With the U.S. pay TV business collectively shedding another 1.62 million customers in the second quarter, a trend seems to have emerged.

The industry's biggest remaining growth engine, YouTube TV, has become a seasonal business, expanding when the NFL season is in full swing, and retreating amid other parts of the calendar year. 

The latest MoffettNathanson quarterly Cord-Cutting Monitor report illustrates this seasonality, estimating that Google's virtual MVPD only added 50,000 subscribers in the second quarter, after for the first time ever losing customers in a quarter — an estimated 150,000 of them — back in January through March. 

This all comes after YouTube TV — freshly infused at the time with new rights to NFL Sunday Ticket — added an estimated 1 million customers in the fourth quarter of last year. (Note these figures are all MoffettNathanson estimates; Google/Alphabet rarely breaks out YouTube TV data in quarterly earnings reports.)

With Hulu Plus Live TV and Fubo also reporting customer declines in Q2, analyst Craig Moffett noted the seasonality of the vMPVD business. 

“The first quarter sees the largest number of disconnects — reflecting the end of the NFL season — and those customers generally don’t return until Q3, when the season resumes,” Moffett wrote. “That leaves the second quarter stranded in the middle, with little or no bounce back from the Q1 losses. (Recall also that the Olympics were a third-quarter event as well.) All of which is a long-winded way of saying that we’ll have to wait until Q3 to gauge the growth of the vMVPD segment.“

For rivals of DirecTV, it could be robust. DirecTV stream added around 86,000 customers in the second quarter, Moffett estimates, with DirecTV phasing out satellite and marketing its all-IP platform heavily. 

However, with ABC and ESPN currently blacked out on DirecTV because of a fee dispute with Disney, DirecTV customers are undoubtedly seeking refuge in platforms including YouTube TV to find their NFL and college football access. 

For its part, Dish’s vMVPD, Sling TV, is being understandably opportunistic on the marketing end. We received this email come-on on Tuesday:

After suffering its worst ever cord-cutting quarter ever at the beginning of the year, the pay-TV sector lost another 1.629 million subscribers from April through June, a slight dip from the 1.732 million lost in the comparable period of 2023, according to figures compiled by equity research company MoffettNathanson.

U.S. cable took the greatest hit, losing 1.03 million subscribers in the quarter.

The full pay-TV industry ended Q2 with 68.76 million subscribers, down 6.9% from 73.83 million last year.

And when virtual multichannel video programming distributors (vMVPDs) aren’t factored into the equation, that rate of decline rises even higher, to 12.6% year-over-year.

“This marks the tenth consecutive quarter of double-digit declines,” wrote analysts Craig Moffett. “It is becoming increasingly clear that there is no longer any floor.”

Though the industry shed fewer customers during Q2 2024 than it did in the year-ago quarter, losses for the first six months of 2024 have already reached a “mind boggling” 4 million.

There is good news — vMVPDs added 490,000 subscribers in Q2, a notable increase from the year-ago loss of 6,000 customers.

While some had hopes that live TV streaming services like YouTube TV, Hulu + Live TV and Fubo would offset the losses from traditional cable TV subscriptions, Moffett also raises concerns about the seasonality of many vMVPDs.

“The first quarter sees the largest number of disconnects -- reflecting the end of the NFL season,” he wrote. “And those customers generally don’t return until Q3, when the season resumes. That leaves the second quarter stranded in the middle, with little or no bounce back from the Q1 losses.”

Share prices for Dish Network parent EchoStar have taken a dive in the days since the company published its second quarterly earnings report, revealing about $2 billion in debt due over the next three months.

Currently, stock for the media giant is trading at $16.23, with overall share price down more than 14% in the past five days.

Before EchoStar reported its earnings Friday, shares for the company were up as high as $20.

Also Read: Dish and Sling TV Revenue Collapses, Down a Record 10% in Q2

That disparity inspired investment banking giant JP Morgan to drop EchoStar’s investment outlook Monday from neutral to underweight.

EchoStar, which closed Q2 with $521 million in cash and cash equivalents, confirmed in its financial results that it does not have the cash to pay off its debts.

However, the company is in discussion with outside parties to compensate for its cash shortage, and is working to refinance its debt obligations.

Also Read: EchoStar Posts Q2 Loss as It Sheds 104,000 Pay TV Subscribers

“We continue to make progress and are in constructive discussions with counterparties, which we feel best support our objective,” Dish CEO Hamid Akhavan told investors on Friday. “The complex and delicate nature of this process demands time and confidentiality. We will certainly have more to share in due course.” 

Akhavan emphasized the use of EchoStar’s spectrum assets, many of which it gained after acquiring Dish Network at the beginning of this year, as a possible point of sale to recover some financial runway.

According to Akhavan, the only reason the company hasn’t used its spectrum assets as collateral is because it has yet to secure a desirable deal.

Veteran analyst Craig Moffett has a less optimistic outlook — according to a report published by MoffettNathanson, he believes that auction dynamics for the company’s spectrum holdings are “unfavorable for a host of reasons.”

Even more, Moffet believes that EchoStar’s shares are “likely to be worthless,” and predicts that the company may see bankruptcy by the end of the year.

Revenue for Dish Network and Sling TV was collectively down a record 10% year-over-year, according to parent company EchoStar’s second quarterly earnings report.

EchoStar posted $2.67 billion in pay TV revenues, down from $2.97 billion a year ago.

Also read: EchoStar Posts Q2 Loss as It Sheds 104,000 Pay TV Subscribers

That’s due in part to 182,000 Dish subscribers, who decided from April through June to discontinue their service, putting the company in what equity-research firm MoffettNathanson called “free fall.”

At the close of the quarter, the subscriber base for Dish’s core satellite-TV business was shrinking at a 12% rate, worse than the 11.8% decline at the end of last quarter.

Also Read: EchoStar Posts Q2 Loss as It Sheds 104,000 Pay TV Subscribers

Sling TV at least, reported a gain of 78,000 subscribers during Q2.

As it stands, EchoStar has roughly 8.07 million remaining pay TV subscribers, including 6.07 million Dish TV customers and 2 million Sling TV subscribers.

EchoStar and its high-profile chairman, Charlie Ergen, are investing billions of dollars trying to complete a national 5G wireless network just as its core revenue engine runs out of steam. 

“We’ve made our view clear. We see EchoStar’s odds of success as a wireless operator to be vanishingly small,” MoffettNathanson analyst Craig Moffett said in a report issued today about EchoStar’s Q2 results. “We believe EchoStar is instead highly likely to go bankrupt, quite possibly by the end of the year.”

EchoStar has cut costs to compensate for its declining revenue, but pay TV EBITDA for the quarter still dropped $753 million, an 8% decrease year-over-year.

“Dish’s pay TV business simply isn’t large enough to be the cash generation engine that keeps the larger enterprise afloat,” Moffett wrote.

In the 12th straight quarter of decline, consolidated EBITDA fell to just $442 million, down 29% year-over-year.

Verizon Communications’ 5G fixed wireless access (FWA) home internet business showed slightly decelerated but still strong growth in the second quarter, adding 378,000 subscribers vs. 384,000 during the same April-June period of 2023. 

Verizon now has 3.812 million FWA customers and continues, along with T-Mobile, to disrupt the home internet business, seizing gobs of market share from cable operators, virtually all of which have stopped growing their broadband customer ranks. 

But while FWA has proven disruptive, it's long-term revenue potential for Verizon and T-Mobile is still in question.

Average revenue per customer for Verizon home internet actually was down year over year slightly — again — in Q2, to $47.31.

“The relatively weaker results in FWA are all the more surprising since FWA ARPU is still quite low,” analyst Craig Moffett pointed out. “Given the seasoning of the base, and roll-off of introductory discounts, one might have imagined meaningful growth. FWA APRU was up sequentially, albeit only modestly, and remains slightly lower than a year ago.”

Verizon is still offering FWA service starting at $35 a month. 

T-Mobile reports earnings on July 31. 

More than a year after the last episode of its only signature hit, Ted Lasso, dropped, Apple TV Plus continues to run in place, quietly used by only around 11% of U.S. streaming households, according to the latest quarterly All Things Streaming report from MoffettNathanson. 

The equity research firm, along with HarrisX, interviewed around 8,500 U.S. household decision-makers, determining usage of Apple TV Plus  remains flat and is falling behind most of the other major U.S. subscription video-on-demand services. 

Approaching the fifth anniversary of its launch in early November, Apple TV Plus has never had an official subscriber count published. 

The fastest riser right now remains Peacock, which is now used by around 21% of U.S. households, surpassing Warner Bros. Discovery’s moribund Max. 

Also increasing quickly in usage is Paramount Plus, which now narrowly trails Disney Plus in reported household consumption. 

Peacock also seems to rising in regular engagement, based on this graphic that tracks frequent household usage.

Peacock ended Q2 with around 34 million subscribers, up by about 10 million users year over year. 

