Internet and phone services.
But its early success could end up being a disadvantage as it finds growth harder to come by, said Moffett.
"For the first time, there are signs that Cablevision's past success is finally catching up with it," he said.
Time Warner's third-quarter net profit rose to $1.00 a share from 76 cents a year earlier, beating expectations. Revenue increased 5.2 percent to $4.73 billion.
The company's announcement of a $4 billion stock buyback program overshadowed the results and helped send its shares up as much as 7.2 percent.
"While we expected a repurchase, this is larger than we had anticipated," Collins Stewart analyst Thomas Eagan said in a client note.
DirecTV's quarterly income rose to 55 cents per share from 37 cents a year earlier, matching expectations.
Revenue rose 10 percent to $6.03 billion, topping the $5.98 billion analysts had forecast.
Shares of DirecTV fell 3.3 percent.
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