NEW YORK ( TheStreet) -- The recent decline in pay-TV subscriptions has more to do with higher prices than cord cutting according to analyst Craig Moffett of Bernstein Research.
The second quarter of 2010 marked the first time in pay-TV history that the industry saw a loss in subscribers. The number of pay-TV subscriptions dropped 216,000 in the second quarter, followed by third-quarter declines of 119,000. The Convergence Consulting Group projects that by the fourth quarter of 2011, the number of cord cutters will reach 1.6 million.
As programming costs rise, pay-TV companies boost their prices to offset the pressures and maintain margins.
Moffett found that Dish Network (DISH - Get Report) will implement an average 11% increase in its rate in 2011, which is "by far the largest of the companies in my coverage." With this price hike, the company is also promising a two year freeze to its customers."Dish has, in essence, taken three years of increase at a single stroke," Moffett said. "We find the strategy to be a curious one, as it maximizes risk of sticker shock (and therefore churn) at a time when the economy is likely at its weakest, and leaves Dish without the flexibility to reflect cost increases in pricing thereafter." Time Warner Cable (TWC - Get Report) will see a rate increase in the 7% range, while Comcast's (CMCSA - Get Report) increase is in the 4% range, Moffett said, based on a small sample size of customers. DirecTV (DTV - Get Report) will bump its price by 4% while Cablevision (CVC - Get Report) will take the "smallest percentage increase at 3%," he said. "Rising rates speak to the relatively stable competitive dynamics within the Pay-TV space," Moffett said in his Jan. 10 research note. He said that the major risk of the constant rate increases is customer affordability among the entire sector. He believes a more likely explanation for the recent loss in subscribers is the steadily increasing prices.