Video cord-cutting? Not so much

Predictions that economic hard times and the widespread availability of video content on the Internet would lead to a decline in pay TV service sales did not pan out in the fourth quarter – quite the opposite is true, in fact. With Echostar’s Dish Networks and a smattering of cable companies yet to report results, Sanford Bernstein Analyst Craig Moffett said the numbers show subscriber additions actually grew by 441,000 in the fourth quarter of 2008, fueled by the success of AT&T, Verizon and DirecTV, which sells directly and in partnership with telcos.

That number is up from 2007, when net adds were 396,000. Verizon led the pack with 303,000 net adds, but AT&T had the biggest jump, from 105,000 a year ago with U-Verse to 264,000 net adds this year. By contrast, Comcast was down 233,000, and Time Warner Cable was off by 119,000 net adds. Both of those figures were bigger declines than occurred in the fourth quarter of 2007.

“Making this result all the more remarkable is the fact that new household formation was likely negative in Q4,” Moffett wrote. “Over the long term, new household formation is a function of population growth and household size. In a recession, household size expands faster than population as more children moved back in with their parents (shudder). With fewer households to sell to, Pay TV penetration nevertheless grew more than enough to offset the decline.”

Moffett concluded that video cord-cutting “still remains the province of urban myth.”

Even Comcast concurred, despite losing 233,000 basic cable customers in the fourth quarter. “We’re not seeing large numbers of people dropping their cable service due to economic hardship or the fact they can increasingly get video on the Internet,” Stephen Burke, Comcast’s chief operating officer, said on the company’s earnings call. In fact, the Wall Street Journal reported this week that Comcast and Time Warner Cable are both exploring online TV services, quoting Comcast CEO Brian Roberts as saying, “Online video is our friend, not our enemy."

While everyone seems to know someone – often a young adult offspring – who is forgoing the cable bill to watch TV on the Internet, it could well be that those who expected a certain amount of nesting to occur during a recession may be closer to the truth for now.

The next challenge will be to pricing – as Moffett also noted earlier this year, pay TV prices have actually been going up despite the special offers from Comcast, Dish and others for low-cost, low-tier offerings.