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August 12, 2020
The erosion of the US pay-TV market continued in the second quarter as service providers (traditional and OTT alike) combined to lose a total of 1.55 million subs in the period, according to the latest estimates from MoffettNathanson.
While the overall losses were not as steep as feared during a quarter that was pressured by the pandemic, price hikes and the absence of televised live sports, a top industry analyst warns of a looming, more damaging "second wave" powered by a significant "content redirection" by media giants to subscription and ad-supported streaming services.
"As more and more people leave the traditional ecosystem for direct-to-consumer [DTC] substitutes, programmers are increasingly moving their best content to their DTC platforms," Craig Moffett, analyst with MoffettNathanson, explained in his latest quarterly Cord-Cutting Monitor report (registration required). "Media companies have no choice but to target this huge market with DTC SVOD and AVOD options."
This content redirection trend is hiding out in the open – Disney with Disney+, NBCUniversal with Peacock, WarnerMedia with HBO Max, along with ViacomCBS's coming "super" streaming service that will succeed CBS All Access, and the rapid approach of a new, aggregated streaming service from Discovery Communications.
Meanwhile, consumer adoption and media industry support of free, ad-based streaming services such as Pluto TV (now part of ViacomCBS), Xumo (acquired by Comcast/NBCU) and Tubi (nabbed by Fox) continue to gain traction.
"Not only does content redirection make the SVOD and AVOD alternatives better and better, it also impoverishes the Pay TV ecosystem, strip-mining it of all that is worthy," Moffett wrote. "It is this second cycle that is likely to be the straw that breaks the camel's back."
The camel's back is weakening
The traditional US pay-TV sector (not including virtual multichannel video programming distributors, or vMVPDs) lost 1.9 million subs in Q2, versus a year-ago subtraction of 1.47 million, according to Moffett's estimates.
US cable operators lost 752,000 in the period, widened from about -500,000 a year earlier, while satellite TV (Dish and DirecTV) shed 1 million subs, versus -832,000 in the year-ago period. The rate of telco TV sub losses was relatively stable: -141,000 in Q2 2020 compared to -144,000 in Q2 2019.
The penetration of traditional pay-TV providers dropped to about 61% of occupied households, down to circa 1995 levels when satellite TV first started to deliver service to rural America, Moffett points out.
OTT-TV's promise remains unfulfilled
Meanwhile, the vMVPD market, marked by recent price hikes from some providers, is not picking up the slack.
Moffett estimates that OTT-TV providers combined to add 348,000 subs and extend the grand total to about 10 million. Subscriber results were a mixed bag – Dish-owned Sling TV lost 56,000, DirecTV Now (AT&T TV Now) lost 66,000, YouTube TV added about 200,000, Hulu Live added 100,000, fuboTV was flat, and Philo, aided by its focus on entertainment programming, added about 170,000.
With vMVPDs included, US pay-TV shed 1.55 million subs, according to the analyst's estimates.
"There is simply no way to pretend that vMVPDs will be the salvation for the industry that so many had hoped just a few years ago," Moffett explained. "SVOD and AVOD have proven to be a much better solution to delivering entertainment programming than vMVPDs. The second cycle of content redirection isn't going to gut the traditional distributors. It will gut the vMVPD model as well."
— Jeff Baumgartner, Senior Editor, Light Reading
Senior Editor, Light Reading
Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.
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