AMC Networks, which is trading at around 12% of its $82.81 peak share price back in November 2015, will no longer be covered by equity research company MofettNathanson. 

“We are discontinuing coverage of AMC Networks due to a reprioritization of research resources,” analyst Robert Fishman wrote in a brief investor note last week.

Unfortunately, not much has happened for AMC in the decade since groundbreaking AMC water-cooler show Mad Men was winding down, and hit zombie drama The Walking Dead was peaking and setting AMC up for a herd of zombie-themed spinoffs. 

As its linear channels fade to oblivion along with the rest of the pay TV ecosystem, AMC's direct-to-consumer streaming efforts — which include Acorn TV and AMC Plus — lost ground in 2023, collectively declining by 400,000 subscribers to 11.4 million users to end the year. 

For its part, MoffettNathanson provided little other explanation for why AMC is getting cut loose. Here’s Fishman's letter:

Cable operators controlled more than 75% of U.S. net additions for wireless customers in the first quarter, according to a new tally published by equity analyst Craig Moffett. 

Simply put, cable operators are able to bundle discounted bundles of fast, reliable wireline home broadband and mobile that are undercutting the offerings of wireless giants. 

“Cable’s success owes to a very clear advantage,” Moffett wrote in a Thursday morning report. “Cable can offer its bundle everywhere; every cable customer — and indeed, every customer in a Charter or Comcast market — can get the same bundle at the same price.

“That's not true for the TelCos,” he added. The wireline footprints of wireless companies including T-Mobile, AT&T and Verizon “simply don't support a converged offering.” 

The wireless giants “aren’t even in the ballpark of having a national offering,” Moffett also noted. Consider that AT&T, the closest to that benchmark among the trio, currently has fiber available in only 12% of households. 

Meanwhile, cable’s share of gross mobile additions has grown steadily, surpassing 16% in the first quarter. 

“To put a finer point on it, a converged offer that is available in 12% of the country, for a national wireless operator that competes in 100% of the country, is lunacy,” Moffett added. “It simply isn’t a viable strategy.” 

The ranks of U.S. cable operators launching mobile services has increased recently, with Breezeline and Mediacom Communications hoisting new offerings in recent weeks. 

A new, separate research report published earlier this week by S&P Global Ratings suggested that mobile products from tier 2 and 3 U.S. cable operators won't enjoy near the prosperity of Comcast's Xfinity Mobile and Charter's Spectrum Mobile. The reason: Comcast and Charter have the ability to offload much of their Verizon MVNO traffic to their own network resources via WiFi and other mechanisms. 

The U.S. home internet business experienced total customer growth of just 2.3% in the first quarter, according to new findings from equity research company MoffettNathanson, with expansion decelerating by more than half from where it stood in Q1 2021, when the pace stood at 4.9%. 

The title of MoffettNathanson's report, U.S. Broadband: When Everything Slows, kind of says it all -- every sector of the business decelerated between January - March. 

That starts with the U.S. cable business, which saw its customer base erode by 0.5%, or 169,000 customers. 

The general consensus has been that cable is being undercut by upstart fixed wireless access competition from T-Mobile and Verizon, which are undercutting MSOs on price. 

But the FWA market, which is limited by the finite inventory of excess 5G wireless network capacity, slowed its roll to in Q1. 

Notably, growth of fiber-to-the-home broadband service declined narrowly to 10.6% in the first quarter. 

MoffettNathanson ties the market's deceleration to the also slowed expansion of the broader U.S. housing market, which the company said, with new household creation dropping into the red by 311,000 units. 

The essential takeaway from the Q1 iteration of MoffettNathanson’s quarterly All Things Streaming report is that the domestic SVOD business has reached a point of maturity, with penetration settling in at around 84%, and neither expanding or declining from that precipice. 

Also read: Streaming Became a Mature Business in Q1, Analyst Says

That stagnation seems especially true among the “Big Four” subscription video on demand platforms, Netflix, Amazon Prime Video, Hulu and Disney Plus. Based on a robust survey of 23,769 U.S. consumers conducted for equity analyst shop MoffettNathanson by research company HarrisX, none of the four largest U.S. SVODs has changed its U.S. TV household penetration rate much at all in the past three years. 

However, the situation is much more fluid and dynamic among the so-called less-scaled subscription services: Max, Paramount Plus, Peacock and Apple TV Plus. 

According to the HarrisX survey, Peacock and Paramount Plus saw steep penetration rate increases in Q1. 

"The biggest growth continues to come from less scaled players with this quarter's crown belonging to Peacock (+170 basis points), which benefited from an exclusive NFL playoff game in January. Paramount Plus, which streamed the Super Bowl, grew thought at a slower rate than in previous quarters (+30 bps), perhaps due to its Walmart+ partnership reaching saturation,” the MoffettNathanson reported stated. 

Another takeaway from the Q1 All Things Streaming report: Netflix’s crackdown on account sharing has indeed lowered password-passing activity. 

“We are well into Netflix’s password-sharing crackdown and the effects are clear to see in HarrisX’s data,“ the report stated. “While 15% of users in 2Q23 when the crackdown started reported using an account belonging to someone outside their households, that number fell to just 10% in 1Q.” 

Checking in on Warner Bros. Discovery on the two-year anniversary of its formation, MoffettNathanson analyst Robert Fishman highlights what has been a “choppy” ride that's about to get choppier. 

With the company's stock price at nearly an all-time low, Fishman now predicts total WBD revenue to come in at around $41 billion in 2024 -- about $12 billion below his original forecast — with fast-eroding linear networks unable to keep up with the hungry resource demands of DTC streaming, and more than $40 billion of debt continuing to cast a huge shadow. 

If that weren’t enough, WBD’s TNT Sports unit faces the prospect of renewing a nine-year, $10.52 billion licensing deal with the NBA, which expires after next season. Fishman sees WBD's next deal doubling its licensing fees, with the conglomerate carrying fewer games on TNT.

He believes WBD has no choice but to pay the money. 

“The NBA is a key anchor sport within WBD’s cable network portfolio and the absence of a renewed deal would likely have severe impact on the company's affiliate and advertising revenues, even if it would lead to cost savings,“ Fishman said. “With the entire company relying on linear profits to fund its DTC investments and/or pay down debt, we continue to believe securing a new NBA package is of the utmost importance to Warner Bros. Discovery.” 

WBD and Disney/ESPN are currently in an exclusive negotiating window with the league to renew their current contracts. That window expires in a few weeks, with Apple, Amazon and Comcast/NBCUniversal reportedly lined up to possibly make bids. 

After falling from its peak in 2022, spending on television content will rise in 2024, but it won’t reach the levels hit two years ago, according to analyst Robert Fishman of MoffettNathanson.

Spending patterns are changing, Fishman noted, with most of the growth coming from streamers rather than traditional media companies. Sports programming will also get a big share of the spending increase, leaving less cash for entertainment content.

“2023 saw the end of several years of significant content spending increases across the industry, fueled by pivots to DTC, new entrants to the media space and fierce competition for subscribers,” Fishman said in a report Friday. “The limited (or more likely, negative) ROI of this incremental spend, as well as maturation and cooling of the Streaming Wars, likely would have put an end to the double-digit growth had the Hollywood strikes of last year not gotten there first.” 

In 2022, the industry spent $137.2 billion on content on a cash basis, Fishman said. Spending fell to $126.2 billion in 2023.

Fishman forecasts that cash spending on content will increase 5% in 2024, following an 8% drop in 2023, leaving spending 3% below 2022.

In coming years, Fishman see content spending increasing at only single-digit rates.

Much of that future growth will come from newer players in the video business.

While Fishman sees spending by traditional media companies down 7% from 2022 levels, Apple, Amazon and Netflix taken together will be up 10%.

Traditional media will account for less than 75% of content spending in 2024 and will continue ticking down from there, he said.

At the same time, content spend is shifting to sports-related spending. Fishman said.

He forecast that sports spending will rise 11% from 2022, while non-sports spending declines 7%.

“We expect a major step down in non-sports spend relative to 2022 across most traditional media companies, with the exception of small, Tubi-driven step up at Fox and a slight step down at NBCU,” Fishman said. “At Disney, we forecast a decrease in its non-sports cash spend by a full -30% in 2024 vs. 2022, or more than $6 billion!”

Fishman also expects non-sports content spending to fall 9% at Warner Bros. Discovery and14% at Paramount Global.

Meanwhile, spending at Netflix is expected to be 1% higher, while Apple boosts non-sports spending by 17% and Amazon by 18%.

And all of those streaming companies also seem to be increasingly prioritizing sports, he notes.

Amazon Prime Video can expect to generate more than $1 billion in 2024 as it starts selling advertising this month and that could rise to more than $1.7 billion in 2025, according to a new report from MoffettNathanson Research.

That number is for what MoffettNathanson calls “core Prime Video” and does not include ad revenues from Thursday Night Football, Twitch or Freevee.

