Tag Archives: cord cutting

Cord Cutting Continues in Q2 2020

The largest traditional cable providers collectively lost over 1.5 million customers in the second quarter of 2020 – an overall loss of 2.0% of customers. This is the smaller than the loss in the first quarter of 1.7 million net customers. To put the quarter’s loss into perspective, the big cable providers lost 16,700 cable customers per day throughout the quarter.

The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the second quarter subscriber numbers compared to the end of the first quarter of 2020:

1Q 2020 2Q 2019 Change % Change
Comcast 20,367,000 20,845,000 (478,000) -2.3%
Charter 16,168,000 16,074,000 94,000 0.6%
DirecTV 14,290,000 15,136,000 (846,000) -5.6%
Dish TV 9,017,000 9,057,000 (40,000) -0.4%
Verizon 4,062,000 4,145,000 (83,000) -2.0%
Cox 3,770,000 3,820,000 (50,000) -1.3%
AT&T U-verse 3,400,000 3,440,000 (40,000) -1.2%
Altice 3,102,900 3,137,500 (34,600) -1.1%
Mediacom 676,000 693,000 (17,000) -2.5%
Frontier 560,000 594,000 (34,000) -5.7%
Atlantic Broadband 311,845 314,645 (2,800) -0.9%
Cable One 290,000 303,000 (13,000) -4.3%
     
Total 76,014,745 77,559,145 (1,544,400) -2.0%
Total Cable 44,685,745 45,187,145 (501,400) -1.1%
Total Satellite 23,307,000 24,193,000 (886,000) -3.7%
Total Telco 8,022,000 8,179,000 (157,000) -1.9%

Some observations about the numbers:

  • The big loser is AT&T, which lost 886,000 traditional video customers between DirecTV and AT&T U-verse. For many quarters AT&T claimed losses were due to the company eliminating low-margin customers. It seems losses are more likely now due to price increases.
  • The big percentage loser is Frontier that lost almost 6% of its cable customers in the quarter. The Frontier numbers have been lowered for both quarters to reflect the sale of its property in the Pacific northwest.
  • While DirecTV continues to bleed customers, Dish Networks has seemed to have stemmed losses.
  • The most interesting story is for Charter that gained customers during the quarter. The company credits the gains to offering a lower-price package and also to a marketing campaign that is giving two months free of broadband. 329,000 customers took that offer in the second quarter and nearly half of those customers elected to add on cable TV and/or cellular service, both of which were for pay, and not free. Charter has been beating the industry as a whole for cable subscribers every quarter since Q3 2018.

The losses of cable companies continue to mount at dizzying levels for the industry. This is the sixth consecutive quarter where the industry lost over one million cable subscribers. The big providers collectively have lost 3.2 million customers this year, from a starting point of 79.3 million customers at the end of 2019.

It’s especially worth noting that these losses happened during a quarter when the biggest ISPs gained over 1.2 million customers for the quarter.

We’re likely going to have to wait to understand exactly what is happening in the cable industry. For example, a recent large survey from TiVO showed that 25% of US homes have downgraded to less expensive cable packages (cord-shaving). That would mean total revenue losses over and above what would be expected by just net customer losses.

Interestingly, homes don’t seem to be fleeing traditional cable for the online equivalents. Leichtman also tracks Hulu Live, Sling TV, and DirecTV Now and those three companies collectively lost 24,000 customers for the quarter.

A Fresh Look at Cord-Cutting

Roku undertook a survey that took a deep dive into cord-cutting and interviewed over 7,000 homes in March. The overall conclusion of the survey is that cord-cutting is accelerating in 2020. The survey was done at the beginning of the pandemic, and overall industry statistics for the second quarter make it sound like cord-cutting exploded in the second quarter of this year.

The Roku survey segregates the television market as follows: 43% of homes still have traditional cable TV. Another 25% are cord-shavers and still have traditional cable TV but have downsized to a lower-cost video package. 25% of the market are now cord-cutters, and 7% of the market never had traditional cable TV.

