MEMORY LANE: Housebound

Mon, 12/31/2007 - 7:15pm
Stewart Schley, Media & technology writer, Englewood, Colo.

In 1986, the average cost of a home in the U.S. was $94,000, and the percentage of U.S. adults owning homes had climbed to 64 percent from 55 percent in 1950. Access to relatively affordable homes and reasonable interest rates, along with rising personal income levels, fueled a surge in home-construction like the country had never seen. According to housing data compiled by the U.S. Census Bureau, homebuilders completed 1.76 million homes in 1986, a modern-day record that stood until just three years ago, when the recent housing boom hit its stride.

Stewart Schley

Rising demand for home
entertainment services
catapulted cable into
the mainstream

Not coincidentally, the cable industry had a banner year in 1986. According to Kagan Research statistics maintained by the National Cable & Telecommunications Association, the industry added 2.8 million subscribers in 1986, representing 8 percent annual growth.

To be sure, most of the industry’s gains then were fueled by influences that had little to do with housing trends. Rising demand for home-entertainment services catapulted cable into the mainstream. Across the land, people signed up for cable service like never before, both in the suburban neighborhoods that were an industry stronghold, but also in urban settings like Philadelphia and Los Angeles, where cable providers were then stringing wires and signing up customers.

Still, the housing boom didn’t hurt. As the nation’s economy created net increases in the housing supply, it also created significant new customer pools for cable operators – then operating as near-monopolies – to pursue. Applying the simplest of formulas, if the average 1986 U.S. cable penetration rate of 45 percent applied to new-home developments, the industry may have added at least 790,000 new customers that year purely by dint of momentum supplied in the housing market.

Similar buoyancy ritually has been provided by the U.S. housing market almost every year since then – until now. Thanks to the turmoil in the current housing market sparked by a flood of adjustable-rate mortgages that are now pinching homeowners, housing is undergoing a severe contraction. In November, new-home construction fell to the lowest level in 16 years as the housing slump continued to wreak havoc. The U.S. Commerce Department reported

Dec. 18 that construction of new homes and apartments fell 3.7 percent in November to an annual rate of 1.18 million units. Worse still, if you happen to be responsible for subscriber acquisition work at a traditional cable MSO, is the lesser-reported, but more immediate metric of housing completions. “Completions” track how many new homes, ready for occupancy, came on the scene in a given period. Housing completions have represented an immediate and fertile field for new-subscriber growth in the multichannel video industry for decades, and have probably accounted for much of the net growth in subscribers reported collectively by cable, satellite and telco-video providers over recent years. “Above-normal housing growth has, for the past few years, served as an accelerant for multichannel subscription growth,” said a research report published by industry analyst Bernstein Research earlier this year.

The bad news is that housing completions are plunging. For the first 11 months of 2007, new-home completions were down 23.7 percent, to a seasonally adjusted annual rate of 1.3 million, compared with 1.73 million in 2006. As a percentage of the total U.S. housing supply, new housing completions are at the lowest level in 10 years. Adding to the woe is that home-vacancy rates are rising as mortgage defaults force many homeowners to move out. Today 13.3 million homes, or about 10.4 percent of the 128 million homes in the country, are vacant – the highest level in 20 years. So the twin forces of slower new-home growth and rising vacancy rates have conspired to put the brakes on multichannel video growth overall. In the third quarter of this year, cable, satellite and telco-TV companies added 433,000 new subscribers, vs. 554,000 a year earlier, and the cable industry actually suffered a net loss of customers, year-to-year.

Historically, cable has weathered economic downturns without severe scars. During the recession of 1990-1991, the industry kept growing, adding 2.1 million customers as demand for cable’s affordably priced home entertainment services continued to rise. But in those days, the average monthly bill for cable service was around $35. Today, thanks to a broader complement of bundles, consumers commonly pay $100 or more for multiple cable services. These days, increasing competition, a perilous economy and the absence of easy growth in the form of robust new-home creation could force the cable industry to reckon with a new set of conditions for which history offers no precedent.


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