“Amazon offers advantages in top-of-funnel reach and bottom-of-the-funnel targeting that are unique in the market and could easily siphon dollars from most competitors in time as they scale their go-to market efforts,” the report said.

The strength of what Amazon brings to streaming advertising is more bad news for traditional television.

“For linear media, we see this as another emerging pain point for cable network viability,” the report said. “For connected TV and ad-supported video on demand, while there is a race to the bottom from the emergence of free ad-supported streaming television (FAST) channels and non-targeted AVOD [ad-supported video-on-demand], Amazon could pressure the middle to higher end of the market, given its scale of impressions at relatively affordable prices.”

Prime Video’s core ad revenues are seen rising to $2.261 billion in 2026 and $2.757 billion in 2027.

MoffettNathanson called Amazon’s decision to automatically give all current Prime subscribers the ad version of the service a “savvy decision” that will quickly give it the kind of scale —70 million subscribers — that streaming leader Netflix is still trying to build more than a year after its launch.

The 15% of U.S. Prime Video households MoffettNathanson believes will choose to pay $2.99 a month to avoid ads would contribute about $400 million in incremental subscription revenue to the service.

Giiven Amazon’s e-commerce capabilities, MoffettNathanson said, its entrance into the ad market will affect all of its competitors.

If you add in spending on Thursday Night Football and Freevee, Amazon will have have $4 billion in connected TV and AVOD ad revenue in 2025, the biggest total in the market, according to MoffettNathanson. By comparison, ad revenues for Hulu would be $3.3 billion, Peacock $2.3 billion, Roku $1.9 billion, Paramount Plus, Tubi and Pluto all at $1.1 billion. 

Netflix’s 2025 ad revenues are expected to be just $400 million according to the report.

Helped by the elections and Olympics, MoffettNathanson expects traditional TV ad revenues to grow 1% in 2024. TV will resume its downward trajectory with a 9% drop in 2025.

With Prime Video entering the market, the AVOD market is expected to grow 18% in 2024, up from 17% in 2023.

“Putting this alt logether, we strongly believe that the emergence of advertising dollars on Amazon Prime Video, plus the continued secular tailwinds in CTV/AVOD, will be the most detrimental for the long tail of non-top 20 cable networks — especially those without live content,” the report said. 

MoffettNathanson said that the media companies likely to feel the most pain are Paramount and AMC Networks, because of their lack of diversified profitability away from linear TV and the limited live content on their cable networks.

Currently trading at around $2.50 a share, a tiny fraction of its peak $37.80 share price back in early December 2020, Altice USA is, in the words of equity analyst Craig Moffett, “taking its medicine.”

After years of operational cuts and consumer price increases, the Long Island cable operator, under the direction of recently appointed CEO Dennis Mathew, has instituted fairly massive price decreases across its fiber-to-the-home and cable broadband product lines. 

We're talking about as much as 36% off the base 300 megabits-per-second Optimum FTTH tier. (See chart below.)

Credit Light Reading for following up first on Moffett’s January 8 report — we slept on it, but it's definitely worth mentioning.

The price changes affect all FTTH customers who aren't on promotion, Moffett noted.

“By all accounts, a very high percentage of their accounts are on promotion,” he added. 

Altice USA is also reducing prices for new cable broadband customers, although it appears existing customers can also leverage these prices by threatening to walk. 

According to Moffett, the cable operator, which touts around 4.6 million broadband customers, is trying to undo the aftereffects of the “Altice Way,” the strategy of increasing EBITDA through cost cuts and price increases, which proliferated amid the aggressive expansion set forth by French-Israeli cable titan Patrick Drahi a decade ago. 

“The strategy worked everywhere they tried it. For a while. And then it didn’t,’ Moffett wrote. 

“For the past few years, Altice has been undoing the damage caused by overzealous cost-cutting, adding back much-needed capabilities that were lost in the initial Altice bloodletting,” he added. “What they hadn't done — until now — was undo the damage done by the overzealous price increases that followed.”

During Altice USA's Q3 earnings call late last year, Mathew outlined the coming price changes: "Specifically in 2024, we'll be introducing new lower rate card pricing, a more transparent approach to promo roll-off and a speed gifting program that will bring faster speeds to customers. We'll begin by broadly implementing this new pricing strategy with our next-generation fiber rate card.

"New rate cards on fiber will go into effect in the first half of 2024 and will reduce rates for new and existing customers," he added. "This does not have a notable impact on revenue as a very small portion of our fiber customers are close to paying full rate. New rate cards on HFC will also be available in 2024 to new customers, and legacy HFC customers will move to new rate cards over time through speed tier adjustments to match existing customer prices, preserving revenue."

The linear pay TV business had its worst third-quarter ever with about 889,000 subscribers cutting the cord, according to an analysis by MoffettNathanson.

Traditional cable, satellite and telco distributors lost 11.7% of their subscribers compared to a year ago.

The new virtual multichannel video programming distributors — such as YouTube TV — are not picking up all of the customers dropping traditional subscriptions, MoffettNathanson found. Only 21.7% of cord cutters signed up for a vMVPD in the third quarter, down from 31% a share ago, the equity research firm said.

That left total linear TV down 7.3% in the quarter, compared to a 5.6% dip a year ago.

“The picture is not one that suggests that a plateau in the rate of decline is coming anytime soon,” MoffettNathanson said.

The cord-cutting dropped pay TV penetration — including vMVPDs — to just 54.8% of occupied households, the lowest since 1989.

MoffettNathanson estimates that YouTube TV is the biggest of the vMVPDs with nearly 7 million subscribers, or about 40% of all 17.999 million vMVPD customers. That total is up from 16.910 million at the end of Q2 and 16.419 a year ago. 

In the third quarter, YouTube TV added 350,000 subscribers, boosted by its acquisition of the NFL Sunday Ticket out-of-market package.

Late last week, MoffettNathanson released a report that once again downgraded Roku to "sell" status, claiming the streaming company's recent climb to back over $100 a share was "too much" growth "too soon." 

But that wasn't the news -- Roku seems perpetually doomed to ride its Wall Street roller coaster, with ever-bearish equity analysts convinced the company at any moment will run head first into an increasingly competitive OTT ad market and  slowing uptake for SVOD services. (Note: MoffettNathanson remains neutral on Netflix, at a price target of $390 a share, despite the fact that its platform engagement has fallen around 20% year-over-year, based on Next TV number crunching of Netflix data.)

Also read: My dabble into cord-cutting: Made a lot of complicated decisions, saved 8 cents

Analyst Michael Nathanson's evidence for the latter assertion about slowing SVOD customer growth was what interested us. Subscriber expansion for premium SVOD services in the U.S. has slowed to its lowest level since 2018, before the beginning of the "streaming wars." 

And churn has increased dramatically over the past five years, as well. 

Meanwhile, an examination of just how much premium subscription video-on-demand pricing has increased recently adds context to the aforementioned dynamics. 

Consider that a collection of Netflix Premium, Apple TV Plus, ad-free Max, Peacock and Paramount Plus, and the unbundled ad-free Disney Plus and Hulu, will now set a consumer back nearly $105 a month. 

That's $17 a month more than it was just a year ago, and nearly double the nearly $55 all these services were collectively priced at during the height of the streaming wars in 2020-21.

Keep in mind that a lot of folks canceled pay TV and loaded up on cheap SVOD services because their monthly cable bill had exceeded $100 a month. 

On Thursday during Paramount Global's third-quarter earnings call, CEO Bob Bakish said his company was exploring with pay TV operators the prospect of wholesale “hard bundles” of Paramount Plus, on top of legacy linear network carriage deals. 

This was, of course, tied to the widely proclaimed landmark deal between Disney and Charter Communications that centered on the cable operator obtaining wholesale pricing of Disney Plus and including it in its video customers' programming packages. 

Indeed, a lot of folks in the video business view the Charter-Disney deal as a blueprint for how cable operators in the future will take video off their QAM networks and serve their core broadband constituencies the on-demand streaming choices they crave. 

For the streamer, not only does such bundling reduce customer acquisition cost to next to nothing, Bakish said, it grows customer ranks and reduces subscriber churn.

But it may be that not all “Plusses” are accretive to the bundle. 

The analysts at MoffettNathanson say they’re “skeptical” about the strategy as it pertains to Paramount Plus, which they believe doesn't add the same kind of "incremental value" to a standard pay TV package that Disney Plus does. 

According to analyst Robert Fishman, rather than cannibalize Disney linear channels, Disney Plus adds programming elements such as original series and movies, as well as Marvel, Pixar and Star Wars titles. 

“How incremental to the linear bundle is Paramount Plus?” Fishman asked. “With simulcasts of CBS stations included within the app, including coveted sports rights such as the NFL, we remain skeptical the company will be able to get true wholesale incremental value. 