Probably the most interesting statistic is that one-fourth of the market consists of cord-shavers who have reduced their traditional programming packages. It’s been clear that cord-shaving has been happening, but I’ve never seen it quantified before. The big cable companies never mention cord-shaving when reporting cable TV subscribers. The magnitude of the number of households that have trimmed back to lower-cost programming packages explains why the paid subscriptions to cable networks is dropping far faster than the drop in cable customers.

80% of cord-cutters say that they are satisfied with their decision to end their subscription to traditional TV. Two-thirds of cord-cutters say they wish they had cut the cord sooner.

Lack of sports is driving some cord-cutting during the pandemic, and 28% of cord-cutters say that lack of sports is their number one reason for cutting the cord. 17% of cord-cutters (or 4% of the whole video market) say they will consider returning to traditional TV when sports return to the air full time. 31% of cord-cutters say they will pursue a sports streaming service when sports returns.

The number one reason cited for cutting the cord is cost savings, and many of those surveyed say they were driven to this decision due to a change in household income due to the pandemic. The average Roku user said that they are saving $75 per month with cord-cutting. As a household that has cut the cord, I find that number a little hard to believe – but it’s what they reported in the survey. My consulting firm does surveys and we’ve learned to always be leery when households cite numbers of any kind; in this case, it would be natural for many homes to exaggerate their savings as a way to justify cutting the cord. I’m sure some homes have saved $75, but that seems like a high average and it doesn’t take more than a few subscriptions to online video services to eat into that savings.

Cord-cutters are watching more free ad-supported content as a way to control costs. 42% of cord-cutting households said that free content or extended free subscriptions to streaming services helped to convince them to cut the cord.

45% of the households in the cord-shaver category say they are likely to cancel traditional TV in the next six months. Every survey about cable TV I’ve seen for the last five years has included substantial numbers of homes that say they are about to drop cable TV – but then don’t. But this statistic is a lot higher than I’ve ever seen and indicates a lot of households are thinking about cutting the cord. It’s often a complicated decision for a home with multiple family members to finally cut the cord.

The pandemic makes it harder to discern long-term trends. This survey supports the industry belief that a lot of homes continue to drop traditional TV packages. But the pandemic provides several good reasons to drop a cable subscription that won’t be permanent. Sports will eventually come back to TV and sports fans are going to subscribe. As the economy rebounds, people will get back to work – it’s an easier decision to cut a $100 per month cable subscription when one or more people in a home are unemployed. The pandemic has also killed the creation of new programming content, and many cable subscribers only pay in order to watch the latest versions of their favorite shows. I’ve read that it might take more than a year after the pandemic ends to see a fresh supply of new content.

It will take time to see if an improved economy reverses any of the cord-cutting trends. For now, any company offering cable TV is in for a rough ride. It’s hard to see any positive news from the results of this survey for programmers or cable companies.

Cord Cutting Accelerates in 1Q 2020

The largest traditional cable providers collectively lost over 1.7 million customers in the first quarter of 2020 – an overall loss of 2.2% in customers. This is the biggest overall drop in customers ever in a quarter. To put this loss into perspective, the big cable providers lost 18,800 customers every day.

The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the first quarter subscriber numbers compared to the end of 2019:

1Q 2020 4Q 2019 Change % Change
Comcast 20,845,000 21,254,000 (409,000) -1.9%
Charter 16,074,000 16,144,000 (70,000) -0.4%
DirecTV 15,136,000 16,033,000 (897,000) -5.6%
Dish Networks 9,012,000 9,144,000 (132,000) -1.4%
Verizon 4,145,000 4,229,000 (84,000) -2.0%
Cox 3,820,000 3,865,000 (45,000) -1.2%
AT&T U-verse 3,440,000 3,440,000 0 0.0%
Altice 3,137,500 3,179,200 (41,700) -1.3%
Mediacom 693,000 710,000 (17,000) -2.4%
Frontier 621,000 660,000 (39,000) -5.9%
Atlantic Broadband 306,252 308,638 (2,386) -0.8%
Cable One 303,000 314,000 (11,000) -3.5%
Total 77,532,752 79,280,838 (1,748,086) -2.2%
Total Cable 45,178,752 45,774,838 (596,086) -1.3%
Total Satellite 24,148,000 25,427,000 (1,029,000 -4.1%
Total Telco 8,206,000 8,639,000 (123,000) -1.5%

