Just how bad will cord-cutting get?
Could be pretty bad, judging by the most recent figures gleaned from the pay-TV industry. In its latest "Cord-Cutting Monitor" report released last week, MoffettNathanson LLC calculated that traditional US pay-TV providers lost a whopping 941,000 subscribers in the second quarter, by far their worst quarterly showing ever. That's up from the industry's previous record loss of 809,000 subs in the first quarter and 709,000 in the same period a year ago.
As a result, the US cable, satellite and telecom industries have now lost more than a combined 1.7 million traditional pay-TV customers in just the first half of this year. Plus, the annual rate of subscriber losses for the industry accelerated to 2.7% in the spring quarter, up from 2.5% in the first quarter. Meanwhile, the rival OTT skinny bundle providers, or virtual multichannel video programming distributors (vMVPDs), fared well, gaining an estimated 469,000 paying customers, or about 50% of the cord-cutters fleeing the legacy pay-TV bundles.
"Did things get worse in Q2?" asked Craig Moffett, principal analyst for MoffettNathanson, in his note to investors last week. "Yes, at least for the traditional distributors."
With more OTT skinny bundle services hitting the video market in the US every season, the cord-cutting craze only promises to get worse, at least in the short term. Indeed, Moffett predicts that the annual cord-cutting rate will soon climb to around 3%, or over 2.7 million subscribers a year. And, as Moffett freely admits, that rate could well climb to 4%, 5% or even 6% per year in the future because the market is still so unsettled and unpredictable. "There is, unfortunately, no roadmap," he notes.
And yet, even with all the unknowns in the market out there, there's still hope that cord-cutting could abate at some point. For one thing, as bad as the second quarter numbers were, the quarterly rate of acceleration actually declined from the previous quarter. So, as Moffett puts it, things "got worse less slowly" in the spring despite some "worst-case scenario" market expectations that the cord-cutting rate might take off even more than it did.
Further, with such major TV programmers as Walt Disney Co. (NYSE: DIS) and CBS Corp. (NYSE: CBS) planning to flood the market with even more OTT networks and more skinny bundle services spreading their wings, the video market could easily end up glutted with too many viewing alternatives. That could lead to the weaker streaming services closing their doors, as we already started to see last week with NBC Universal shuttering its two-year-old comedy OTT network, Seeso. (See Disney Joins OTT Bandwagon and CBS Streaming Service to Expand Globally.)
Plus, with no vMVPD or single-network OTT service likely to be able to duplicate the variety and diversity of offerings that traditional pay-TV bundles deliver, there could easily be a backlash against these rival services as consumers realize they're not getting everything they want. In turn, that could lead to a slow, gradual trickle of subscribers back to the much-derided "heavy" bundles that are shedding customers in bulk today.
One key thing to watch will be the churn rate of all these new streaming services. Will fickle consumers churn in and out of them because they turn out to be disappointing? Or will the new OTT services have greater staying power than the legacy pay-TV bundles?
Time will tell, of course. But don't count out the traditional pay-TV distributors just yet. The pendulum may just swing back their way.
— Alan Breznick, Cable/Video Practice Leader, Light Reading