“Moreover,” the analyst added, “any deal to provision Paramount Plus to linear subscribers will inevitably lead to a certain level of cannibalization of full, retail-rate paying subscriptions.”

A survey of 19,000 U.S. adult consumers conducted by equity research firm MoffettNathanson suggests that 22% to 32% of the 30 million Americans who use someone else’s Netflix account will eventually subscribe to the streaming service. 

A conversion of 25% of these consumers — a conservative outlook — would yield Netflix 6.8 million additional U.S. subscribers and $567 million in incremental annual revenue, the research company said. 

"While this might not be the home run that the bulls believe, the near-term opportunity to continue adding subscribers in North America seems very likely," analyst Michael Nathanson wrote in a report published late last week. 

Netflix, which reports third-quarter earnings Wednesday, already credited its password-sharing crackdown on a global scale for its addition of 5.89 million subscribers worldwide in the second quarter. 

Partnerning with Publishers Clearing House, which has used its sweepstakes data to pivot into developing large consumer surveys, MoffettNathanson found that only 23% of U.S. Netflix password-sharers have been notified by Netflix that they’re in violation of policy. And of that group that's been notified, 72% have lost access to Netflix. 

“This implies that Netflix has ample room to continue rolling out warnings and enforcement of this measure,” Nathanson wrote. 

Among the password-sharing group that's been notified that they're in violation but who have not lost access to Netflix, 22% say they've established their own account or plan to. The number rises to 32% for those who have lost access to the streaming service. 

Complicating matters for Netflix: According to the MoffettNathanson/PCH survey, 42% of password sharing occurs among parents and children. And it's mostly the kids who are the sharers at this point. This suggests Netflix has to navigate through some tricky family ties as it continues to progress through the ranks of unaddressed password-sharers. 

The Walt Disney Co. and Charter Communications ended the network carriage dispute that resulted in a blackout with a unique deal that involved the media company’s streaming properties as well as its traditional television networks.

Disney agreed to provide Charter with the streaming services that the cable operator argued had programming that its subscribers already paid for, while Charter got flexibility to drop some of Disney’s lower-rated, “long-tail” cable networks.

Net-net, Charter will be paying more to Disney, with the increase in wholesale fees for streaming exceeding cuts in payments for cable networks that are being dropped, most analysts have concluded.

MoffettNathanson analyst Robert Fishman looked at the Charter deal and has tried to game out how a similar deal would work out for other media companies.

Bottom line: the deal probably benefits Disney, but will be a tougher pill to swallow for its rivals.

The Charter deal would lead to several long-tail networks vanishing. S&P Global Intelligence listed some of those networks, and estimated when they would face the axe, based on when deals were up for renewal.

Fishman looked at the revenue those networks generate and how much that revenue means to their parent companies. He also weighed that loss against the upside of increased carriage of those media companies’ direct-to-consumer services.

“The most obvious risk to all media companies following the Charter renewal is exposure to longer-tail networks that could be dropped in future renewals,” Fishman says in his report.

Fishman estimates that U.S. affiliate fees for Disney account for about 17% of the company’s revenue. By comparison, affiliate fees represent 48% of Fox’s revenue, 22% of Comcast NBCUniversal’s revenue and 21% for both Warner Bros. Discovery and Paramount.

For Disney, those long-tail networks — Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild and Nat Geo Mundo — represent 8% of affiliate fees. 

For NBCU, networks like Universal Kids, Oxygen, Syfy and E! Account for 17% of affiliate fees. Paramount networks MTV2, TeenNick, Nicktoons, VH1 and Nick Jr. account for 16% of affiliate fee revenue. Similarly at WBD, Discovery Family, Discovery Life, American Heroes, Travel, Destination America, Cooking Channel, Motor Trend, Science, truTV and Boomerang represent 15% of affiliate fees.

Fishman doesn’t see any of Fox’s cable networks at risk of being dropped.

Losing carriage of the long-tail networks would also cost media companies advertising revenue. For WBD, this would impact 10% of ad sales; for Disney, 9%; for Paramount, 7%; and for NBCU, 5%.

Adding affiliate fee and ad sales for those long-tail networks, Fishman figured 13% of WBD’s linear business revenue is at risk. That’s more than the 12% for NBCU, 11% for Paramount and 8% for Disney.

While distributors like Charter are saving money by dropping long-tail networks, Fishman argued, they will be paying single-digit percentage increases in how much they pay for the cable networks they continue to carry.

He estimated that would leave Disney’s affiliate revenues down 1% to 15.4 billion. The drops would be bigger elsewhere, with NBCU down 17% to $7.5 billion; Paramount down 16% to $5.4 billion; and WBC down 12% to $7.9 billion. Fox’s affiliate revenues would grow 8% to 7.7 billion.

What happens to streaming revenue as DTC services become part of a cable subscription is a bit more complicated. Fishman assumes that future deals will give the 60% of cable customers who don’t currently subscribe to the various streaming services and that viewers who already have the ad-supported versions of streaming services independently will drop them, rather than pay twice.

Fishman sees Disney Plus subscriber revenue rising 5% in the Charter deal, even at wholesale price levels. But other services would see less of a gain because distributors would argue that more of their programming is already including in the cable bundle, notably NFL football now on Paramount Plus and Peacock.

Fishman estimates that under this scenario, WBD subscription revenue would be flat at $3.9 billion, Paramount Plus would drop 6% to $2.8 billion and Peacock would fell 13% to $1.3 billion.

(AMC would get a big boost on a small base — up 33% to $700 million — with the added distribution cable operators could provide to AMC Plus, Fishman noted.)

All in, looking at traditional TV affiliate-fee and ad revenue and streaming subscription revenue, Disney is the only winner, while WBD sees revenues dropping 8%, Paramount down 13% and NBCU 17% lower.

Fishman notes that affiliate fees are high-margin revenue. “On the flip side, a reduction to DTC subscription revenues could have a bigger long-term impact to streaming profitability with the need to reassess associated content spending to drive subscriber growth,“ he said. “Although, this would be at least partially offset as including streaming services within the Pay TV bundle offering would help substantially reduce churn.” 

In terms of earnings, Fishman is cutting his estimate for WBD by 4% for 2023, 2% in 2024 and 2% in 2025.

Ar Paramount, the earnings forecast is 1% lower for 2023, 2% in 2024 and 5% for 2025.

“At Fox, we are decreasing our FY 2024 by 2% estimates to better incorporate weaker ad trends at cable networks and higher corporate costs, but we leave our affiliate and retrains forecasts unchanged as the company stands to take an increasing share of the overall pie as distribution partners tighten the screws with their other content partners,” Fishman said.

Mofftet Nathanson is maintaining its “buy” ratings on Disney and Fox, its “neutral” ratings on WBD, AMC and Netflix and its “sell” rating on Paramount, but it is lowering its target prices for Fox, AMC and Paramount.

Despite some recent research claims stating otherwise, Netflix remains far and away the most engaged-with subscription streaming service in the U.S., garnering more than twice as much usage than the next-closest platform, Disney Plus, in the second quarter. 

This data comes from equity research firm MoffettNathanson's Q2 All Things Streaming report, which was assembled with an assist from HarrisX, using data from 20,674 survey respondents from April through June. 

According to the report, only free, ad-supported YouTube (excluding YouTube TV) surpassed Netflix in streaming minutes delivered in the U.S. during the second quarter.

The Disney Bundle, which rolls up Disney Plus with Hulu and ESPN Plus, is the only other entity that approaches Netflix’s level of usage. 

Netflix appears to be mired in a viewership slump. Last week, for example, its 10 most-watched English-language series yielded 200,000 million fewer viewing hours when compared to the comparable cohort from the same July week of 2022. 

But as the latest MoffettNathanson/HarrisX collaboration shows, Netflix is still far and away the most utilized subscription streaming service in America. Fifty-five percent of households report at least one resident who uses the service. 

The All Things Streaming Q2 report also measured U.S. household usage for "Tier 2" SVOD services. There are some interesting findings here. 

For one: the fast-growing uptake arc for Paramount Plus, which was the last of the big "Streaming Wars" launches but has quickly risen to penetration of 25% of U.S. households. 

Second is the utter stagnation of Max. Maybe Warner Bros. Discovery CEO David Zaslav’s proclamation that Max users weren't going to miss what his group has removed from the premium-priced platform is wrong?

Finally, amid a bounty of information about the U.S. streaming market, the report had this surprising finding — a year ago, when we concluded that the U.S. streaming market was saturated post-pandemic, we weren't right. 

Penetration is 3% year over year to 84%, with older consumers now starting to adopt streaming. 

Warner Bros. Discovery CEO David Zaslav said the major subscription streaming suppliers should bundle and market their platforms together before big technology companies get the drop on them. 

“If we don’t do it to ourselves, I think it will be done to us. It will be Amazon who does it, or Apple who does it, or Roku who does it. They’ve already started,” Zaslav said Thursday while speaking at MoffettNathanson's inaugral Technology, Media and Telecom Conference in New York. 