Some observations of the numbers:

  • Note that AT&T no longer reports customers by division, so Leichtman has reflected all of their losses as DirecTV and shown no losses for AT&T U-verse.
  • The big loser is AT&T, which lost nearly 897,000 traditional video customers between DirecTV and AT&T U-verse.
  • The big percentage loser is Frontier that lost almost 6% of its cable customers in the quarter.
  • The big cable companies fared the best, but still lost 1.3% of their customer base in the quarter.
  • Satellite TV continues to dive and lost more than 4% of customers in the quarter.

Leitchman speculated that the magnitude of the losses could be due to the impact of COVID-19. However, the story seems to be a bit more complex than that. Several of the big companies reported about the same level of disconnects as in recent quarters but saw a big drop-off in new customers buying service. It’s worth noting that the above losses were experienced even while these same companies saw an increase of over 1 million new broadband customers in the same quarter- the best growth in broadband since 2015.

The full impact of COVID-19 will likely be seen in the next quarter. There has to be an impact from over 23 million newly unemployed people this year, as of mid-May. Cutting cable is one of the most obvious ways for a household to save money.

There may be evidence that COVID-19 had an impact by the end of March. Leichtman also tracks the subscribers of the online TV services that are owned by the above companies. Collectively, there was a loss of 319,000 customers by Hulu Live, Sling TV, and DirecTV Now. Additionally, Paystation Vue exited the market in the first quarter. However, YouTube TV is reported to be growing and had over 2 million customers by the end of February.

Losses of this magnitude have to be rolling downhill in the industry. These losses mean a lot lower revenues for cable TV networks. It means a lot less franchise revenues for local governments. It means lower advertising revenues from loss of eyeballs.

How We Watch Video

TiVo recently released its Video Trends Report for the fourth quarter of 2019. TiVO tracks the content that people watch using quarterly and biannual surveys. This latest report comes from surveys given to 6,145 households in the US and Canada.

One of the most surprising results is that the average household that uses online video now watches almost seven different sources of video. This includes the typical sources of video like Netflix and Amazon Prime, but it also includes social media sites like Facebook, free viewer generated video from sources like Facebook and Snapchat, and free movie services like Pluto TV, Crackle, Tubi TV, and Vevo. 31% of homes still watch no online video.

vMVPDs (Virtual Multichannel Video Programming Distributors) are services like YouTubeTV, Hulu+, AT&T TV, and SlingTV. These programmers are still struggling to gain and hold market share. In the last year, PlaystationVue went out of business. AT&T TV and YouTube TV have lost customers. SlingTV and Hulu+ are growing modestly, but are not growing at the same pace that homes are cutting the cord. TiVO postulates that low adoption is due to price sensitivity since the services have all raised rates in the last year.

The shift from traditional cable TV to online programming continues. In 2019 57% of homes watched at least 1 hour per day of traditional live TV – a number that was over 90% a decade earlier. The percentage of homes that watch at least 1 hour per day of online content has grown to 56%. 39% of homes still watch content from a DVR (hardware or online) at least one hour per day.

Local content is still important. 63% of homes say that at least 10% of their daily viewing is of local content. Of that group, 65% watch on Pay TV or an antenna, 16% watch on social media apps, 9% watch online.

Comedy is still king among genres with 59% of respondents saying they watch comedy series. Drama came second at 55%, followed by Crime/Mystery (43%), Suspense/Thriller (39%), Documentaries (37%) Action Adventure (37%), News (34%), and Science Fiction (30%)

Interestingly, the popularity of watching video on mobile phones dropped a bit in 2019, at least measured by the video apps that people carry on their phones.

Subscribers to traditional cable TV report that they are still considering cord-cutting. 77% of the homes in the survey still have traditional cable TV (which is in line with FCC data). Almost 15% of them say they are planning to cut the cord in the next six months. TiVO’s been getting that same level of response to the cord-cutting question since they started asking the question, but most of the people saying they will leave don’t cut the cord. Only 34% of those cutting the cord say they will pursue a vMVPD, so the majority plan to walk away from the traditional cable channels.

