Pay-TV’s Silver Linings Playbook: Broadband

With pay-TV distributors continuing to hemorrhage subscribers by the boatload, the growing void is being supplanted by a burgeoning new market: high-speed Internet — a prerequisite to over-the-top video consumption.

The largest cable and telephone providers in the U.S. — representing about 96% of the market — added more than 1.16 million broadband Internet subscribers in the first quarter, ended March 31. That’s up from a gain of about 955,000 subs in previous-year period, according to new data from Leichtman Research Group.

Broadband additions in the quarter were 122% of those in Q1 2019 — the most in any quarter since Q1 2015. Broadband providers now account for about 102.4 million subscribers, with cable distributors accounting for 69.2 million broadband subs, followed by telecoms with 33.2 million subs.

Over the past year, there were about 2.75 million broadband additions — compared with about 2.63 million net broadband adds over the prior year

The top cable companies added about 1.23 million broadband subs in the quarter — 132% of the net adds for the top cable companies in Q1 2019. Cable broadband net additions were the most in any quarter since Q1 2007.

Telecom companies had a net loss of about 65,000 broadband subs in the quarter, compared with a net gain of about 20,000 subs in Q1 2019.

“With the onset of the coronavirus pandemic, there were more quarterly net broadband additions in Q1 than in any quarter in five years,” Bruce Leichtman, principal analyst for Leichtman Research Group, said in a statement. “Top cable companies performed particularly well, having the most net additions for cable broadband services in any quarter in 13 years.”

FCC: Americans Lacking Broadband Access Declines

The number of people lacking access to fixed high-speed Internet access has declined more than 30%, according to new data from the Federal Communications Commission.

This comes as welcome news to Americans living in rural parts of the country looking to stream Netflix, Amazon Prime Video, Disney+ and Redbox TV, among other over-the-top video services.

Section 706 of the Telecommunications Act of 1996 requires that the FCC determine annually whether advanced telecommunications capability, i.e. broadband access for streaming video, music, data, is being deployed to all Americans “in a reasonable and timely fashion.”

The FCC’s “Broadband Deployment Report” found that for the third consecutive year advanced telecommunications capability is being deployed on a reasonable and timely basis.

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The report found the number of Americans lacking access to fixed terrestrial broadband service at 25/3 Mbps continues to decline, going down by more than 14% in 2018 and more than 30% over the course of 2017 and 2018. The number of Americans without access to 4G Long Term Evolution (LTE) mobile broadband with a median speed of 10/3 Mbps based on Ookla data declined approximately 54% between 2017 and 2018.

The vast majority of Americans — more than 85% — now have access to fixed terrestrial broadband service at 250/25 Mbps, a 47% increase since 2017, with the number of rural Americans having access to 250/25 Mbps fixed terrestrial broadband service more than tripling between 2016 and 2018.

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“Under my leadership, the FCC’s top priority is to close the digital divide, and I’m proud of the progress that we have made,” chairman Ajit Pai said in a statement. “In 2018 and 2019, the United States set consecutive records for new fiber deployment, with the number of homes passed by fiber increasing by 5.9 million and 6.5 million, respectively.”

Pai said growing up in rural Kansas drove home the need for access to new technology in communications and technology. Since being appointed by President Trump to chair the FCC, Pai has made deregulation a cornerstone of his tenure — including spearheading the overturn of Obama-era “net neutrality” guidelines mandating equal access to broadband networks for video services.

“I have a deep commitment to expanding broadband to all corners of the country,” he said. “That’s why we’ve taken aggressive steps to remove regulatory barriers to broadband deployment and reform our ‘Universal Service Fund’ programs.”

The gains have been fueled in part by the broadband industry’s $80 billion investment in network infrastructure in 2018, the highest annual amount in at least the last decade. In 2019 alone, fiber broadband networks became available to roughly 6.5 million additional homes, the largest one-year increase ever, with smaller providers accounting for 25% of these new fiber connections.

But despite these gains, Pai said the job isn’t done affording all Americans have access to digital “opportunity.”