He said the need to jointly market their competing streaming services is driven by consumer demand -- as premium content has dispersed from the pay TV bundle to direct-to-consumer streaming and beyond, consumers are having a difficult time finding it. 

"Imagine you were back 30 years ago and you wanted to watch CBS and you had to download and buy something," Zaslav said. "And then you want to watch ABC [but] had to download and buy something. ...It's not a good consumer experience ... Everyone is Googling ‘Where is it?’ How do I get it?'” Zaslav said. “It’s not rational, and it’s not really sustainable.”

“It seems very clear that if we were to package this great product that we have with others, we would wake up tomorrow, and in each market, if we are the number one, or two, or three product, if we were marketing with the number two or three for a specific price it would be great for consumers," Zaslav said. "It would probably reduce churn. We would be marketing one product. And it would provide a meaningful consumer experience.

“We could do it -- the content owners in markets or, more broadly, across regions, could do it. Whether we do it this year or in three years. I think something like this will eventually happen," he added. 

Despite a series of breathless, counterintuitive reports over the past year, Comcast CEO Brian Roberts on Tuesday confirmed that his company will "more likely than not" execute a contractual clause that lets it sell its one-third stake in Hulu to controlling shareholder Disney. 

Speaking at the MoffettNathanson Technology, Media and Telecom conference in New York, Roberts said, “I think we have a very valuable position ... What would a willing buyer in a robust auction [for Hulu] pay?” 

In 2024, Comcast has a "put call" option to sell its 33% stake in Hulu to Disney, with the streaming platform floor-valued at a minimum of $27.5 billion. That would mean that Disney would have to come up with at least $9.2 billion in cash. 

Of course, Comcast has argued that Hulu is worth more than just $27.5 billion, and the two sides have been haggling and positioning for several years. 

"I’m pretty certain that when we sell our Hulu stake, it’ll be for more than what we have in it. In fact, that’s contractually certain,” Roberts added.

Last week, Roberts' Disney counterpart, Bob Iger, suggested that recent talks have been more productive. Iger revealed during Disney's Q1 earnings call that the conglomerate intends to combine Hulu programming with Disney Plus. 

“I can’t tell you, and I can’t really say where they end up, only to say that there seems to be real value in having general entertainment combined with Disney Plus. And if, ultimately, Hulu is that solution, that’s we’re -- we’re bullish about that,” Iger said.

The domestic pay TV industry just experienced its worst quarterly cord-cutting ever in Q1, losing 2.3 million customers, 300,000 more than the same period a year ago, according to figures compiled by equity research company MoffettNathanson. 

Also read: Do the Collapse --Dish Becomes the Latest Major Pay TV Operator to Accelerate to Double-Digit Cord-Cutting Rate (Charts of the Day)

Last week, after Dish Network revealed that its cord-cutting had accelerated to an all-time-high 11.2%, Next TV made the point that the domestic pay TV industry seems to have passed a threshold, whereby the erosion of the user base further degrades the overall value proposition ... thereby further accelerating the rate of decay. 

We always read deftly written MoffettNathason's reports with with a level of dread — forget ChatGPT, who needs us when these guys put it so damned clearly and eloquently, with first-hand information? And it happened again here in the firm's Q1 ”Cord-Cutting Monitor” report — principal analyst Craig Moffett even put a clever name on what's happening to linear pay TV operators: “The Doom Loop.” 

The graphic below explains the virtuous cycle quite nicely. (We also think that cramming so much commercial load into linear channels to make up for declining revenue has been a huge contributor to the value erosion of pay TV.)

As Moffett puts it, the cycle of ever increasing sports licensing costs drove up pricing, chasing entertainment-seeking non-sports customers out of the market and onto things like SVOD platforms. 

As churn increased, content suppliers sent more and more of their best wares to subscription streaming to chase after these lost customers — thus kicking off the “impoverishment cycle.” 

And that cycle has gotten to the point at which, as Moffett noted, even the pay TV ecosystem’s most staunch supporter, ESPN, is now counting its the days for the linear model.

“We’re going to get to a point where we take our entire network, our flagship programming, and make it available direct to consumer," ESPN chief Jimmy Pitaro said last week.  

How bad are things? You have to go back 37 years to find a point at which linear cable, satellite and telco penetration (excluding vMVPD) was at just over 40 million U.S. households.  

At least for a while, virtual services were capturing most, or all, of the customers that left more expensive traditional pay TV platforms. But vMVPD's have steadily risen in price, eroding their value proposition, too, and that "conversion rate" hit an all-time low of 25.7% in Q1, MoffettNathanson said. 

The “Cord-Cutting Monitor” is chock full of interesting tidbits, but this one also caught our eye. (Not that eye. The other one. Our good eye.) DirecTV has been shielded from public view ever since AT&T spun it off with private equity back in 2021, but MoffettNathanson estimates it's bleeding even faster than Dish. 

In fact, the firm estimates that DirecTV — which includes DirecTV satellite, DirecTV Stream vMVPD and AT&T U-verse is collapsing even faster than Comcast, which was 12.1 percent smaller, video base-wise, on March 31, 2023, than it was a year prior. 

Fixed wireless access home internet services from Verizon and T-Mobile collectively amassed over 4 million customers almost overnight, explosive growth coming as wireline broadband for cable operators came to a screeching stop. 

The puzzlingly consistent response from the leading U.S. MSOs has been dismissive — FWA simply doesn't have the performance or network capacity to register a competitive threat to the “10G” future, top Comcast and Charter Communications executives have said over and over again. 

Also read: Cable Broadband Customer Growth Was Down by Around 500K in Q1 ... but Fixed Wireless Added 500K

A new report on T-Mobile Home Internet, published Monday by equity research firm MoffettNathanson using data provided by Opensignal, seems to support their logic. 

As the Opensignal coverage map of the Seattle area below reveals, T-Mobile has effectively steered FWA signups away from areas with high network congestion. (Notice the lack of white dots in red areas.)

“T-Mobile routinely informs prospective customers that their FWA service is unavailable in certain areas, directing aspiring customers instead to their tightly-managed 'Lite' service that offers very limited aggregate bandwidth,” wrote analyst Craig Moffett. 

On one hand, he noted, T-Mobile is doing a “sensible” job of network management, turning away customers who live in places where its network can’t handle them. 

“At another level, however, it speaks to the capacity question that is everywhere in a discussion of FWA; T-Mobile is clearly aware of the issue and is managing appropriately around it.”

It is perhaps because of this limiting factor that T-Mobile’s $50-a-month Home Internet service over-indexes with rural customers, growing more freely in places where it’s uninhibited by capacity constraints. 

Of the service’s 2.646 million subscribers as of the end of 2022, 54.7% are in urban areas vs. 70.3% of passings, and 21.3% of customers are in rural regions vs. 6.8% of passings. 

Performance has improved marginally since T-Mobile Home Internet launched. T-Mobile’s FAQ has updated the service’s typical download speeds from 35-115 Mbps, when MoffettNathanson first reported on the service a year ago, to 33-182 Mbps. Expected upload speeds remain at 6-23 Mbps.

This comes at a time when cable wireline has reached a baseline of 200 Mbps. 

As the report notes, T-Mobile’s quick FWA growth is marked by limitations, the service expanding rapidly in regions where competition and capacity allow. 

“Our updated Opensignal analysis reveals that the broad patterns of T-Mobile’s FWA service remain remarkably similar to those of a year ago,” Moffett wrote. “Subscribership continues to heavily skew towards rural even as the preponderance of subscribers is sourced from urban and rural areas. Predictably, uptake is much higher in areas with limited fixed-line competition and is especially in areas with only DSL. And subscribership remains almost entirely confined to zip codes where T-Mobile’s network has sufficient capacity to handle the traffic, precisely as one would expect for a capably managed network.”

Are those limitations starting to reveal themselves in slowing subscriber growth?

Released earlier this week, research company MoffettNathson's report "Media Content Spend Post-Streaming Wars" elegantly showcased how the major media conglomerates were decelerating content spend in order to curb DTC losses. 

Next TV, however, ignored some rather interesting reading at the back of the report, analyzing profitability of various linear and streaming platforms based on content spend, scale and revenue. 

Based on a per-hour viewed basis, MoffettNathanson found that combined force of linear platforms still generate margins of 44%, with backers spending 32 cents on content, but recouping 33 cents in subscription revenue and 24 cents in advertising coin, on average. 

Netflix came in second in this video business efficiency analysis with a margin of 42%. 

Notable is the influence of scale. 

NBCUniversal was expected to have spent only around $3 billion on sports, news, movies and TV shows for Peacock in 2022, vs. a reported content spend of around $17 billion for Netflix. 

Netflix, however, has more than 230 million paid members worldwide vs. only around 20 billion for Peacock. The net effect is that margins per hour streamed are much bigger for Netflix. 

