Published October 10, 2013
Consumers are increasingly turning to an unlikely source for home security - the cable company.
A decline in prices for critical components such as cameras and wireless technology has lowered entrance barriers to the $13 billion home security market, traditionally the territory of players like ADT Corp.
For cable companies such as Comcast Corp and Time Warner Cable Inc, home security is another revenue stream to rebuild margins whittled away by rising programming costs and declining video subscriber numbers. It is also a way to put to work the billions of dollars that cable companies have invested to create high-speed video and data services over the years.
And home security subscribers tend to stick around for an average of seven or eight years, according to industry estimates, unlike fickle cable TV subscribers who can be lured away by enticing deals from satellite and telecom rivals.
Cable companies "are under pressure on their traditional lines of business so there's some urgency added to add more revenue," said Jim Johnson, executive vice president of iControl, the main home security vendor for Comcast, Time Warner Cable and Cox Communications.
Among the recent converts is Bruce Bird, 58, who did not think he needed a home security system until his New Jersey beach house was robbed last December. The culprits ripped out cabinets and made off with his flat screen TV just after he spent thousands of dollars to repair damages from Hurricane Sandy.
Bird, a pharmaceutical consultant, decided against a traditional security provider like ADT and chose Comcast, already his cable TV company, to safeguard his vacation home on Long Beach Island, New Jersey.
"I kept getting fliers in the mail saying that I had the technology, so I just called Comcast," he said.
The service was not cheap. Bird said he spent about $700 setting up Comcast's Xfinity home product at his beach house for cameras and sensors, as well as other features that allow him to control the thermostat and lights when he is away.
Bird pays about $49 a month for the security service as part of a $209 bill that includes cable TV, phone and Internet. Using his smartphone, he is now able to check the four cameras on the premises and is emailed photos of whoever enters the house.
TAKING ON THE INCUMBENTS
Comcast, the largest U.S. cable operator with 22 million video subscribers, entered the security market in 2010 and has not revealed subscriber numbers.
Time Warner Cable, which serves 12 million video customers, has 30,000 subscribers for its security business, incoming Chief Executive Rob Marcus said at a recent investor conference. Consumers can now "watch what your dog or cat or nanny are doing during the day," he told investors.
The company this week started selling the service in New York City, its last big untapped market for home security. Adam Mayer, vice president of Time Warner Cable's "Intelligent Home" unit, said the company may create special packages for apartments to crack into wider parts of the New York market.
Privately held Cox, which does not say how many subscribers takes its product, said it plans to take a "healthy percentage" of a potential $1 billion market in the areas in which it operates, a spokesman said.
Cable operators will have to outmaneuver incumbents that include ADT, Protection 1, Ascent's Monitronics, with years of experience, infrastructure and name identification. ADT alone has 6.5 million customers, about a quarter of the U.S. market.
Price is emerging as a key battlefield, with Comcast, Cox and Time Warner Cable offering discounts if customers combine home security with other services. That puts the prices for home security at $30-$50 per month, slightly below what ADT charges for its new "Pulse" product.
Even with the price difference, Imperial Capital analyst Jeff Kessler said it could take years for cable companies to gain consumers' trust in a market where security providers contact authorities in the event of an emergency.
"People's perception of a cable company is that they'll be there between the hours of 8 and 5 next week. You can't have that if you are expecting the police to come in 5 or 6 minutes," Kessler said.
Still, Kessler estimates cable will add 25 million homes while traditional security companies will get 5 to 6 million homes in the next few years. He said the larger security players will weather the new competition since there will always be customers who prefer a product from a dedicated security company.
Comcast Xfinity Home executive Mitch Bowling said that half of its security customers are new to the company, that 96 percent of Xfinity home customers buy at least two other Comcast services and two-thirds of these customers have never bought home security before.
Bank of America Merrill Lynch analyst Jessica Reif Cohen said adding a home security business could boost Time Warner Cable's stock by $20 and Comcast's by $5.
Cable companies also see opportunities in expanding such services to small businesses. They also hope to increase their home automation services, which tap their broadband networks to let customers control lights, appliances and thermostats remotely.
Wireless carrier AT&T Inc, which rolled out its home security and automation service in 2011, is planning to offer services in more than 50 markets by the end of 2013, ahead of their original plan, and go national in 2014. Glenn Lurie, the head of AT&T's emerging devices business, said such services could eventually reap $1 billion a year.
Verizon Communications Inc has a product, but it does not connect consumers to the police or other authorities in an emergency.
DirecTV acquired a home security company called LifeShield in June. It will begin trials for the service in the fourth quarter and release it nationally in the first quarter, DirecTV Chief Revenue and Marketing Officer Paul Guyardo said. Home security and automation is a low-churn, high-margin business that compliments DirecTV's video business, he noted.
Not every cable company is charging into the market. Charter, Cablevision and Dish Network do not have products. Dish said it is "constantly evaluating opportunities" while Charter said it is focusing on its core business.
ADT CEO Naren Gursahaney said in an interview that he is in discussions with every pay TV company about potential partnerships.
"For the most part, they've decided to try the market on their own," Gursahaney said. "If there's a desire on their part to offer a best of breed bundle including ADT ... we'd be open to those kind of discussions."
(Reporting by Liana B. Baker; additional reporting by Sinead Carew; Editing By Christian Plumb, Ronald Grover, Richard Chang and Andrew Hay)