70% of potential cord-cutters are citing price as the main reason to drop traditional TV, down from 80% the year before. This might reflect the realization that many cord-cutters don’t save money. 14% of potential cord-cutters say they plan to use only a streaming service like Netflix or Amazon Prime. 23% say they intend to cut back to using an antenna.

When asked what they’d be willing to pay for a la carte individual channels, people cite prices between $1 and $2.50 for various channels – much less than what the channels that are offered online are priced at.

People still use a wide variety of devices to watch video: smart TV (31%), Roku (21%), Amazon Fire Stick (19%), Gaming Consoles (19%), Google Chromecast (10%), and Apple TV (9%).

People are still struggling to find new content. 35% find new content through suggestions made on services like Netflix and Amazon Prime. Most people still find new content through advertising. A little over half of people use text search to hunt for shows, but only 60% of them think text search works well. People have not adopted voice search and only 18% of households use it.

Dwindling TV Viewers

It’s common knowledge that cable operators are losing customers to cord-cutting. The cable industry peaked in 2014 when there were 102 million homes that had a landline cable subscription or satellite cable service. By the end of 2019, the number of homes with traditional cable is approaching 86 million, a 16% decline in customers since 2014.

What’s not as well understood is that even people who are buying a traditional cable service are watching it less as they spend some time watching Netflix and other online programming alternatives. This has resulted in significant losses of viewers for most traditional cable networks. The statistics below are from Variety and show the average daily viewers of the top 20 cable networks in 2019 and five years earlier in 2014. The numbers represent the average daily viewers of each network, in millions.

2019 2014 Change
1 CBS 7.14 9.38 -24%
2 NBC 6.33 8.26 -23%
3 ABC 5.19 6.39 -19%
4 Fox 4.62 5.97 -23%
5 Fox News 2.50 1.75 43%
6 ESPN 1.75 2.21 -21%
7 MSNBC 1.74 0.59 195%
8 ION 1.34 0.28 379%
9 HGTV 1.31 1.36 -4%
10 Univision 1.30 2.97 -56%
11 Hallmark Channel 1.27 0.83 53%
12 USA Network 1.23 2.20 -44%
13 Telemundo 1.20 1.33 -10%
14 History 1.19 1.88 -37%
15 TLC 1.18 1.10 7%
16 TBS 1.16 1.89 -39%
17 Discovery Channel 1.13 1.41 -20%
18 TNT 1.12 2.06 -46%
19 The CW 1.09 1.66 -34%
20 A&E 1.06 1.29 -18%

The loss in viewers for some networks is eye-opening. Most networks have lost daily viewers at a faster pace than the overall industry loss of cable customers. CBS, the most-watched network, lost 2.24 million daily viewers over the last five years. Five networks fell out of the top twenty since 2014 – the Disney Channel, AMC, Adult Swim, FX, and the Food Network.

Daily viewers matter because that’s the prime driver of advertising dollars. Variety reports that the trends deeper inside these numbers reveal that networks that are watched by younger views have the biggest losses, reflecting that the average age of traditional TV viewers has climbed significantly over the last few years. In 2014 the average age of viewers of the major broadcast networks was 54 years old. By 2019 that climbed to 61 years old. Younger people are not watching traditional TV content. It’s no wonder that advertisers are moving to other platforms. In 2019, Facebook had 68 million daily users in the US and Twitter had 27 million.

The loss of viewers directly impacts the revenues of each network since each charges a subscription fee to show their content on a cable network. As viewers have plunged, many of the networks have tried to make up the lost revenues through subscription price increases.

Not every network is losing viewers. The big winners over the last five years are ION and MSNBC that have shot up the chart. A few other networks like Fox News, the Hallmark Channel, and TLC also gained viewers over the last five years. However, the vast majority of cable channels are steadily losing viewers year after year. With cord-cutting still growing and an explosion of new online programming, the loss of viewers is likely to continue and deepen.

 

The Greed of the Programmers

If you use social media you may have noticed a flurry of activity at the end of December warning that small cable TV providers across the country could lose the Fox channels on January 1. That includes Fox News, Fox Business, FX, National Geographic, FS1, FS2, and the Big Ten Network. The dispute was with NCTC, a cooperative that negotiates rates for most of the smaller cable companies in the country.