"Zooming out, Netflix did not make streaming more economical by reducing spend," wrote study author Robert Fishman. "It did so by increasing spend continually until it managed to buy effective scale." 

Given the pressure Wall Street is putting on media companies to reduce EBITDA losses on direct-to-consumer streaming, Fishman doesn't believe that Disney, Warner Bros. Discovery, Paramount Global and Comcast/NBCUniversal will enjoy the same kind slow, methodically expensive scale ramp-up Netflix was able to pull off. 

"The current sub-scale players do not have that same luxury of time," he added. "All in all, in today's environment, pulling off the streaming pivot is more difficult than ever."

After exceeding 25% year-over-year growth during the peak year of the “Streaming Wars,” media spending on video content will grow by just 1% in 2023, writes MoffettNathanson's Robert Fishman.

“After two years of strong double-digit content spending growth, we foresee a flattening in 2023,“ the media analyst said. “As more companies shift their focus away from solely subscriber growth, we would expect industry content spending to be relatively flat or even decline in the out years.”

Recent earnings calls from Warner Bros. Discovery, Disney, Comcast and Paramount Global more than underwrite Fishman's thesis in his latest report, “Media Content Spend Post-Streaming Wars.“ 

Also Read: Are the ‘Streaming Wars’ Lost? Disney, Par, NBCU and WBD Bled Nearly $11 Billion Combined on DTC Last Year

These media conglomerates are trying to reign in EBITDA losses on direct-to-consumer streaming, which collectively exceeded $10 billion among them, while maximizing the fading profits on older linear platforms. 

This year, conglomerates including WBD and Comcast NBCUniversal will actually be spending less on content, Fishman's analysis predicts. 

“As we now painfully know, money is no longer cheap,” Fishman said. “Wall Street’s attitude towards streaming has now largely reversed course as more skeptics raise the question of whether streaming is a good business (a question we have long been asking). In turn, companies are no longer willing to spend whatever it takes, in part because attitudes and strategies have shifted and rationalized, but also because their balance sheets no longer have what it takes.”

The streaming party may be over, with Fishman identifying Amazon Prime Video’s half-billion-budget for its Lord of the Rings: Rings of Power as the ”peak of the bubble” in terms of DTC content spent.

Fishman sees most of the major media conglomerates recapturing a level of free cash flow they had before they started spending freely on DTC, with some media companies relying on their linear platforms (WBD among them) more than others to accomplish that goal. ■

Dish Network ended 2022 with some of the most downer data the U.S. pay TV business has ever seen, losing another 191,000 satellite TV customers and 77,000 virtual Sling TV subscribers in the final three months of the year. 

Dish, which won't formally announce Q4 earnings until sometime next month, made the disclosure in an SEC filing Tuesday, in conjunction with the revelation of a $500 million secured debt offering. 

While the nominal rate of decline for Dish satellite didn't increase -- the company bled 203,000 satellite customers in the fourth quarter of 2021 -- the overall erosion rate reached a record 9.8%, usurping the 9.7% bleed rate in Q3 and the 8.9% erosion experienced in the second quarter. 

As equity research company MoffettNathanson noted, Dish satellite's remaining base of just over 7.4 million subscribers is about a third of its peak 2009 size.  

Meanwhile, Sling TV's remaining base of 2.334 million subscribers puts its size roughly where it stood in early 2018, just three years after launch. Its losses, combined with Dish satellite, put Dish's total pay TV erosion in the fourth quarter at 8.9%. 

Dish is the fourth largest pay TV company in the U.S., based on subscriber reach. Its customer bleed rate approached No. 1 pay TV company Comcast in 2022 -- Comcast lost customers at a rate exceeding 10%. 

The losses, which accompany another 24,000 customer defections for Dish's Boost Mobile MVNO-based retail wireless business, aren't shocking. But their pace of decline is concerning for a telecom that's in a race against time -- and acquired capital resources -- to build out its own wireless network, as agreed to under federal consent decree. 

As was also stated in Tuesday's SEC filing, Dish broke ground on its target of 15,000 microcells, with the expectation that those cells will cover 60% of the U.S. population.

Over the next two years, as Dish looks to fund this pricy buildout, analyst Craig Moffett noted Tuesday, investors are probably in for a wild ride.

"While they have used debt thus far, there is a growing expectation that their convertibles will need to be equitized, resulting in meaningful equity dilution," Moffett wrote. ■

Research company MoffettNathanson's latest iteration of its quarterly "All Things Streaming" report is, as usual, full of interesting insights. 

But something on page 18 really caught our attention: partnering with Harris X and using Nielsen data, MoffettNathanson found that DirecTV Stream had a 175% year-over-year increase in minutes streamed. 

That was, by far, the biggest increase in all of U.S. streaming. The second closest app was Peacock, but that's entirely understandable when you consider that the paid and total active user bases for the NBCUniversal streaming service nearly doubled in 2022. 

Similarly, Tubi and The Roku Channel, FASTs that also experienced rapid user and engagement expansion in 2022, also both increased their minutes viewed significantly last year. 

DirecTV was spun off to private equity 18 months ago, and there's no longer quarterly insight into its subscriber growth. But Fitch Ratings recently estimated that the service, still rooted in satellite pay TV distribution, lost 500,000 customers in the third quarter alone. 

So at a time of overall subscriber recession, how did the virtual MVPD side of DirecTV's business nearly triple its usage?

We asked DirecTV sources this question. We're still waiting to hear back, but we have a theory. As the DirecTV customer base churns inevitably smaller, down to just over 13 million users, the new customers -- and those looking to upgrade or change their service -- are being steered away from linear DirecTV satellite to Stream.  

Updated: Several DirecTV users sent us messages corroborating this speculation. Reads one missive sent to Next TV Thursday: "I have had a DirecTV dish for 20 years. And in the past month, I have had messages pop up saying something along the line of, 'There is a problem receiving your dish signal. Would you like to switch to streaming?' My dish has a clear view of the sky and there has been no weather disturbances when I receive these messages."

Neither U.S. satellite TV company, Dish Network included, is building and/or launching any more satellites. And the pay TV component of DirecTV's services rollup, the legacy AT&T U-verse, stopped adding new customers several years ago. 

On its landing page, DirecTV now merchandises Stream alongside satellite -- you can easily toggle between both promotional menus. 

Notably, the satellite TV option is slightly cheaper for the first promotional year (by a factor of around $5 per tier vs. Stream). The satellite tiers also offer more channels, but satellite requires a two-year commitment, and the price of the second year of the satellite tiers is significantly higher than the comparable DirecTV Stream packages. 

DirecTV Stream tiers rise from their promotional price starting in the second year of service, but -- and this is real important -- users only have to commit month to month and can pretty much easily cancel at any time. 

Also, beyond not having to hang an ugly satellite dish on their rooftop preying to the southern sky, DirecTV Stream users also get three months free of HBO Max, Showtime, Starz, Cinemax and Epix. 

Also notable: DirecTV Stream offers a proprietary set-top, but the service broke free from required CPE some time ago. And it recently expanded the support for its app to include the Google TV OS.

Like any good lazy trade publisher (oxy-what?), we often refer to DirecTV as a "satellite TV company." We might consider changing that descriptor. 

Meanwhile, one other shiny trinket from the MoffettNathanson report caught our flighty eye -- the percentage of U.S. streaming homes without pay TV surpassed those with pay TV back in the third quarter. And now, sans pay TV homes are leaving the pay TV ones in the dust. 

Pay TV penetration fell to just 61% of U.S. households in the third quarter, its lowest level since 1993, which was just before the dawn of satellite TV competition for cable, according to celebrity equity analyst Craig Moffett's latest quarterly cord-cutting report.

Cord-cutting collectively reached a year-over-year rate of 6.2% in Q3, an all-time high, narrowly increasing over Q2 (6.1%) and up pretty significantly over Q3 2021 (5.2%).

Collective customer losses for U.S. pay TV operators totaled 655,000 in Q3 vs. just 617,000 a year ago.

Also read: Cord-Cutting Alarm Sounds Anew as Comcast's Q3 Video Losses Exceed the 10% YoY Mark For the First Time

Video attrition was particularly bad for the cable industry, which lost 1.04 million TV customers in Q3 vs 787,000 a year ago.

All told, traditional linear pay TV platforms shed 1.95 million customers in the third quarter, losses that were partially offset by the rekindled growth of virtual pay TV services. The vMVPDs added 1.29 million customers in Q3 vs. just 42,000 adds a year ago.

The overall grim linear pay TV performance caused Moffett to ponder some specific recommendations. For one, cable companies Comcast and Charter, he said, might be better off focusing on their to-date successful infiltration into the U.S. wireless business rather than pivoting their video efforts into the out-of-footprint-focused Xumo TV JV.

And the major media conglomerates mostly face a dire outlook, he said, save for Disney, which has the needed distribution scale for a direct-to-consumer pivot but will need newly returned CEO Bob Iger to engineer a monetization miracle to make the industry's only hope for a truly successful linear-to-DTC transition work.

