Pay-TV Subscriber Loss Rises In Q3, Cord Cutting Still A Woe

Per a recent FierceCable report, traditional pay-TV services, including cable and satellite, in the United States lost 1.2 million customers in third-quarter 2017, thanks to cord cutting.

Estimates by several research firms like Kagan and Leichtman Research Group have provided us with key findings for the reported quarter.

The largest pay-TV providers lost about 405,000 net video subscribers compared with a loss of about 250,000 subscribers in the year-ago quarter. Major cable companies lost about 290,000 video subscribers in the quarter under review compared with a loss of around 90,000 in the prior-year quarter. Satellite-TV services lost approximately 475,000 subscribers in the reported quarter as against the addition of about 5,000 subscribers in third-quarter 2016.

In the first nine months of 2017, cable companies lost 801,000 video customers — reflecting a 114% rise year over year.

Total U.S. traditional pay-TV subscribers stand at approximately 91.7 million.

U.S. Pay-TV Industry

In the last 3-4 years, the internal dynamics of the U.S. pay-TV industry have been gradually shifting from cable-TV operators to large telecom operators and low-cost over-the-top OTT service providers. Extensive network of fiber-based video services from telecom operators and the strong presence of online video streaming providers such as Netflix Inc. NFLX, Hulu.com and YouTube etc. have become a threat to cable-TV operators. These online video streaming channels provide an extremely cheap source of TV. This business model is gaining momentum, even during economic uncertainties, and has proven to be a risk to the pay-TV industry.

The industry has been losing customers to wireless telecom operators and online streaming service providers. Leading cable multi service operator and media giant, Comcast Corp.'s CMCSA Cable business is suffering from subscriber loss despite the solid performance of the NBC Universal segment. The company added a net of 214,000 high-speed Internet customers and 51,000 security and automation customers, but lost 94,000 voice customers and 125,000 video customers in the reported quarter.

Charter Communications Inc.'s CHTR commercial segment also fared well, which is evident from the revenue and subscriber growth in the reported quarter. However, the company lost 104,000 video customers in the residential segment. It is the second-largest cable MSO after Comcast.

The domestic multi-channel video market has also become extremely saturated and intensely competitive. Moreover, the U.S. pay-TV industry is affected by the ongoing massive consolidation between telecom and cable-TV operators.

In order to cope up with the loss and remain competitive in the market, pay-TV operators have started offering Internet-TV services with selected TV channels at cheaper rates.

Telecom and pay-TV behemoth, AT&T Inc. T, had 25.083 million video subscribers (down 0.8% year over year) as of Sep 30. Of the total, Satellite connections tallied 20.605 million, down 0.8%. U-verse connections were 3.691 million, down 18.3%. DIRECTV NOW connections were 0.787 million. In the reported quarter, AT&T lost 251,000 satellite-TV customers and 134,000 U-verse TV customers. However, it witnessed an addition of 296,000 DIRECTV NOW connections. DIRECTV NOW is the OTT online streaming service of AT&T.

DISH Network Corp. DISH, the second-largest satellite TV operator in the United States, gained a net of 16,000 pay-TV subscribers as against the loss of 116,000 in the year-ago quarter. Total pay-TV subscribers declined to 13.203 million compared with 13.643 million at the end of third-quarter 2016. In the reported quarter, the company also removed approximately 145,000 subscribers from the regions of Puerto Rico and the U.S. Virgin Islands, due to the impact of Hurricane Maria. Further, the company activated approximately 638,000 gross new pay-TV subscribers, compared with around 736,000 subscribers in the prior-year quarter.

DISH Network lost 50,000 broadband subscribers in the reported quarter compared with a loss of 20,000 in the year-ago quarter.

The trajectory of subscriber losses in pay-TV signifies an unprecedented annual decline.

All the above-mentioned companies currently carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Optimistic Pay-TV Industry

Despite the dismal picture, pay-TV operators currently enjoy certain positives. The cable MSOs in the United States have successfully maintained their lead over telecom operators in the high-speed broadband (Internet) market. Moreover, to stay ahead in the competition, cable companies are introducing latest technologies like DOCSIS 3.1 technology. DOCSIS (Data Over Cable Service Interface Specification) is a communications protocol that allows cable MSOs to provide high-speed broadband connections.

Meanwhile, several research firms have estimated that major pay-TV operators offering traditionally managed TV services and next-generation online services will hold nearly 80% of the market share till 2022. In June 2017, research firm Strategy Analytics estimated that annual spending on subscription video and TV services in the country will reach $130.3 billion in 2019.

Bottom Line

The presence of online video streaming providers is posing significant threat to the existing pay-TV business model. Video offering, which represents the core business function of cable-TV operators, is losing popularity. At this point, pay-TV operators are planning to revamp their business model to keep their market share intact.

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