Kagan: Inflation Driving Higher Pay-TV Subscriber Losses

U.S. consumers looking to cut costs amid soaring inflation could ditch cable video services in even larger droves, even as they migrate over to discounted cable wireless offerings, according to new data from Kagan.

Traditional video has been on a rapid decline for several quarters. In the first quarter of 2022, cable operators lost 913,365 traditional video subs, the largest such sequential decline going back to 2006.

Looking ahead, the current high-inflation environment may be causing even more consumers to cut the cord, especially as the number of new streaming options continues growing. The consumer price indexrose 9.1% from June 2021 to June 2022, the largest year-over-year increase since November 1981. Meanwhile, the price customers paid for cable and satellite television service increased 4.9%.

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According to survey data, traditional multichannel cord cutters largely still cite cost as a chief reason for not having a pay TV subscription.

But a growing number also indicates that streaming and/or a combination of streaming and over-the-air, or OTA, broadcast offerings fulfill their viewing needs. In the first quarter of 2022, 42% of survey takers said streaming and/or OTA were good enough substitutes to cord cut, up from 36% in first quarter 2017.

On the wireless side, analysts are more bullish and generally expect subscriber numbers to exceed the first quarter of 2022. Charter’s Spectrum Mobile announced during its first-quarter earnings call that it gained 373,000 mobile lines during the quarter and had 3.9 million lines as of March 31, with the number since then increasing to over 4 million. Comcast’s Xfinity Mobile added 318,000 lines in the first quarter, an all-time record result.

Both Comcast Corp. and Charter Communications have recently unveiled new offerings to win over streaming customers. During the second quarter, the two companies announced they will team up to produce a streaming set-top box.

Comcast, the nation’s largest cable TV operator, continues to hemorrhage video subscribers. The Philadelphia-based operator July 28 announced it lost 521,000 video subs in the second quarter, ended June 30. That was up 30% from a loss of 399,000 video subs in the previous-year quarter.

Charter’s video losses have been less steep, with the company ending March with 15.7 million video subscribers, down from 16.1 million in the prior-year period.

Comcast and Charter both rely on mobile virtual network operator agreements with Verizon Communications Inc. to support their wireless offerings.

High wireless adds earlier in the year were largely due to Comcast’s and Charter’s promotional efforts, which also continued into the second quarter, wrote Wave7 Research, a wireless research company. Xfinity is heavily pitching its “3-for-1 Bundle” via advertising, and Spectrum is pushing its $29.99-per-month unlimited plan.

In a sign of the success of cable wireless offerings, the National Content & Technology Cooperative, or NCTC, which represents more than 700 independent communications service providers, recently said it is close to reaching a mobile virtual network operator deal that would allow its member communications service providers to launch discounted mobile services by the fourth quarter of this year.

Analysts will also have an eye on increasing competition in the broadband space. New Street Research said household moves are slowing down after a boost during the pandemic-induced housing boom, which will reduce churn for all operators and depress broadband net adds for share gainers.

“If we layer in fixed wireless broadband, cable lost share of the overall broadband market in 1Q22,” NewStreet analyst Jonathan Chaplin wrote in a May note as reported by Kagan. “[Q1] may be the first time cable has convincingly lost share in the residential broadband market in well over a decade.”

Increased fiber competition is reportedly leading Altice USA to consider a sale of its Suddenlink business . A deal could be valued at as much as $20 billion, Bloomberg News recently reported, citing unnamed sources familiar with the matter. The news comes as Altice has struggled with declining subscribers. In the first quarter of 2022, the company’s pre-tax earnings fell to $951.2 million from $1.05 billion a year earlier.

 

S&P Global: Smart-TVs Have Little Impact on Streaming Content Selection

Internet-connected televisions have become the default consumer option at retail and in the home. But do so-called smart-TVs impact viewer streaming vide choices? New data from Kagan would suggest not.

Approximately three-quarters of U.S. internet households own at least one smart-TV, according to the research firm’s Q1 2022 U.S. Consumer Insights survey. However, the ability to access online digital entertainment directly from a smart-TV has had virtually no effect on consumer TV viewing behavior, according to the survey data.