“I look forward to commencing Phase I of our ‘Rural Digital Opportunity Fund’ auction in October, which will bring high-speed broadband to millions of currently unserved Americans,” he said.

Survey: 60% of Households Would Cancel Pay-TV Before Broadband

More than three-fourths of U.S. broadband households reported a Parks Associates survey in the third quarter of 2019 that it would be difficult for them to go without broadband service, a finding likely to increase following the widespread COVID-19 outbreak.

The report, 360 View: Broadband Services in the US, also found that 60% of households would cancel their pay-TV subscription before canceling their broadband service.

“Consumers with OTT subscriptions are shifting away from Internet bundles, with this group much more likely to have standalone internet service than non-subscribers,” Steve Nason, director of research, Parks Associates, said in a statement. “This finding indicates providers need to adjust their bundling strategies, to include more OTT video services as options. Currently less than one-fifth of subscribers receive an OTT service bundled with their broadband package.”

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The research also showed that consumers have little understanding of how much broadband speed their home needs and uses. Demographic factors, such as age, rather than the number of connected platforms in the home, largely determine the choice of broadband speed. Demand for 1+ Gbps services is highest among younger consumers who use connected platforms and services heavily. As social distancing and self-isolating habits increase across the country, the demand for these higher-speed services could spike across all demographics and households, according to Parks.

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“Current conditions, with many people working at home and entertaining-in-place, put more stress on the home’s broadband capacity, so service providers need to step up their efforts to help customers better understand their throughput needs,” Nason said in a statement. “Customers will be more willing to upgrade their speed to match their increased consumption habits, provided they get the right information and assurances it will meet their needs, which will ultimately lead to higher satisfaction levels.”

Analyst: Pay-TV to Lose $50 Billion in Revenue by 2025 — Despite Accelerated Broadband Growth

With the pay-TV industry seeing greater numbers of subscribers exiting toward alternatives such as over-the-top video, new data from Digital TV Research suggests domestic operators will see revenue fall by $50 billion to $62 billion in 2025.

The report says pay-TV revenue in North America, which peaked in 2015 at $112 billion, will see declines across all distribution channels, including cable (down $22 billion, including $3 billion from analog and $19 billion from digital). Satellite distribution will fall by $21 billion and online TV (Sling TV, AT&T TV Now, Hulu with Live TV, etc.) will drop by $7 billion.

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“The loss of 42 million pay-TV subscribers between 2010 and 2025 is mostly responsible for this decline,” Simon Murray, principal analyst at Digital TV Research, said in a statement. “Operators now put more emphasis on broadband connections than on traditional pay TV channels.”

Indeed, Comcast added 442,000 broadband subscribers in the most-recent quarter, AT&T added 191,000 subs, Charter Communications (Spectrum) added 339,000 subs, and Verizon added 35,000 Fios Internet customers.

“Subscribers are turning against high traditional pay-TV fees by seeking cheaper alternatives,” Murray said. “OTT allows viewers to see what they want when they want — they are not tied to the channels’ schedules. The value of the linear schedule for recorded programming is rapidly diminishing.”

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Comcast Loses 149,000 Q4 Cable Subs; Record 733,000 Subs in 2019

In another reminder the traditional pay-TV business model’s leak is widening, Comcast Cable Jan. 23 reported a drop of 149,000 video subscribers in the fourth quarter, ended Dec. 31, 2019. The nation’s largest cable operator lost a record 733,000 video subs in 2019 — underscoring consumers’ growing disinterest in the cable bundle and migration toward less-expensive over-the-top video distribution.

Comcast, which ended the year with 20.2 million video subscribers, is offsetting video sub losses with broadband — the lifeblood of video streaming. The company is one of the largest ISP operators, adding 424,000 high-speed Internet subs in the quarter; and 1.4 million for the fiscal year, including business customers.

Comcast ended 2019 with 28.6 million broadband subs, up 5% from 27.2 million subs at the end of 2018.