Fox was asking for what has been described as a 20% rate hike on programming. Fox was seeking a big rate increase to recognize that they have the number one network on cable TV with 1.5 million daily viewers. NCTC finally struck a deal with Fox on December 31 and the channels didn’t go dark – but the cost of buying the Fox networks went up substantially. Back in September, the Fox channels went dark for ten days on Dish Networks when the satellite company refused to accept the same big rate increase.

This is not the first big rate increase from Fox. ALLO Communications, a sizable fiber overbuilder, says that Fox has raised rates 800% since 2004, To put that into perspective, the cost of living in the US has increased by 36% since 2004.

The Fox rate increase is the perfect metaphor for the woes of the cable industry. Fox is not unique, and during the 2000s most cable programmers raised rates much faster than inflation. Cable companies have had little choice but to pass the rate increases along to customers. The programming cost increases have led to a steady annual rate increase for consumers. The soaring price of cable has led to the cord cutting trend and customers are bailing from traditional cable TV by the millions and at an increasing pace.

As a whole, traditional cable TV has probably now entered what economists call a death spiral. Most programming contracts are for 3 – 5 years and the cable TV companies already know of the big programming cost increases coming for the next few years. As cable companies keep raising rates they will lose more customers. The programmers will likely try to compensate by raising their rates even higher, and within a short number of years, cable TV will cost more than what most homes are willing to pay.

A company like Fox can weather the storm of disappearing cable subscribers since they know that all of the online alternative networks like Sling TV, YouTube TV, and others will carry their major networks like Fox News, Fox Business, and the sports networks. The chances are that the primary Fox channels will be solid and steady earners for the company far into the future. However, the same can’t be said for many cable networks.

The online cable products have far smaller channel lineups than traditional cable. There are more than 100 traditional cable channels that are losing subscribers from cable companies and not replacing them with online programming. It’s only a matter of time until many of these networks go dark, as programming revenues won’t cover the cost of operating the network.

It’s easy for people to hate cable companies since that’s who people pay every month. Cable providers like Comcast and AT&T share in the blame since they are both the two largest cable providers and also owners of content. All cable companies share some blame for not yelling bloody murder to the American public for the last decade – and for not fighting back. The cable companies instead started sliding the programming rate increases into hidden fees. However, the fault ultimately lies with the greed of the programmers. These are mostly big publicly traded companies raise rates every year to please stockholders.

It’s no longer good enough for corporations to make money, they are expected to increase bottom line quarter after quarter, year after year. We’ve only been talking about cord cutting for a few years, but the industry has been declining for over a decade. In 2010 there were nearly 105 million subscribers of traditional cable TV, and that number dropped to just over 83 million by the third quarter of 2019. It’s easy to think of cord cutting as a recent phenomenon, but the industry has been quietly bleeding customers for years. Sadly, the programmers are still denying the reality that they exist in a dying industry and are likely to continue to raise rates like Fox just did.

The supply and demand side of any sane industry would have gotten together years ago and figured out a way for the industry to be sustainable. However, the combined greed of the programmers and the big cable companies has resulted in the runaway rate increases that will doom traditional cable. It’s hard to know where the tipping point will be, but we’ll be there when cable networks start going dark – it’s just a matter of time.

Will Costly Alternatives Slow Cord Cutting?

The primary reason that households claim they cut the cord is due to price. Surveys have shown that most households regularly watch around a dozen cable channels, and cord cutters still want to see their favorite channels. Not all cord cutters are willing to go cold turkey on the traditional cable networks and so they seek out an online alternative that carries the networks they want to watch.

For the last few years, there have been online alternatives that carry the most popular cable networks for prices between $35 and $45 per month. However, during the last year, the cost of these alternatives has risen significantly. I doubt that the price increases will drive people back to the cable companies where they had to pay for hidden fees and a settop box, but the higher prices might make more households hesitate to make the switch. Following are the current prices of the major online alternatives to traditional cable TV:

Hulu Live TV. This service is owned 2/3 by Disney and 1/3 by Comcast. They recently announced a price increase effective December 18 to move the package from $44.99 to $54.99. Customers can also select an add-free version for $60.99. At the beginning of 2019, the service was priced at $39.99, so the price increased by 36% during the year.

