Analyst: Home Entertainment Consumers to Get Bored With Stale Video Content

The death toll from the coronavirus may be declining, but millions of Americans remain working and spending greater amounts of time in the home due to statewide shelter-in-place regulations.

At the same time production of most streaming and commercial broadcast content has ground to a halt while consumption of existing content has increased, creating a dilemma for streaming services.

“We think it is unlikely that content creation will keep up with consumption for the next several months, and expect many consumers to become dissatisfied with the programming over time, particularly if the shelter-in-place regulations persist for more than several weeks,” Michael Pachter, media analyst with Wedbush Securities, wrote in an April 6 note.

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This finding underscores in part the current fascination with Netflix’s new original documentary series “Tiger King.”

In a proprietary survey of 1,338 consumers from March 27 to 29, Pachter found more than 93% of respondents reported practicing greater social isolation and distancing, and roughly 68% reported somewhat higher or significantly higher use of streaming services since the start of the coronavirus pandemic.

As expected, the survey found that SVOD services benefiting the most in terms of recent subscriber additions appeared to be Disney+, Netflix, Hulu and Amazon Prime Video. Overall, the pandemic has made subscribers to both SVOD and pay-TV less likely to cancel — although not driving cable/satellite TV sign-ups either.

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A majority of respondents (54%) continue to have a cable TV or satellite TV subscription, and over three-quarters of cable/satellite subs report having their subscription bundled with their Internet service. Among pay-TV subs, respondents said cable access was the most important feature (41%) of their pay-TV subscription, followed by live news (22%), DVR (18%) and live sports (18%).

“Our survey results suggest outsized streaming subscriber growth in recent weeks, along with more depressed churn [subs not renewing] than would typically be seen during this period,” Pachter wrote.

Eastern Europe Ups Digital Pay-TV Service

When the Disney+ subscription streaming video service expanded into Europe last month, the launch excluded Eastern Europe. Netflix and Amazon Prime Video focus their efforts on countries such Germany, Italy, France, Spain, in addition to the United Kingdom and Scandinavia. And less so in Eastern European countries including Belarus, Bulgaria, the Czech Republic, Hungary, Moldova, Poland, Romania, Slovakia, the Ukraine and Russia.

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New data from Digital TV Research suggests Eastern Europe will add about 10 million digital pay-TV subscribers through 2025, bring its total consumer base to 77 million households — down from a peak of 83 million pay-TV households in 2018. The region still had 15.4 million analog cable subscribers by end-2019.

“The number of pay-TV subscribers in Eastern Europe will [increase] to 78 million in 2025,” principal analyst Simon Murray said in a statement. “Migration married with low birth rates mean that populations will fall in 14 of the 22 countries that we cover between 2019 and 2025.”

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AT&T Giving Subs Free Access to Premium Content

AT&T March 26 became the latest media company offering limited free access to proprietary and third-party content during the coronavirus pandemic.

The telecom is offering DirecTV, U-Verse, AT&T TV and AT&T TV Now subscribers free access to HBO, Starz, Cinemax and Epix into April. Starz and Epix are owned by Lionsgate and MGM, respectively.

Starz will be available from March 26 to April 4, Epix from April 4 to April 16, and HBO and Cinemax available from April 17 to 20.

CBS All Access earlier announced it would give a free 30-day trial to new subscribers.

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The strategy comes as AT&T readies the May launch of HBO Max — the $14.99 SVOD platform it hopes to carry initially on the backs of existing pay-TV subscribers. For the telecom, unfortunately, those subs have been leaving in droves.

AT&T lost 1.2 million streaming video and pay-TV subs in the most-recent fiscal period. It lost 2.9 million subs in the previous three fiscal quarters combined.

And with 3.3 million people filing for unemployment benefits this week — the highest tally since 1982 — due to the drastic economic downturn caused by the coronavirus pandemic, pay-TV might become an unnecessary luxury to millions more.

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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.”

Analysts: Home Entertainment ‘Virus’ Bump Could Be Short-Lived

With studios shuttered and live sports on indefinite suspension due to the threat of the coronavirus, home entertainment options ranging from broadcast and pay-TV, transactional VOD, DVD and streaming video are projected to see at least short-term bumps in viewership and revenue during the “social distancing” period, according to media analysts.

Nielsen reports “TV usage” in South Korea, Italy and the United States increased double digits during the initial weeks of the virus. Nielsen’s classification includes broadcast/pay-TV, VOD, AVOD, SVOD and the DVR.

Data from Sensor Tower found Netflix sign-ups via its app increased 57% and 34% in Italy and Spain, respectively. Streaming Elements reported live streaming via Facebook, YouTube, Twitch and other platforms jumped 66% in Italy in February. The country is on virtual lockdown after more than 2,500 people have died from the virus.