Smart-TVs are defined as televisions with an integrated TV application platform that permits access to online digital entertainment and related content directly from the device. Smart-TVs encompass both high-definition, or HDTVs, as well as 4K TVs and 8K TVs. Nearly all TVs currently sold in the U.S. are smart-TVs.

But owning a smart-TV does not appear to promote substantially more online video viewing. One-third of adults who own a smart TV (33%) and those that do not (31%) cite watching mostly or primarily VOD content. The survey data also shows that subscription video on demand (SVOD) represents 45% of daily video viewing among smart-TV owners; essentially the same as those without a smart-TV (42%).

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A comparison between smart-TV and non-smart-TV households reveals that both groups watch an average of over four hours of TV programming per day. Among households without a smart-TV, 60% reported watching primarily or mostly live, linear TV compared to 52% for adults owning a smart-TV.

Historical survey data illustrates the rise in smart-TV ownership in the U.S., expanding eight percentage points over the past two years to 74%. Approximately nine out of 10 (88%) of those owning a smart-TV reported accessing online digital entertainment from the device over the past month. The survey data also shows that the average number of TVs per internet household in the U.S. dipped slightly from 2.8 TVs per household in 2021 to 2.5 TVs in 2022, a result of declining ownership of traditional HDTVs, or non-smart TVs, and older standard-definition TVs.

As of early 2022, U.S. internet households owned an average of 1.2 smart-TVs, according to Kagan. Nearly half (45%) of internet households own one smart TV, and another 29% own multiple smart-TVs. Among surveyed internet adults owning a smart TV, 41% reported owning at least one Samsung smart-TV. Vizio and LG were distant competitors, with 19% and 18% of U.S. smart-TV households owning these brands, respectively. TCL and Sony top the long tail of smart-TV competitors with ownership shares of 11% or less.

 

Kagan: Amazon Prime Video Edges Netflix Among German SVOD Users

Driven by Amazon’s global e-commerce business, the company’s Prime Video subscription streaming service ranked No. 1 among German SVOD consumers, according to new data from Kagan.

The research giant, citing an internal survey, found that 81% of German respondents used a SVOD service in 2021, which was up from 72% in 2020. Prime Video generated 52% market share, up from 45% in 2020, with Netflix following at 49%. Local platforms TV Now and Magenta TV each had 14% market share. Other players included Joyn+, Apple TV+, Zattoo and Eurosport.

The average German household subscribes to at least two SVOD services, while Prime Video and Netflix households subscribe to three services, and Disney+, Sky Ticket households subscribe to four platforms.

In addition to SVOD, 75% of survey respondents also watch free online ad-supported video, including 55% who consume YouTube videos. German TV broadcasters ZDF and ARD’s branded streaming services were viewed 42% and 40%, respectively. Another 37% of survey respondents said they stream videos on Facebook.

The increased time spent watching SVOD content has come at the expense of live TV viewing in Germany. Just 26% of respondents said they watched live TV in 2021, compared to 60% in 2017. SVOD has been the biggest benefactor, with live TV viewing households expanding their over-the-top video consumption to 37%, compared to 22% in 2017.

Finally, Kagan said respondents spending more than 50% of their daily TV/video viewing time, 36% watch VOD content, up from 19% in 2017.

Kagan: Cord-Cutting to Cost U.S. Pay-TV Biz $33.6 Billion in Annual Revenue by 2025

Cord-cutting among pay-TV subscribers is no longer a niche activity. The practice of giving up the traditional cable/satellite/telecom channel bundle for over-the-top video is now expected to strip nearly $33.6 billion in annual revenue from U.S. operators through 2025, according to new data from Kagan.

The research firm contends revenue from cable, satellite and telecoms will decline from $91.1 billion in 2021 to $64.7 billion by 2025 as subscribers jettison service for alternatives such as Netflix, Amazon Prime Video, Disney+, Hulu, Peacock, Paramount+ and HBO Max, among others.

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The changing viewing patterns, only slightly moderated by rising average revenue per unit, are forecast to depress sales, excluding advertising, by 45% from the 2016 peak of more than $116.9 billion.