AT&T TV Now (was called DirecTV Now) raised the price of the service earlier this year from $50 to $65. The company also raised the prices significantly for DirecTV over satellite and lost millions of customers between the two services.

YouTube TV raised prices in May from $40 to $50. This service is owned by Google. Along with the price increase, the service added the Discovery Channel.

Sling TV is owned by Dish Networks. They still have the lowest prices for somebody looking for a true skinny package. They offer two line-ups, called Blue or Orange that each cost $25 per month, or both for $40 per month. There are also add-ons packages for $5 per month for Kids (Nick channels, Disney Jr), Lifestyle (VH-1, BET, diy, Hallmark), Heartland (outdoor channels), Hollywood (TCM, Sundance, Reelz), along with News, Spanish and International packages. One of the big things missing from Sling TV is local network channels and they provide an HD antenna with a subscription. Sling TV has spread the most popular channels in such a way that customers can easily spend $50 to $60 monthly to get their favorite channels.

Fubo TV is independent and not associated with another big media company. They offer 179 channels, including local network channels for $54.99 per month. The network started with sports coverage including an emphasis on soccer.

TVision Home is owned by T-Mobile. This was formerly known as Layer3 TV. The company has never tried to make this a low-cost alternative and it’s the closest online service to mimic traditional cable TV. The service is only available today in a few major markets. Customers can get an introductory price of $90 per month (goes up to $100 after a year). They charge $10 per extra TV and also bill taxes that range from 4% to 20% depending upon the market. This is cable TV delivered over broadband.

Playstation Vue. The service is owned by Sony and has announced that it will cease service at the end of January 2020. The service is no longer taking new customers. The price of the core packages is $55 per month, which increased by $5 in July.  The service carries more sports channels than most of the other services.

The channels offered by each service differ, so customers need to shop carefully and compare lineups. For example, I’m a sports fan and Sling TV and Fubo TV don’t carry the BigTen Network. There are similar gaps throughout the lineups of all of the providers.

All of these alternatives, except perhaps TVision Home, are still less expensive than most traditional cable TV packages. However, it looks like all of these services are going to routinely increase rates to cover increased programming fees. Couple that with the fact that customers dropping cable TV probably lose their bunding discounts, and a lot of houses are probably still on the fence about cord cutting.

Cable Customers Continue to Plummet – 3Q 2019

The number of traditional cable TV subscribers continued to plummet in the third quarter of 2019. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated.

The numbers reported are for the largest cable providers and Leichtman estimates that these companies represent 93% of all cable customers in the country.

For the quarter, the large cable companies lost 2.1% of subscribers which would equate to a trend of losing 8.4% for the year. However, that number needs to be put into context. The biggest drop of customers came from AT&T / DirectTV which lost nearly 1.3 million customers in the quarter, and 2.6 million customers so far this year. Much of AT&T’s loss comes from the decision to end discount plans to customers and has been letting customers go who won’t agree to pay full price at the end of previously given discount plans. The company says they are glad to be rid of customers who were not contributing to the bottom line of the company. All of the other providers collectively lost 0.9% of market share for the quarter, or a pace of 3.8% annualized. It appears the many of the lost DirecTV customers didn’t reappear at another cable provider and are gone from the industry, and so AT&T seems to be pushing households to cut the cord perhaps earlier than they might have otherwise. The nearly 1.8 million customer loss for the quarter sets a new record for cord-cutting.

