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Distressing Times for Cable MSOs

Zacks Equity Research

Infonetics Research Inc. recently reported that the cable MSOs (multi service operators) are gradually losing hold in the pay-TV market globally. Internal dynamics of the pay-TV market is slowly shifting toward fiber-based video offerings of large telecom and satellite TV operators. Video offering is the core business area of the cable TV operators, which is slipping out of their hands.

Despite a progressing global pay-TV market, the situation is distressing for the cable TV operators. According to Infonetics, video service revenues in the first half of 2013 were approximately $110 billion globally, up 2% from the corresponding period of the previous year.

However, cable TV operators’ revenue market share declined 1% in the same period and the cable MSOs are losing subscribers at a rate of 1.5%-2.5%. Infonetics further estimated that the global pay-TV market size may reach up to $270 billion by 2017.

In the U.S., telecom giants Verizon Communications Inc. (VZ) and AT&T Inc. (T) and satellite TV operators DIRECTV (DTV) and DISH Network Corp. (DISH) are doing quite well with their video offerings. Improved user interface, multi screen video offerings, HD DVR services have helped these companies gain subscribers while raising the price of their services.

This resulted in higher average revenue per user with higher number of customers, improving the overall financials of these companies. Outside the U.S., telecom IPTV operators such as Deutsch Telekom and China Telecom are also performing impressively with their video offerings.

In order to counter the loss of video offerings to telecom operators, cable MSOs have decided to focus on the small and medium sized business (SMB) segment, which is one of the core areas of telecom operators. Various industry researches estimate that the SMB segment is expected to offer a $20 to $30 billion market opportunity.

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