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“[SVOD] is an obvious beneficiary if consumers stay home due to coronavirus concerns, and this has been reflected in considerable stock price outperformance this week,” Dan Salmon with BMO Capital Market wrote in a March 13 note.

JC O’Hara, analyst with MKM Partners, told CNBC that consumers “stuck inside” all day during a pandemic quarantine would inevitably turn on the TV. O’Hara said streaming services such as Netflix, Hulu, Amazon Prime Video, as well as ad-supported VOD platforms, would all benefit.

Neil Begley, with Moody’s Investors Services, back in January suggested that if the virus became widespread but short of panic, home entertainment content such as TV shows and films on Netflix, Disney+, Comcast’s Peacock, AT&T’s HBO Max, among others, would rule the day.

But should the pandemic last longer, leading to a global recession as some have projected, consumer spending on home entertainment would fall to the wayside, according to analysts Laura Martin with Needham and Craig Moffett with MoffettNathanson.

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“[SVOD] will be replaced pretty quickly by the necessity of reducing monthly bills, when people will have to deal with the financial impacts of a recession,” Moffett told The New York Times. “Cord-cutting will accelerate with a vengeance.”

A long-term pandemic and fiscal gains in home entertainment would likely be offset by a fiscal hardships in households as viewers — suddenly out of job due to sever downturns in the economy — reconsider spending on non-essential items.

“Cost will become that much more urgent,” Moffett said. “There are going to be very large parts of the population out of work.”

And some of those unemployed could work in media. With ESPN and sports-themed channels unable to broadcast live content, consumers would question spending on platforms largely streaming classic reruns and endless coronavirus chatter.

Disney-owned ESPN and WarnerMedia Entertainment’s Turner are projected to lose $481 million and $210 million in NBA-related ad-revenue alone. NBCUniversal has $1.2 billion in advertising at stake for the 2020 Tokyo Summer Olympics — with President Trump now suggesting the latter could be postponed — a scenario one Games executive has called “impossible.” NBCU parent Comcast says it has insurance should the Games be canceled.

Apple CEO Tim Cook, who has already cautioned the tech giant would miss quarterly fiscal projections on iPhone sales due to the virus, told Fox Business he thinks the virus has run its course in China, epicenter to the COVID-19 outbreak.

“It feels to me that China is getting the coronavirus under control,” Cook said on March 12. “You look at the numbers, they’re coming down day by day by day. And so I’m very optimistic there.”

Indeed, China March 18 reported no new COVID-19 infections throughout the country on March 17. That news comes the day after government officials expelled media representatives from major U.S. news organizations.

 

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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U.K. Pay-TV Operator BT Moving to Monthly Program Bundles

Taking a page from over-the-top video distribution, U.K. pay-TV operator BT is switching (beginning Feb. 21) from the traditional cable bundle to specific program packages priced on a month-to-month basis.

BT is also licensing Now TV from Comcast-owned Sky, enabling subscribers streaming access to myriad programming, including Netflix. The new range of program packages start at £10 a month ($13), increasing to £60 ($78) for the all-inclusive VIP package.

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The move comes as linear TV distributors continue to lose subscribers to lower-priced OTT video featuring programming without long-term contracts.

“Our new range of TV packs bring together the best premium services, fully loaded with a wide range of award-winning shows, the best live sports in stunning 4K and the latest must-see films — all with the flexibility to change packs every month — with quick and easy search to find what you want to watch,” Marc Allera, CEO of BT’s consumer division, said in a statement.

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Another Cable TV Operator Switching to Streaming Video

The migration from pay-TV to over-the-top video among distributors is gaining momentum.

Gigabit Minnesota, a regional pay-TV operator near Minneapolis, is getting out of the TV distribution business. In an acknowledgment of changing market forces toward streaming video, Gigabit has begun informing its 10,000 customers that it would cease distributing linear TV on Jan. 31.

In a statement, Gigabit cited increased carriage fees from content holders for the decision to focus on high-speed Internet service and help facilitate access to third-party online TV services such as Sling TV and Philo TV, among others.

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“The TV business is changing,” the company said. “This [content] cost increase makes our TV service just way too expensive so we’re going to be leaving [the business],” the company said.

The move follows a North Kansas pay-TV operator that announced it would switch toward broadband distribution and away from linear TV. Major pay-TV operators such as Comcast Cable continue to hemorrhage subscribers, including 149,000 subs in the most-recent fiscal period.

Gigabit, like Rainbow Communications in Kansas, is seeking to direct customers to online TV platforms, in addition to SVOD services such as Netflix, Amazon Prime Video and Disney-owned Hulu.

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It offers myriad high-speed Internet plans, including fibre-optic, priced from $69.95 for 500 Mbps. Indeed, Comcast said it added more than 400,000 broadband subs in Q4, and 1.4 million subs in 2019.

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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