COVID-19 Driving Cord-Cutting — at Online TV

When Dish Network launched Sling TV in 2015, it represented pay-TV’s answer to the pricey cable bundle and Netflix. Competitors such as Sony PlayStation Vue, Hulu with Live TV, DirecTV Now quickly joined the party. But the industry shine seems to be fading.

Speculation U.S. consumers quarantined in their homes would temporarily stem pay-TV cord cutting was dispelled with the industry’s largest first-quarter decline for traditional multichannel subscriptions. At two million, it was the largest quarterly drop to date.

New data from media research group Kagan estimates it was also the first quarterly decline for virtual multichannel alternatives. The broadband-delivered services collectively lost 261,000 subs or 2.8% to finish the quarter with 9.2 million subs.

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Gains from Hulu with Live TV and YouTube TV were erased by the declines from Sling TV and AT&T TV Now (formerly DirecTV Now) as well as Sony’s decision to shutter PlayStation Vue in January.

By comparison, subscriptions to traditional cable, direct broadcast satellite and telecommunications video services dropped 2.4% in the quarter.

As a result, Kagan updated its forecast for video market share in the U.S. due to mounting unemployment and the COVID-19 economic downturn. The revised projections suggest broadband-only households to surpass combined traditional and virtual multichannel subscribers. Indeed, online TV services have narrowed their cord cutter appeal and are expected to account for less than 10% of occupied households and reach nearly 11 million by the end of the year.

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Meanwhile, broadband homes are increasingly satisfying home entertainment needs through a combination of free and subscription-based streaming services, including adding 24.7 million subs by the end of 2020, accounting for more than 19% of occupied households.

“Home isolation should have stemmed multichannel defections, but the cruel irony of the interruption in programming and ensuing economic turmoil is expected to blunt the benefits,” Kagan wrote in a note. “We forecast an 11% drop in traditional multichannel subscriptions in 2020, and penetrations of less than 56% at the end of the year.”

Kagan: Pay-TV Households Declining to 70.5 Million by 2023

The migration of U.S. consumers away from traditional multichannel pay-TV has been ongoing for the past decade and the shift is expected to increase moderately in the next 12 months, with several noteworthy accelerants contributing to long-term subscriber losses, according to Kagan, a media research group within S&P Global Market Intelligence.

While traditional multichannel video subscriptions has long been the top home entertainment choice for U.S. households, the loss of content exclusivity is expected to shift the consumer base towards over-the-top video services such as Netflix, Amazon Prime Video and Hulu, and fuel the growing ranks of online-only video households.

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At the same time, Kagan contends increased prices for broadband, coupled with a series of OTT price hikes are impacting subscriber growth in the virtual multichannel space – notably at DirecTV Now and Sling TV. However, the combined households relying on traditional and virtual multichannel services for video entertainment are still expected to account for the majority of occupied homes through 2023 with 64% of the market.

Indeed, Kagan projects total traditional multichannel subscriptions (including residential and commercial) will drop 16.4 million to 73.6 million. Traditional residential multichannel households (excluding commercial and overlap) will drop 15.6 million to 70.5 million.

Virtual multichannel households will increase 6.4 million to 13.5 million. Combined traditional and virtual multichannel will drop to 84 million residential subscribers. Online video-only (Sling TV, DirecTV Now, YouTube TV, PlayStation Vue, etc.) households will add 10.6 million subs to 25.2 million. Burgeoning over-the-air (OTA) digital antennae households will add 3.8 million households to 21 million.

Kagan Research Finds Legacy Video Sub Losses Accelerated in Q4 2018

Traditional multichannel video subscription losses swelled in the fourth quarter of 2018, according to research from Kagan, a group within S&P Global Market Intelligence.

Kagan’s fourth-quarter 2018 U.S. Multichannel Subscription Report tallied legacy video subs under 90 million. Combined, the cable, direct broadcast satellite (DBS) and telecom multichannel sectors lost nearly 1.1 million subscriptions in the fourth quarter, which pushed the full-year decline to 4 million, according to the report. DBS services accounted for more than half of the annual loss.

Virtual platforms partially offset the traditional multichannel declines, keeping those customers in a subscription package of live linear channels, but gains to services such as Hulu with Live TV and YouTube TV were not enough to prevent the space from shrinking, according to the report. Traditional and virtual multichannel subscriptions combined fell nearly 1.3 million for the year.

Additional findings in the report were: 

  • The residential penetration rate for virtual and traditional multichannel services ticked down to 75% in the fourth quarter of 2018.
  • Multiple-system operators (MSOs) wrapped up 2018 with another round of quarterly losses, bringing the platform’s annual decline to nearly 1.3 million, versus a drop of 997,000 in 2017.
  • Telco video services cut combined annual subscriber losses for a second consecutive year, losing 351,000 subs to end 2018 at 10.3 million.
  • DirecTV and Dish each lost more than 1 million subs in 2018.

