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Is Verizon’s FiOS TV service more cost-effective than cable?

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Verizon claims FiOS TV service is more cost-effective 

FiOS TV is Verizon Communications Inc.’s (VZ) video service. In the third quarter, Verizon added 114,000 net FiOS TV subscribers. The company now has 5.5 million subscribers representing a 36% penetration rate.

During its 3Q14 earnings conference call, Verizon’s management said it would raise its TV subscription rate by 2% to 3% each year to cover rising content costs. However, cable subscription costs are going up by 9% to 10% a year. That makes Verizon’s service much more cost-effective than the pay-TV service provided by cable companies.

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Verizon continues to add net subscribers to its FiOS TV service, as the chart above shows. The company credits this success to both the cost-effectiveness and the enhanced features of its video service. Earlier this year, it introduced the FiOS Quantum TV service, which has some attractive features, including the ability to record up to 12 shows at once, pause and rewind live TV on any TV at home, and store of up to 200 hours of high-definition programs.

Pay-TV market suffers due to structural decline despite consolidation

There’s a lot of consolidation happening in the the cable industry, especially in the pay-TV market. Earlier this year, Comcast Corporation (CMCSA) agreed to acquire Time Warner Cable Inc. (TWC). Also, AT&T, Inc. (T) agreed to acquire DIRECTV (DTV). Despite the consolidation, the pay-TV market is suffering due to a structural decline. According to a report from The Wall Street Journal that cites research firm MoffetNathanson, the overall pay-TV industry lost about 179,000 subscribers in 3Q14. That’s more than double what it lost in the same quarter last year.

In the next part of this series, we’ll look more closely at the reason for this decline.

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