Tuesday December 9, 2009 – Antonette Goroch
Though IPTV growth is has begun to slow in the markets of Europe and Asia, it’s only just heating up in North America. IPTV subscribers in the important U.S. market have climbed dramatically in the last two years, rising from just over 1 million in 2007 to a projected 5 million by year end 2009. While this growth is impressive, garnering attention from many of the largest worldwide IPTV suppliers once disinterested in the mature U.S. pay TV market, the questions of profitability and long term growth are still open ones.
Growth in U.S. IPTV has been driven almost exclusively by the two largest telcos, AT&T and Verizon. Both have seen strong gains all year, with AT&T reaching 1.8 million subscribers at the end of the third quarter, and Verizon’s FIOS TV reaching 2.7 million subscribers. Obtaining such gains in such a saturated market is no small accomplishment, but it surely has come at a high cost. Neither company has released figures on subscriber acquisition costs and few details on revenue per subscriber, both key metrics for long term success.
New subscriber deals typically include free set-top boxes for multiple TVs, free movie packages and no termination fees for disconnection. In many cases add to this the cost of truck rolls, since installation is complex and often includes line upgrade on the premises. Back-of-the-envelope calculations suggest subscriber acquisition costs could easily top $500 per sub, an almost unprecedented number in U.S. pay TV history. AT&T officials recently remarked that their IPTV subscribers would likely generate about $2 billion in bundled voice/data/TV revenues for 2009, but this translates to only $92 per subscriber per month for all three services. Assuming a generous 30% profit margin, it would take more than 18 months for these subscribers to generate enough revenue to justify that initial subscriber acquisition outlay—a tall order given there really is no long-term incentive to stay beyond convenience and service quality.
Clearly, all current efforts are on gaining as many subscribers as quickly as possible, as they should be if these services are to achieve viability. Very soon though, operators will have to shift their focus to what may be the more difficult task of retaining subscribers while reaching profitability.