“While all three major platforms are feeling the impact from the shift, the magnitude of the losses are expected to hit more acutely for satellite (i.e. Dish and Direct Stream) and telco (Verizon, AT&T) revenue subtotals amid waning commitments by major players and relative stability from the large cable providers such as Comcast and Charter,” Kagan wrote in a post.

Kagan Research: Netflix Growing Content Spend

With growing competition in the streaming space, Netflix is increasing its program budget in this and the coming years, according to Kagan, the media research unit of S&P Global Market Intelligence.

For 2021, Kagan forecasts the company could amortize about $13.6 billion in total content costs, including $5.21 billion positioned for originals.

The launch of new subscription video-on-demand players, such as The Walt Disney Co.’s Disney+, AT&T Inc.’s HBO Max, Comcast Corp.’s Peacock and ViacomCBS Inc.’s Paramount+, resulted in swaths of content being held back as each looks to populate their own services, Kagan noted. Kagan expects that distributors will continue to reserve rights for their own SVOD services, more so from territories where they are soon to launch. However, some rights deals have lengthy contracts and would either require buying out the contract or waiting for it to expire.

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Netflix has prepared for this trend since entering the originals market in 2012 as it expected studios would eventually hold back programming, according to Kagan. By 2014, about 6.8% of spend came from new orders and increased to about 37.8% of the budget in 2020. As the service focuses more on new content, Kagan expects that percentage to grow closer to 50% by 2025.

Total amortized spending may increase to more than $18.92 billion in 2025. Over that period, Kagan predicts that more focus will be put on originals, with growth at 14% annually, while the acquisition CAGR could be 4.8%.

The company had a significant amount of content ready at the beginning of the pandemic, but production delays affected the latter half of 2020 and persisted into early 2021, according to Kagan. Netflix continues to concentrate on scripted series and movies with the highly anticipated return of “The Witcher” (season two), “Stranger Things” (season four) and the movie Red Notice coming in the next several months.

The streamer has placed more emphasis on unscripted programming as series nearly doubled in 2020, according to Kagan. While this was due in part to the production shutdowns on the scripted side, reality has given strong results, including “Too Hot to Handle” with Netflix ordering two additional seasons and producing the format in other countries, according to Kagan.

On the acquisition side, theater closures left a plethora of films on the table for streamers, with Netflix snagging The Trial of the Chicago 7 and Enola Holmes. Netflix has several premium network output deals in place. With the exception of Disney, the majority of studio animated films land at Netflix during that window. Netflix will also take over the Sony output deal from Starz beginning with films released next year, Kagan noted.

Spending on local content has been a strategy for the company in recent years as more subscribers come from non-U.S. markets. Top titles include Spain’s “Money Heist,” Germany’s “Dark” and South Korea’s “Kingdom.”

Subscriber data indicates some payoff in the localization focus. Second-quarter statistics show that subscribers from the United States and Canada made up about 56.2% of total subscribers in 2017 compared to just 35.4% in June 2021.

Revenues by region reflect a range of factors, including total paid subscriber bases, distribution deals and pricing differences.

The U.S. and Canada delivered 60.8% of revenues in 2017 compared to 44.3% in second-quarter 2021. This points to the strong pricing in the United States and Canada — including frequent price bumps — which can also be seen in much of Europe, the Middle East and Africa versus lower pricing in Latin America and Asia-Pacific, according to Kagan.

Kagan: 37% of Broadband Homes Have Dropped Pay-TV

Pay-TV continues to lose appeal among Internet-connected (broadband) homes in the U.S. New data from Kagan, a unit of S&P Global Market Intelligence, found that 37% of broadband homes have cut the cord with traditional cable, telco or satellite TV distribution. That’s up from 12.5% of broadband homes six years ago.

The percentage of U.S. households without pay-TV service now hovers around 30%. In 2015, there were almost 100 million pay-TV households, a number that dropped to 86 million in 2019.

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Notably, the number of broadband-enabled homes has increased 80% from 2019 to 2020 due in large part to house-bound consumers cutting costs during the coronavirus pandemic.

“Given the economic headwinds of the first half, U.S. households likely were looking to cut back on discretionary spending, including entertainment,” analyst Tony Lenoir wrote in a note.

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.