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In a statement, CEO Brian Roberts lauded the company’s broadband subscriber growth, adding the Comcast in 2020 would differentiate its broadband product in the U.S. through innovations like Flex and xFi Advanced Security; accelerating the deployment of Sky Q and launching a new broadband service in Italy.

The executive said Comcast has high hopes for the April debut of Peacock, the company’s first branded over-the-top video platform featuring both subscription and ad-supported services.

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“Underscoring our confidence in the continued success of our company, we are pleased to announce a 10% increase in our dividend, our 12th consecutive annual increase,” Roberts said.

Kansas Pay-TV Operator Switching to Streaming Video Only

In a sign of the times, Rainbow Communications, a 67-year-old pay-TV operator based in Everest, Kansas, has begun notifying customers that it will cease distributing linear broadcast TV channels, effective June 30.

In the place of pay-TV, Rainbow will give customers direct access to third-party over-the-top video distribution through its broadband network.

“Most of our customers have chosen this route because watching video now accounts for 80% of our Internet network traffic,” the company said in a statement. “Therefore, we have decided to focus our efforts on delivering the best Internet experience possible, and end our TV service offering.”

The nation’s largest pay-TV providers representing about 93% of the market lost about 1.74 million combined video subscribers in the third-quarter fiscal period (ended Sept. 30, 2019), according to Leichtman Research Group.

Rainbow said the switch could save pay-TV subs upwards of $600 in cable fees, excluding SVOD subscriptions.

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The former Northeast Kansas telephone operator with more than 6,000 rural subs is offering assistance to those customers looking to cut the cord with a “streaming care” program designed to determine the best alternative TV service that fits their household.

Beginning in February, Rainbow will assist customers in choosing which online TV streaming service is preferable based on their favorite channels, recommend devices and in-home installation of proprietary high-speed Internet service.

“Rainbow has been honored to be your TV provider through the years and looks forward to delivering a new exciting, inexpensive way to watch your favorite TV channels over our high-speed internet service,” said the company.

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Comcast Ups Focus on Broadband, Less on Video

Comcast may be the nation’s No. 1 cable operator, but doesn’t mean pay-TV remains the company’s primary focus.

Speaking Dec. 9 at the UBS Global TMT Conference in New York City, CFO Brian Cavanagh said ongoing changes in the linear TV market and consumer migration to over-the-top video have resulted in changing corporate priorities.

“We are well in-stride on the idea that yes, video is important,” he said. “We make money in video. And it’s important to our customers, our legacy and investments we’ve made to X1.”

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At the same time, Cavanagh said that while Comcast remains well-positioned to provide video through the traditional cable bundle, given the rise in streaming video, he said the company would stop attempting to provide the “full video experience” across the board and expect to make money doing so.

Comcast has lost more than 500,000 pay-TV subscribers this year.

“We want to give customers choices,” Cavanagh said. “We’re not going to chance unprofitable relationships, but rather give consumers choices where we maximize what we perceive the lifetime value of the relationship is to us.”

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In other words, Comcast will no longer market expensive pay-TV bundles to consumers distracted by loss-leading OTT services such as Netflix, Disney+ and Hulu.

Comcast CFO Brian Cavanagh

Indeed, as Comcast Cable continues to hemorrhage pay-TV subs, the company is focusing on broadband as one of the nation’s largest ISPs.

Comcast added 379,000 high-speed Internet subscribers in the most-recent fiscal period, up 13.4% from 334,000 net broadband additions in the previous-year period.

“The focus is always going to be broadband,” Cavanagh said. “And that might not have been what we said five years ago. It’s about attaching products where you can make incremental money and/or add stickiness.”

The CFO said pay-TV churn (subs renewing service) is under control in markets where the cloud-based X1 is deployed. But the company’s goal of having a video product in every household has changed.

“Customer satisfaction goes up if you give them the product they actually want. And broadband [not pay-TV] is that in all cases,” Cavanagh said.