Research: U.S. Broadband-Only Households to Grow to 40.8 Million by 2023

Broadband-only U.S. households are set to grow from 23.3 million in 2018 to 40.8 million by 2023, according to estimates from Kagan, a media research group within S&P Global Market Intelligence.

“The steep upward trend of due to ‘cord-cutting’ is not surprising given the abundance of online video services on the market, although this could be a circular argument, with more companies jumping on the streaming video bandwagon in response to the growing broadband-only market,” said Tony Lenoir, senior Kagan research analyst at S&P Global Market Intelligence, in a statement.

Kagan expects the segment of broadband homes without a traditional multichannel subscription to account for nearly one-third of U.S. households in the next five years.

Kagan findings show that over-the-top (OTT) products, whether subscription video on demand, direct-to-consumer or virtual multichannel, are offered at competitive prices which is a major factor fueling cord-cutting. Other reasons for the strong projection of broadband-only growth include the ease of joining and cancelling online streaming services, Kagan found. They typically do not require contracts.

“The value proposition of streaming video services touches a chord with the average consumer,” Lenoir said in a statement. “The vast majority of streaming services offer free trial periods, effectively allowing consumers to shop around while bypassing hardware hassles associated with legacy video distribution. This coupled with the fact that streaming services are typically screen-agnostic and seamlessly portable, offer individual, customized consumption for customers.”

Additional findings include:

  • Kagan expects broadband-only homes, or households without a traditional multichannel video package, but a subscription to wireline broadband, to rise at an 11.9% compound annual growth rate from 2018 to 2023.
  • Broadband-only homes are set to account for 41.7% of wireline broadband households by 2023. Kagan expects cable and telco broadband to serve nearly 75% of U.S. households by that time.

Netflix Originals Demand Share to Overtake Licensed Content by Fall 2019

Demand for Netflix Originals is estimated to overtake the share of demand for licensed titles by October 2019, according to new research by Parrot Analytics and Kagan, a media research group within S&P Global Market Intelligence.

Netflix has a goal of having 50% of its content be comprised of Netflix originals, notes the report, which leverages Parrot Analytics’ Demand Expressions metric, which uses social media, video streaming, photo sharing, blogging, micro-blogging, fan and critic rating platforms, peer-to-peer protocols and file sharing sites to measure consumer demand.

The report compared the sum of U.S. demand for both Netflix original series, and the licensed titles available on the U.S. Netflix service each month. While currently the most in-demand content tends to be licensed titles, the proportion of the demand share from Netflix original titles has generally grown month over month, according to the report. Overall, for the 12 months analyzed, the demand share for Netflix originals grew an average of 1 % each month. From July 2017 to June 2018, the streaming service’s reliance on licensed content dropped by 10.9%. Based on these 12 months of data, the report forecasts that Netflix will generate 50% of U.S. audience content demand with its own original content from October 2019 onward.

The report from Parrot Analytics and Kagan also looked at demand for television content across streaming subscription video-on-demand platforms in the United States. Overall, the report found demand for content on all major SVOD platforms, including Netflix, Hulu, HBO Now, Showtime, and Starz, has increased over the past year.

For the premium channel VOD platforms (HBO Now, Showtime, and Starz), new content from their linear channels tends to be the most in-demand, the study found. However, Parrot Analytics affinity analysis reveals that the respective back catalog of each VOD platform continues to play an important role, indicating that older titles likely remain an important driver of subscriber loyalty.

“The future for the industry is likely to be even more crowded and the winners are still unknown,” said Deana Myers, research director, S&P Global Market Intelligence. “Walt Disney is expected to debut its SVOD service in 2019 and its proposed buy of the studio and libraries of 21st Century Fox will add a vast amount of content to this service. Other anticipated SVOD launches include those by Apple and WarnerMedia. We estimate the overall US SVOD industry has many strong years of growth in its future, particularly as competition from Disney and Apple could impact the market.”

Other new entrants to the online video space, such as Facebook Watch, YouTube and DC Universe, are also investing heavily in originals and acquired content, the research firms noted. At the same time, content spending for Netflix, Amazon and Hulu is expected to continue to grow at double digit rates.

The research in this report is based on a catalog demand analysis of digital-only Netflix and Hulu services, and a premium channel VOD demand analysis based on TV demand data pertaining to HBO Now, Showtime and Starz.

Online TV Growth Slows Despite Record Q3 Pay-TV Subscriber Exodus

The most-recent fiscal quarter (ended Sept. 30) was not a good one for pay-TV operators, which continue to see increasing numbers of subscribers exit for video alternatives online.

Or not.

It was also a wake-up call to multi-video program distributors who think online TV is the answer to fickle pay-TV consumers.

 The cable, satellite and telecom operators lost a combined 1.2 million video subs, ending the quarter at 91 million, including 88.2 million residential customers, according to new data from Kagan, a media research group within S&P Global Market Intelligence.

Meanwhile, while many pay-TV subs are becoming cord-cutters, they’re not all migrating to online TV platforms such as Sling TV, DirecTV Now, Hulu with Live TV, YouTube TV and PlayStation Vue.