"There remains no obvious floor for traditional video distribution; whatever sports and news floor there might be for cable network programming -- and we're no longer confident even of that," Moffett said.

Fixed Wireless Access subscriber additions are expected to rise sharply in the next two years, according to MoffettNathanson senior analyst Craig Moffett, but then moderate in later years, as its rural base begins to saturate.

In a series of slides posted on its website, MoffettNathanson predicted that T-Mobile and Verizon will add 2 million and 1 million FWA customers, respectively, in 2022 and 2023, up from 546,000 and 173,000 in 2021. But that growth is expected to begin to trail off in 2024, to 1.3 million for T-Mobile and 700,000 for Verizon, falling further by 2025 to 500,000 additions for each company, according to Moffett. By 2026, Moffett predicts T-Mobile will add about 200,000 FWA subscribers and Verizon 400,000 FWA customers, according to the report. 

T-Mobile added 565,000 FWA customers in Q2 2022, soundly beating analysts’ estimates, and is expected to finish the year with more than 2 million fixed wireless customers. The company has said it expects to have between 7 million and 8 million FWA customers by 2025. 

Moffett’s predictions are slightly less aggressive than some analysts who have estimated that fixed wireless could add as many as 10 million additional subscribers by 2027, but they’re not that far off. According to his estimates, T-Mobile and Verizon would add a collective 9.6 million additional FWA customers by the end of 2026. 

Though FWA appears to be a viable alternative to cable broadband, Moffett and other analysts have warned, it has mainly been deployed in rural areas and attracted residential and business customers not targeted by wired service. For example, fixed wireless has been extremely popular with construction trailers and food trucks, business customers that aren’t able to receive wired service.

That appears to be backed up by an earlier MoffettNathanson report, which cited estimates from Boston-based market researcher Comlinkdata that 33% of T-Mobile’s broadband customers are in rural areas, representing just 6% of the company’s total homes passed. In addition, Comlinkdata estimated that 88% of T-Mobile’s FWA customers are coming from the 36% of its network that is underutilized.

Looking Beyond Rural Markets

At the Goldman Sachs Communacopia conference earlier this month, Verizon CEO Hans Vestberg said the company plans to expand the service beyond rural markets.

“[W]e’re going to open up new opportunities outside the suburban, out of rural as well, where it's even greater opportunities for us,” Vestberg said of FWA at the Goldman conference. “Our devices coming out on fixed wireless access will basically cover all the frequencies we have, all the way from millimeter wave, C-band and 4G low-band, which is going to make this product enormously great.” 

Cable operators have been keeping an eye on fixed-wireless competition, but have in the past dismissed the service as inferior to wired broadband. But as their own cable broadband subscriber growth has slowed considerably, they are at least giving some credit to the service. 

At the Bank of America Securities conference earlier in September, Charter Communications chief financial officer Jessica Fischer acknowledged that fixed wireless played a role, albeit small, in its Q2 subscriber declines. Later at the BofA conference, Comcast deputy chief financial officer Jason Armstrong said that although fixed wireless is seeing gains, he is most concerned about fiber competition. 

Also: Wireless Connectivity Will Determine Winners in Broadband, Streaming Race, Rutledge Says 

Even other telcos have joined in on the fixed-wireless bashing. Frontier Communications CEO Nick Jeffery said at the Communacopia conference that comparing fixed wireless to fiber was like “comparing a Ferrari to a horse.”

According to Moffett, telcos and cable service providers should worry more about fiber. Planned fiber to the home passings more than doubled in 2021 to 4.2 million from 1.9 million in 2020, and he predicts that they should nearly double again to 7.8 million passings by 2022. He added that planned fiber passings will rise to 9.4 million in 2023, 9 million in 2024 and 8.3 million in 2025. Most of those gains will come from projects from three carriers: AT&T, Lumen (with Apollo Global) and Frontier. Moffett estimates that AT&T will add 4,000 fiber passings in 2022, 3.75 million in 2023, 3.25 million in 2024 and 2.6 million in 2025. Lumen is expected to add 1 million, 2.4 million, 2.5 million and 2.5 million passings in the same time frame, while Frontier should add 1 million, 1.5 million, 1.6 million and 1.6 million, according to Moffett.

But those deployments are not without risks, mostly on the cost side, where labor and equipment expenditures are expected to rise, Moffett wrote. As providers build out in less populated areas the cost per home passed will also increase, as well as capital costs due to inflation and a “higher equity risk premium,” Moffett wrote. ■ 

Verizon Communications shares dipped more than 3% Thursday after MoffettNathanson downgraded the stock to "underperform" from "market perform," and lowered his 12-month price target on the stock to $41 from $55 each, adding that the company is losing ground to lower pricing from AT&T, better 5G networks from T-Mobile, and the increasing threat of cable wireless. 

Verizon stock was priced as low as $43.91 in early trading August 18, down 3.2% or $1.13 per share, after MoffettNathanson senior analyst Craig Moffett wrote that two years after AT&T started its aggressive pricing strategy, Verizon has "seesawed between periods of promotionality and financial restraint, optimizing neither. They have recently pulled back sharply on promotions, a reversal of their approach in Q2, and have introduced a suite of lower priced plans instead. There are no easy answers."

Verizon shares closed at $44.19 each on August 18, down 2.5% or $1.15 per share. 

At the same time, Verizon appears to be losing the battle with T-Mobile, which still has the lowest pricing in the industry despite spending heavily to build out its 5G network. T-Mobile now has the largest 5G network in the country, a crown that used to be worn by Verizon.

Adding to the pressure is the emergence of cable wireless. Moffett noted that Comcast, Charter Communications and Altice USA added a combined 694,000 wireless customers in Q2, about 100,000 customers more than in the same period last year. Cable now accounts for more than 9 million wireless customers, still only about 3% of the market, but it is growing. And recently Cox Communications said it was beta testing its own wireless MVNO, which Moffett wrote "will only add to the pressure on the incumbents."

Also: Analyst Says it's Time to Take Cable Wireless Seriously 

Moffett's outlook isn't much better for AT&T. While the analyst maintained his "market perform" rating on the stock, he lowered his 12-month price target to $17 per share from $19 because of lower growth expectations. But Moffett raised his price target on T-Mobile to $174 each from $165, citing its strong growth prospects. ■

Barclays Group media analyst Kannan Venkateshwar downgraded his ratings on Comcast and Charter Monday in the wake of disappointing Q2 broadband performance, adding that the rapid growth of fixed wireless service from telcos may end up being more of a threat than cable operators think.

Barclays lowered the rating on Comcast to “Equal Weight” from “Overweight” and on Charter to “Underweight” from “Equal Weight,” citing their poor Q2 performance. In addition to non-existent broadband growth in Q2, video subscriber losses at both companies rose significantly during the period -- to 521,000 and 266,000 respectively -- reigniting fears of accelerated cord-cutting for traditional cable. While mobile subscriber growth for both Comcast and Charter exceeded analysts’ consensus estimates for the period, Venkateshwar split from his peers, doubting that wireless will be able to take up the slack. 

Broadband Forecasts Lowered Again

Venkateshwar noted that he now expects Comcast to add about 300,000 broadband customers this year, down from 1.4 million in 2021, and Charter to add about 200,000, down from 1.2 million additions in 2021. He said the debate has shifted to whether or not cable broadband subscribers will actually decline in 2023 and beyond.

The broadband slowdown has weighed on cable stocks for months. So far this year, Comcast stock is down 24%, Charter down 34%, Altice USA fell 35% and Cable One is down 22%. The sector probably will fall even further after Altice USA reports Q2 results on August 3. 

Most analysts have reduced their forecasts for cable broadband subscriber growth again in light of the Q2 results, with Wells Fargo Securities media analyst Steven Cahall cutting his estimates for Comcast and Charter nearly in half. 

Prior to the Q2 results, Cahall had estimated Comcast would add 688,000 broadband customers in 2022 and another 630,000 in 2023. Now, his estimates call for 298,000 residential additions in 2022 and 300,000 in 2023. For Charter, Cahall had estimated residential broadband growth of 499,000 in 2022 and 549,000 additions in 2023. Those predictions have been revised to 152,000 customer additions in 2022 and 295,000 in 2023. 

Fixed Wireless Threat 

The analysts pointed to the potential threat of fixed wireless -- T-Mobile USA added 560,000 fixed wireless subscribers in Q2, far exceeding consensus expectations -- and Comcast’s and Charter’s seeming indifference to that competition. In conference calls with analysts to discuss Q2 results, both Comcast chairman and CEO Brian Roberts and Charter chairman and CEO Tom Rutledge said they believe fixed wireless isn’t much of a threat. 