Following is a comparison of the second and third quarters of this year:

3Q 2019 2Q 2019 Change % Change
Comcast 21,403,000 21,641,000 (238,000) -1.1%
DirecTV 16,828,000 17,901,000 (1,073,000) -6.0%
Charter 16,245,000 16,320,000 (75,000) -0.5%
Dish TV 9,494,000 9,560,000 (66,000) -0.7%
Verizon 4,280,000 4,346,000 (66,000) -1.5%
Cox 3,900,000 3,940,000 (40,000) -1.0%
AT&T U-verse 3,600,000 3,704,000 (104,000) -2.8%
Altice 3,223,400 3,255,300 (31,900) -1.0%
Mediacom 729,000 747,000 (18,000) -2.4%
Frontier 698,000 738,000 (40,000) -5.4%
Atlantic Broadband 312,555 307,261 5,294 1.7%
Cable ONE 298,063 308,493 (10,430) -3.4%
Total 81,011,018 82,768,054 (1,757,036) -2.1%

Some other observations:

  • Frontier continues to bleed and lost 5.4% of its cable customers along with 71,000 broadband customers in the second quarter.
  • Several other companies – Mediacom, and Cable One lost more than 2% of their cable customer base in the quarter.
  • The rate of loss for Dish Networks continues to shrink, and this might be due to picking up customers that are leaving DirecTV.

I haven’t seen anybody tracking the quarterly performance of all of the online cable equivalent providers – the companies that carry a full line-up online. It seems unlikely from the numbers I have seen that these companies are picking up a lot of the customers leaving traditional cable TV. For example, Leichtman reports that Sling TV picked up 214,000 customers in the third quarter while DirecTV Now lost 195,000 customers.

I have to wonder at what point the cable industry will start to implode? Cord cutting is accelerating. The popular press and social media are full of advice telling people to cut the cord. There are major new online content platforms like Disney+, HBO Plus, and Apple + that are providing additional justification to cut the cord. Advertising revenues are starting to drop along with subscriber revenues.

There must be drastic changes in industry practices if the traditional cable business is to survive. Continued price increases are pushing cable TV out of the range of affordability for most homes. To survive, the cable companies and the programmers would have to get together to reform the industry with affordable products people are willing to buy. At least for now, that possibility seems remote.

The Onslaught of New Content

As if cord cutting isn’t bad enough, online OTT programming is exploding with numerous new options. One has to think that these many options will lure a lot more homes to ditch traditional cable TV.

Disney+. This service is hitting the streets with huge fanfare. It’s priced at $6.99 per month or $5.83 per month with an annual subscription. Disney+ will contain the content provided by Disney, Marvel, Lucasfilm, Pixar, and National Geographic. Disney owns the Star Wars franchise and is planning a lot of new Star Wars content. There will be new content created only for the Disney+ service like a series produced by the Jim Henson Company. Disney also owns most of Hulu and will be offering a bundled package of Disney+, Hulu, and ESPN+ for $12.99 per month.

Apple TV+. The service launched November 1 with a monthly fee of $4.99. It’s being offered for free to customers that buy an expensive Apple product like an iPhone, iPad, Mac, or Apple TV.  The company has set a goal of having 100 million customers within 3-4 years and will launch in over 100 countries. Apple is also offering new content created just for the service. They have announced partnerships for content from Oprah Winfrey, from Reese Witherspoon’s Hello Sunshine production company, and from Steven Spielberg’s Amblin TV. While not yet announced, Wall Street expects Apple to accumulate a library of older content. For now, the service doesn’t work on Amazon Fire and Roku devices, but should in the future.

HBO Max.  This is being offered by AT&T and slated for launch sometime in the spring of 2020. The company is offering this at $14.99 per month, the same price as HBO Now – which is the current online HBO offering that only carries the library of HBO content. Customers subscribing to HBO on a cable system might get the new service for free. The company will likely migrate HBO Plus customers to the new service. HBO Max brings in the vast library of content owned by Warner Media. There will be a curated revolving list of classic movies. They’ve also bought the rights to shows like Friends. The company hopes to have 50 million paying customers by 2025. This is the only online service that doesn’t care if customers buy their prime HBO content online or from a cable company.

Peacock. This is owned by Comcast and is scheduled to launch in April 2020. The service is named for the NBC peacock logo. The service will provide new content including shows from Alec Baldwin and Demi Moore. It will carry the vast library of NBC’s programming. The new offering will also tie into Olympic coverage. For now, Comcast is thinking of giving this free to every Comcast customer and may make it free to everybody.