Kagan found that online TV services gained an estimated 2.1 million subs in the past nine months – not enough to offset a decline of 2.8 million pay-TV subs.

Indeed,Dish Network-owned Sling TV and DirecTV Now added just 75,000 subs in 3Q, compared to about 530,000 additions in the previous-year period. The additions were the lowest since the market’s launch in 2015.

Satellite had its worst quarter on record with a loss of 726,000 subs, according to Leichtman Research Group. Cable lost nearly 1.1 million subs – the worst performance since 2014.Telco subs fell by 94,000, led by Verizon, which jettisoned 63,000 subs.

Telephone providers lost about 80,000 video subs compared to a loss of 180,000 subs last year. Pay-TV services (excluding online TV) lost 1.05 million subs compared to a loss of about 940,000 subs in 2017.

“This marked the most net losses ever in a quarter for the pay-TV industry,” Bruce Leichtman, president and principal analyst for Leichtman Research Group, said in a statement. “Satellite TV had more combined net losses in than in any previous quarter.  These net losses were largely driven by corporate strategies focused on acquiring and retaining more profitable subscribers.”

Leichtman attributed some of the online TV sub growth slowdown to corporate parents’ emphasis on improving the profitability of the Internet-delivered flanker brands.

“[This] reduced net quarterly adds in the segment, resulting in [online TV] not helping to mitigate overall pay-TV losses to the degree they had in recent quarters,” he said.

Pay-TV Providers Subscribers at end of 3Q 2018 Net Adds in 3Q 2018
Cable Companies
Comcast 22,015,000 (106,000)
Charter 16,628,000 (54,000)
Cox* 4,035,000 (30,000)
Altice 3,322,800 (28,100)
Mediacom 793,000 (15,000)
Cable ONE 328,921 (11,191)
Total Top Cable 47,122,721 (244,291)
Satellite Services (DBS)
DIRECTV 19,625,000 (359,000)
DISH TV 10,286,000 (367,000)
Total DBS 29,911,000 (726,000)
Phone Companies
Verizon FiOS 4,497,000 (63,000)
AT&T U-verse 3,693,000 13,000
Frontier 873,000 (29,000)
Total Top Phone 9,063,000 (79,000)
Internet-Delivered (vMVPD)
Sling TV^ 2,370,000 26,000
DIRECTV NOW 1,858,000 49,000
Total Top vMVPD^ 4,228,000 75,000
Total Top Providers 90,324,721 (974,291)

 

 

Research: U.S. Pay-TV Affordability Has Dropped Since 2000

Consumers who complain about their cable bill may have good reason.

Multichannel video affordability in the United States has plummeted since the turn of the millennium, squeezing the penetration rate, particularly among the more economically vulnerable households, according to new data from Kagan, S&P Global Market Intelligence.

Since 2000, there has been a 74% increase in the inflation-adjusted pay-TV bill while incomes have stagnated, according to the research.

The estimated nominal average monthly multichannel revenue per subscriber across the cable, DBS and telco platforms rose at a 5.5% CAGR between 2000 and 2017. Kagan calculated U.S. multichannel purchasing power based on 2017 inflation-adjusted annual multichannel average revenue per user, or ARPU, and average income figures. The affordability calculation dropped from a 10 in 2000 to a 6 in 2017.

Multichannel offerings have evolved a great deal since 2000, including a greater number of networks and advanced services such as video on demand, DVR services and improved user interfaces, with the vast majority of the packages delivered to subscribers digitally and in HD, but consumers’ ability to pay the price for that improvement didn’t grow much.

“The eroding legacy multichannel affordability partly explains the popularity of over-the-top services such as Netflix Inc. and Amazon.com Inc.’s Prime Video,” according to Kagan.

Kagan: Pay-TV Sub Loss Softened in Fourth Quarter 2017

The pay-TV business model may be under siege, but subscriber losses actually slowed for traditional multichannel video providers in the fiscal quarter ended Dec. 31, 2017 – while declining for the full year, according to new data compiled by Kagan, a group within S&P Global Market Intelligence.

Combined cable, satellite TV (Dish Network and DirecTV) and telecom multichannel subscriptions fell to 94 million, including 91.1 million residential customers. Combined, cable, satellite and telecom subs are now down approximately 7.4 million from their peak in 2012.

The total multichannel count, including the top two virtual service providers Sling TV and DirecTV Now, is at 97.3 million.

Cable operators lost an estimated 986,411 video subscribers in 2017, more than twice the 2016 drop. That broke the sector’s three-year streak of decelerating video subscriber losses.

The telecoms (AT&T, Verizon) slowed their net subscriber losses for a third consecutive quarter. The sector shed 903,262 subscribers in 2017 to end the year at 10.6 million.

The satellite sector was down nearly 1.7 million subscribers in 2017 – the biggest annual loss on record, as DirecTV joined Dish Network in posting traditional subscriber declines.