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June 1, 2021
The US pay-TV industry suffered another blow in Q1, as the full universe of players combined to lose nearly 2 million subscribers, more than double the amount in the prior quarter, according to MoffettNathanson's latest Cord-Cutting Monitor.
Such "traditional" providers as cable operators, telcos and satellite TV providers shed about 1.7 million subscribers in the historically weak first quarter, roughly the same as a year ago, with moderating sub losses for satellite TV (-716,000) offset by accelerating losses for cable (-852,000). The telcos dropped another 148,000 video customers as well, about even with the previous quarter.
This continued erosion of the traditional pay-TV base follows the whopping loss of 6 million subscribing households in 2020. If the Q1 pattern continues through the next three quarters, the sector will end up shedding at least another 6 million subs this year.
Due to these continuing losses, the percentage rate of sub decline for the traditional pay-TV sector climbed to 7.6% in Q1, slightly worse than both the previous quarter (7.4%) and the year-ago period (7.5%). Traditional US pay-TV providers now have a total of slightly more than 75 million subscribers, down from nearly 88 million subs just two years ago.
"In percentage terms, the result is the second [quarter] worst on record," noted MoffettNathanson analyst Craig Moffett in his latest quarterly report. Only Q2 2020 registered a higher percentage rate of sub decline at 7.7%.
With such subscriber losses continuing to pile up, the penetration rate for US pay-TV services has now dipped below 60% of occupied households for the first time since before the launch of the first satellite TV service, DirecTV, back in 1994, Moffett pointed out. And there appears to be no end in sight.
vMVPDs lose ground too
The picture wasn't that much brighter on the streaming side of the business, as virtual multichannel video programing distributors (vMVPDs) teamed up to lose 241,000 subscribers in Q1. That result reversed strong gains from the past three quarters but marked an improvement from even bigger losses in the year-ago period. Heavy sub losses by such major streaming players as Hulu Live (-200,000) and Sling TV (-100,000) more than swamped smaller sub gains by such other players as YouTube TV (+75,000), fubotv (+43,000) and Philo.
As a result, the vMVPD sector closed out the first quarter with about 11.75 million subscribers, down from a high of nearly 12 million subs at the end of 2020. Moffett noted that, just like traditional pay-TV providers, the streamers suffer in the winter after the NFL season ends. "As we have noted before, there is a clear seasonality pattern emerging in subscriber behavior vis-à-vis virtual MVPDs," he wrote.
With the vMVPDs included, the total US pay-TV universe shrank by another 4.5% in Q1, ending March with a total of 86.79 million subscribers. Moffett estimates that now leaves 24.8 million homes "totally outside the live TV ecosystem," with the number surging each quarter.
Moffett also pointed out that the "conversion rate" of vMVPDs (the rate at which traditional subs losses are recaptured by OTT-TV service providers) is now averaging around 34%, much lower than it was in 2018 and 2019. "In other words," he wrote, "only around one in three households that cut the traditional cord are being converted into a virtual MVPD subscriber."
As he has before, Moffett observed that the continued rounds of price increases by the streaming players have made them less appealing to consumers seeking to shave their home entertainment costs by finding lower-priced substitutes for their traditional pay-TV bundles.
"At the start of the vMVPD rollout cycle, we strongly believed that these services would ultimately be more successful by offering mainly news, sports and broadcast TV packages at prices staring below $50.," he wrote. "However, due to industry consolidation and the ever-present 5% to 7% of annual per-subscriber price increases from programmers, the business case of less channels for less money was impossible to achieve."
WarnerMedia-Discovery merger could aid linear TV
Addressing the proposed marriage of WarnerMedia and Discovery, Moffett argued that the union will actually slow down the ongoing transition from the traditional pay-TV business model to the direct-to-consumer (DTC) streaming model because of the concentration of programming assets that the new media conglomerate will have at its disposal. He noted that New Discovery's networks "will collectively account for some 30% of total viewing hours," making it "almost unimaginable that a distributor would drop a network bundle of this importance."
The analyst also contended that New Discovery's "heavy concentration of cable networks means that they will also be less likely than AT&T would have been on their own to strip-mine their networks for DTC content. That, too, will work to preserve the status quo."
"There is no small irony in the observation that the deal to combine WarnerMedia and Discovery will, at least initially, have a far greater impact on linear TV than it will on streaming," he wrote. "Yes, the deal is ostensibly about assembling the right assets for a DTC future. But perhaps its most significant impact early on will be that it slows rather than hastens the pace of the transition."
Nevertheless, Moffett added, the merger will only slow down the move towards a DTC model, not stop it from happening. "What the planned merger won’t do is change the trajectory of consumer demand," he wrote.
— Alan Breznick, Cable/Video Practice Leader, Light Reading
Cable/Video Practice Leader, Light Reading
Alan Breznick is a business editor and research analyst who has tracked the cable, broadband and video markets like an over-bred bloodhound for more than 20 years.
As a senior analyst at Light Reading's research arm, Heavy Reading, for six years, Alan authored numerous reports, columns, white papers and case studies, moderated dozens of webinars, and organized and hosted more than 15 -- count 'em --regional conferences on cable, broadband and IPTV technology topics. And all this while maintaining a summer job as an ostrich wrangler.
Before that, he was the founding editor of Light Reading Cable, transforming a monthly newsletter into a daily website. Prior to joining Light Reading, Alan was a broadband analyst for Kinetic Strategies and a contributing analyst for One Touch Intelligence.
He is based in the Toronto area, though is New York born and bred. Just ask, and he will take you on a power-walking tour of Manhattan, pointing out the tourist hotspots and the places that make up his personal timeline: The bench where he smoked his first pipe; the alley where he won his first fist fight. That kind of thing.
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