Quibi. This is a new service created by Jeffery Katzenberg of DreamWorks. It will launch in early 2020 and contains a lot of new content. The unique thing about the service is that it will consist of short-duration content and will only be available on smartphones. The company is working with over 30 partners to create content that is aimed at younger views. The typical content will be 7-10 minutes in length. It’s attracted big names like Steven Spielberg, Kevin Hart, Tyra Banks, and Jennifer Lopez. There are plans for vignettes from traditional series like Punk’d, Varsity Blues, Vikings, and How to Lose a Guy in 10 Days.

Bloomberg. Just to show that all new content isn’t entertainment related, Bloomberg is also planning a new online offering. It will be subscription-based and will offer all of Bloomberg’s current business content plus new content. For example, there are plans for a series, Moon Shot that looks at major scientific breakthroughs. Accelerate will look at test-driving cars of the future. Prognosis will look at cutting edge medicine.

The question faced by customers of traditional cable TV is if they want to continue to pay the big monthly bills for traditional TV and also subscribe to some of this new content. There are a lot of households that are going to want to watch the Disney catalog of programming or see the new content on Apple TV+ or HBO Max. It seems likely that this flood of new content is going to convince more homes to cut the cord.

Is OTT Service Effective Competition for Cable TV?

The FCC made an interesting ruling recently that signals the end of regulation of basic cable TV. Charter Communications had petitioned the FCC for properties in Massachusetts claiming that the properties have ‘effective competition’ for cable TV due to competition from OTT providers – in this case, due to AT&T DirecTV Now, a service that offers a full range of local and traditional cable channels.

The term effective communications is a very specific regulatory term and once a market reaches that status a cable company can change rates at will for basic cable. – the tiers that include local network stations.

The FCC agreed with Charter and said that the markets are competitive and granted Charter the deregulated status. This designation in the past has been granted in markets that have a high concentration of satellite TV or else that have a lot of alternative TV offered by a fiber or DSL overbuilder that has gained a significant share of the market.

In making this ruling the FCC effectively deregulated cable everywhere since there is no market today that doesn’t have a substantial amount of OTT content competing with cable companies. Cable providers will still have to go through the process of asking to deregulate specific markets, but it’s hard to think that after this ruling that the FCC can say no to any other petition.

From a regulatory perspective, this is probably the right ruling. Traditional cable is getting clobbered and it looks like the industry as a whole might lose 5-6 full percentage of market share this year and end up under a 65% national penetration rate. While we are in only the third year where cord cutting became a measurable trend, the cable industry customer losses are nearly identical to the market losses for landline telephone at the peak of that market decline.

There are two consequences for consumers in a market that is declared to be effectively competitive. First, it frees cable companies from the last vestiges of basic cable rate regulation. This is not a huge benefit because cable companies have been free for years to raise rates in higher tiers of service. In a competitive market, a cable provider is also no longer required to carry local network channels in the basic tier – although very few cable systems have elected this option.

I’ve seen several articles discussing this ruling that assume that this will result in an instant rate increase in these markets – and they might be right. It’s a headscratcher watching cable companies raising rates lately when higher rates are driving households to become cord cutters. But cable executives don’t seem to be able to resist the ability to raise rates, and each time they do, the overall revenue of a cable system increases locally, even with customer defections.

It’s possible that this ruling represents nothing more than the current FCC’s desire to deregulate as many things as possible. One interesting aspect of this ruling is that the FCC has never declared OTT services like SlingTV or DirecTV Now to be MVDPs (multichannel video program distributors) – a ruling that would pull these services into the cable TV regulatory regime. From a purely regulatory viewpoint, it’s hard to see how a non-MVDP service can meet the technical requirements of effective competition. However, from a practical perspective, it’s not hard to perceive the competition.

Interestingly, customers are not leaving traditional cable TV and flocking to the OTT services that emulate regular cable TV service. Those services have recently grown to become expensive and most households seem to be happy cobbling together packages of content from OTT providers like Netflix and Amazon Prime that don’t carry a full range of traditional channels. From that market perspective, one has to wonder how much of a competitor DirecTV Now was in the specific markets, or even how Charter was able to quantify the level of competition from a specific OTT service.