Comcast Q3 Video Sub Loss Balloons to 238,000

Comcast Cable Oct. 24 reported it lost 238,000 video subscribers in the third quarter ended Sept. 30. The company lost 95,000 video subs in the previous-year period.

The cable operator, along with other traditional linear TV distributors, continues to face secular challenges as consumers migrate away from the traditional cable programming package.

For the nine-months of the fiscal year thus far, the cabler has jettisoned more than 550,000 video subs, compared to 325,000 subs during the same period last year.

As a result of growing OTT consumption, Comcast Corp. unit NBC Universal is launching branded SVOD service, Peacock, early next year.

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Comcast added 379,000 high-speed Internet subscribers, up 13.4% from 334,000 net broadband additions in the previous-year period. The uptick in broadband subs didn’t go unnoticed at the corporate level.

“Cable had its highest third quarter broadband net additions in 10 years, which drove its best quarterly net additions in total customer relationships on record,” chairman/CEO Brian Roberts said in a statement.

Verizon Widens Q2 Fios TV Sub Loss 37%

Verizon Aug. 1 disclosed it lost 52,000 Fios TV subscribers in the second quarter, ended June 30. That compared with a loss of 38,000 pay-TV subs in the previous-year period.

Through the first six months of the fiscal year, Verizon has shed 107,000 video subs, which is up 75% from a sub loss of 61,000 subs during the previous-year period.

The wireless carrier ended the period with 4.27 million Fios TV subs — down 217,000 subs since last year as consumers migrate to alternative distribution channels, including over-the-top video.

At the same time, Verizon saw high-speed Internet subscription growth declined 22% to 28,000 from growth of 36,000 last year. Through June 30, the carrier has 76,000 broadband subs – down 22% from the addition of 98,000 subs last year.

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Verizon ended the period with 5.83 million Fios Internet connections, which was up 3.1% from 5.66 million connections last year.

Separately, Verizon continues to promote 5G wireless network mobility.

The carrier July 31 rolled out 5G networks in Atlanta, Detroit, Indianapolis and Washington, D.C. The cities followed similar 5G functionality launches in Chicago, Denver, Minneapolis, Providence, R.I., and St. Paul, Minn.

“Verizon made history this quarter by becoming the first carrier in the world to launch 5G mobility,” CEO Hans Vestberg said in a statement. “We are focused on optimizing our next-generation networks and enhancing the customer experience while we head into the second half of the year with great momentum.”

AT&T Drops Nearly 950K Q2 Pay-TV Subs, Including 168K DirecTV Now Customers

The hits keep coming to AT&T’s legacy pay-TV and nascent over-the-top video operations.

The telecom giant July 24 disclosed it shed 778,000 video subscribers in the second quarter (ended June 30) across its DirecTV and AT&T U-verse pay-TV operations. That compared to a sub loss of 262,000 customers during the previous-year period.

AT&T attributed the loss to an increase in customers rolling off promotional discounts, competition and lower gross adds due to a focus on the “long-term value [i.e. higher paying] customer base.”

“We expect this level of losses to continue and are predicting we need to get through … some of the other, if you will, less value-conscious-focused promotions that we’ve done in prior years,” CFO John Stephens said on the fiscal call. “That will take us through the end of the year to do that.”

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The company ended the period with 21.5 million subscribers – about 2 million fewer subs than a year ago.

DirecTV Now, AT&T’s standalone online TV service, continues to lose subscribers attracted to the initial loss-leader pricing.

The OTT service lost 168,000 subscribers in the quarter after adding 343,000 in the previous-year period. AT&T attributed the decline to higher prices and less promotional activity.

DirecTV Now ended the quarter with 1.34 million subs – about 469,000 fewer subs than the 1.8 million subs reported last year.

AT&T lost 34,000 high-speed Internet subscribers as it continues to transition broadband subs to its faster fiber network. Indeed, the company added 318,000 fiber subs.

It ended the period with 13.8 million broadband subs, including 3.4 million fiber. That compared with 13.7 million broadband subs and 2.2 million fiber customers last year.