SNL Kagan U.S. Multichannel Subscribers 4th Quarter 2010 Results

Sector eked out gains, reversing trend of losses from previous two quarters

CHARLOTTESVILLE, VA — The U.S. multichannel sector succeeded in reversing two consecutive quarters of video subscriber losses to achieve positive net adds in the fourth-quarter 2010. The combined gain of 65,000 customers, though weaker than year-ago results, helped boost the industry to a full-year increase of 211,000 customers, according to SNL Kagan estimates of total U.S. video subscribers to cable, DBS and telco video services.

While over-the-top substitution remains a threat to the industry, operators reported that sub trends improved predominantly because of slight housing sector and labor market improvements, along with reduced defection churn from over-the-air converts acquired during the digital transition in June 2009.

According to SNL Kagan’s analysis, the multichannel universe grew to almost 100.1 million video subscriptions, a 0.2% gain year-over-year that lags behind progress in the housing picture. The relative impact of the fourth quarter return to subscriber growth was actually tempered by improvements in occupied housing. While a rebound in housing is good news for the industry, the U.S. Census Bureau reported an increase of occupied housing units at a faster clip than sub growth, which points to a decline in multichannel penetration of total and occupied housing units during the quarter.

U.S. Video Market Share Trends:

                              Q4 '08  Q1 '09  Q2 '09  Q3 '09  Q4 '09  Q1 '10  Q2 '10  Q3 '10  Q4 '10
                             ------- ------- ------- ------- ------- ------- ------- ------- -------
Cable Basic Video Subs (000)  63,668  63,540  63,100  62,628  62,080  61,801  61,091  60,350  59,836
Net Adds* (000)                 -686    -127    -441    -472    -548    -278    -711    -741    -526
% of Combined Video Subs (%)   64.9%   64.2%   63.6%   62.9%   62.2%   61.6%   61.0%   60.3%   59.8%

DBS Subs (000)                31,299  31,665  31,915  32,292  32,660  32,997  33,078  33,223  33,356  
Net Adds* (000)                  199     366     250     377     368     337      81     145     133
% of Combined Video Subs (%)   31.9%   32.0%   32.1%   32.4%   32.7%   32.9%   33.0%   33.2%   33.3%

Telco TV Subs  (000)           3,103   3,696   4,265   4,706   5,137   5,559   5,973   6,450   6,908     
Net Adds (000)                   550     593     569     441     431     422     414     476     458
% of Combined Video Subs (%)    3.2%    3.7%    4.3%    4.7%    5.1%    5.5%    6.0%    6.4%    6.9%
                             ------- ------- ------- ------- ------- ------- ------- ------- -------
Combined Video Subs (000)     98,070  98,901  99,280  99,626  99,877 100,358 100,142 100,023 100,100
Combined Net Adds (000)           63     831     378     346     251     481    -216    -119      65

*Net adds account for TWC restatement in Q4 ’10. In Q4 ’10, TWC recorded an adjustment that increased both residential and total
video subscribers by 12K. This adjustment is not ref lected in net declines for the period, or in net declines for the year ended Dec. 31,
2010. Accounting for this restatement puts total industry net declines at 526,000 though calculated industry totals indicate a nominal
decline of 514,000. © 2011 SNL Kagan, a division of SNL Financial LC, estimates. All rights reserved

Despite the inconclusive trend lines between sub adds and sub penetration rates, the fourth-quarter gains do reinforce the importance of multichannel video, and we project more stable macroeconomic conditions will guide the way for absolute video sub adds if not gains in penetration. However, the greater underlying issue remains more screens and alternative platforms competing for users’ attention than ever before. The changing content landscape impacts the potential pool of video subs negatively so we expect intra-multichannel competition to escalate while video penetration rates decline over the long-term.