Roberts called the fixed wireless access Q2 performance a fluke, as excess capacity created a “temporary opportunity targeted at value-oriented customers.” And while he said FWA isn’t having any “discernible impact” on churn, he did acknowledge it was a factor in Comcast’s flat Q2 performance. Not exactly an admission of a threat, but close, even though he added that performance and capacity restraints will likely limit FWA’s overall penetration.

On the call, Rutledge appeared to dismiss the long-term impact of fixed wireless while admitting that it is “an issue affecting growth at the moment.”  

Rutledge said fixed wireless access’s impact is small when compared to Charter’s overall footprint. He said activity levels were the major driver for subscriber losses. And he said that there are other economic factors at play, including low housing occupancy and new construction because of supply chain issues.

“And so we're pretty optimistic, relatively speaking, that as the post-pandemic market activity levels return and normalize, that our share of broadband growth will rise,” Rutledge said on the call. 

Also: Analyst Says Telcos Better Positioned to Chip Away at Cable’s Broadband Lead  

But Venkateshwar warned that fixed wireless could become a factor very quickly, adding that if T-Mobile meets its guidance of 500,000-plus additions each quarter, it will be larger than Altice USA (the fourth largest cable operator in the country) by the end of next year.

Also: Broadband Slowdown Hasn’t Hit Bottom Yet, Analyst Says 

“It is tough to see this not impacting cable structurally when cable [broadband] net adds overall have been [about] 3 million in normal years and T-Mobile and Verizon alone could add 2 million to 2.5 million FWA subs a year,” Venkateshwar wrote. “This is even before the existing DSL base converts to fiber driven by government funding and AT&T’s fiber expansion, which we estimate will result in an additional 20% of cable footprint having fiber overlap.” 

Blame Game

Cable operators have mainly blamed the broadband growth slowdown on lower household moves, an excuse that the Barclays analyst is not buying.

“[T]his is a market share argument and it is not clear why this would drag growth down for the industry as a whole,” Venkateshwar said of slower housing moves. “While cable has gained share vs DSL over time and therefore lower moves would impact growth rates, it is mathematically impossible to get to negative growth as seen last quarter, purely on account of lower move activity. In addition, the decline in move activity is not new and has been going on for years and tends to worsen during recessions. Even if move activity recovers, there are new elements that are likely to reduce cable’s share of gross adds given fiber and FWA entrants.”

Going Mobile 

Other analysts have seemed to side, partly, with cable operators' view on fixed wireless access. In a research note Friday, MoffettNathanson senior analyst Craig Moffett said that while investors will likely focus on broadband performance for a while going forward, they will eventually come around to the thesis that wireless is the new growth engine for cable. According to Moffett, if video was Act I for cable operators and broadband was Act II, wireless is poised to be the industry’s third Act..

Charter added 340,000 wireless customers in Q2, ending the period with 4.3 million customers. Mobile now accounts for 5.5% of Charter’s total revenue. Though the segment isn’t profitable yet, once Charter’s CBRS offload initiatives are completed in the next few years, it will be more profitable than most could imagine, according to Moffett.

The same holds true for Comcast. The largest cable operator in the country added 317,000 wireless customers in Q2, ending with 4.6 million customers. Wireless makes up about 4.9% of Comcast’s total cable revenue and is growing at a 30% annual rate.

“[W]e believe wireless growth remains underappreciated,” Moffett wrote. 

Wells Fargo Securities' Cahall said the jury was still out on mobile valuations, and while unit economics are positive, they don’t yet exceed the cost of service. On the other hand, increased capital spending on wireless could make operators less  reliant on MVNO partnerships and more competitive with telcos. 

“Add it all up, and it's a very logical strategy, but we think the value is too uncertain at flattish adjusted EBITDA margins to offset the [broadband and capex] challenges,” Cahall wrote.

Venkateshwar also was impressed by cable’s wireless performance, but he added that any war between cable wireless and telco FWA will be won by the telcos. 

“Telecom operators have their own issues but their narrative around new revenue sources like FWA is more feasible, at least over the short term, because it is backed by significant capital investments in a fixed cost infrastructure that should provide operating leverage over time,” Venkateshwar wrote. “Cable companies on the other hand have no plans to invest in a full infrastructure based offering, but still believe they can do better with an MVNO model than operators elsewhere in the world have managed. This strategy makes sense to test out the market and launch a service, but to anchor [a] long term strategic pivot of the scale that cable companies are attempting on someone else’s network is not viable in our view.” ■

Analysts have been waiting for the other broadband shoe to drop for months after most cable companies missed broadband subscriber growth targets in Q1, and they got it Thursday after Comcast, the largest cable operator in the land, reported zero broadband additions for Q2, a bit earlier than expected. Now, as cable pundits consider dropping their growth estimates for cable’s cash cow yet again, the big question for at least one analyst is whether the drop-off is due to saturation or share loss.

Just what caused the largest cable operator in the country to have precisely 0 broadband customer growth will matter for the rest of the industry because cable can rebound from saturation, but share loss is another thing entirely.

Also: Broadband Slowdown Forces Some Analysts To Go Negative on Cable Sector  

In a research note Thursday, MoffettNathanson senior analyst Craig Moffett wrote that at the moment it appears that the overall broadband slowdown is a combination of encroaching saturation and sluggish new household formation instead of share loss. And, in his note, he stressed that the former is much better than the latter. 

“If the problem is saturation, then we should be slowing towards zero (or, more precisely, towards the rate of new household formation),” Moffett wrote. “If the problem is share loss, well, then let your imagination run wild. There’s no floor. And if the problem is saturation, then pricing power isn’t jeopardized. If the problem is share loss, broadband ARPU is at risk.”

Also: Most Eyes Should Be on Comcast Q2 Broadband Performance 

Comcast managed to grow broadband ARPU in Q2 by about 3.6%, not great but respectable, given that it lost 10,000 residential and gained 10,000 business high-speed data customers in the period. ▪️

The Waiting Is the Hardest Part

Most analysts have been waiting for this day ever since Comcast reported 262,000 broadband additions in Q1 -- a number that beat most estimates but was fueled by a large portion of customers on free plans that converted to paying plans. Absent those customers, Comcast would have added about 175,000 broadband customers in that period, well behind some estimates of 180,000 to 225,000 additions.  

Prior to Thursday, most analysts were expecting broadband additions to fall off considerably, a factor of seasonality -- Q2 is when students and snow birds cancel service for the summer -- and other macroeconomic trends. But many analysts expected losses to come from other cable operators -- consensus was for Comcast to add about 84,000 high-speed internet customers in the quarter -- not the largest one. Now, some are changing their minds.

Also: Has Cable Broadband Hit the Wall? 

“We expected Charter to post negative growth in consumer broadband in 2Q22 but had expected a slightly better result at Comcast largely because Comcast has more levers to pull with respect to its product set (Flex, Peacock, TV etc.) but despite all this, Comcast performance may not really be that different from Charter after all,” wrote Barclays Group media analyst Kannan Venkateshwar in a note to clients Thursday, adding that Comcast “seems to be seeing negative growth thus far in 3Q as well, although it expects some seasonal improvement in August and September.”

That will likely cause analysts across the board to shift their estimates for overall cable broadband subscriber growth downward. Charter is scheduled to report Q2 earnings tomorrow (July 29), so depending on those numbers, predictions may have to be rejiggered again. 

Also: Cable Broadband Slowdown to Continue in Q1 and Beyond, Analysts Say 

Movin’ On Up [Not]

Comcast tried to downplay the lack of broadband growth on a call with analysts, stressing that it has added about 800,000 high-speed internet customers in the last 12 months and 3 million in the last two years. But that included the pandemic, when most Americans needed high-speed connections to work, school and play from home and many were receiving government subsidies for service. As those requirements were lifted, some decided they didn’t need cable broadband, or perhaps found a lower cost alternative. 

Comcast’s flat growth comes a day after T-Mobile said it added 565,000 fixed wireless access customers in Q2, soundly beating even the most optimistic analyst estimates. Fixed Wireless Access (FWA) has been feared to be a major threat to cable wireline broadband,  but Comcast execs said FWA wasn’t a factor in Q2 results.

Comcast chairman and CEO Brian Roberts said during a conference call with analysts that although fixed wireless is a new competitor targeted mainly at price-conscious consumers, it has had “no discernible impact” on churn, but its early growth appeared to be another contributor to lower overall connect activity. Instead, Roberts blamed the flat growth on three factors -- a slowdown in housing moves (Q2 was 12% below 2019), the reversal of some pandemic trends -- the surge in lower income households getting broadband has waned -- and competition. 

Roberts vowed to turn around the broadband product, adding that Comcast is confident it can return to residential growth and is expanding its footprint, accelerating edge-outs, “playing offense when it comes to government subsidies,” aggressively competing for market share and increasing the value of the broadband product by bundling it with mobile service and its Flex offering. 

Also: Analyst Says Telcos Better Positioned to Chip Away at Cable’s Broadband Lead  

“We are in a unique environment with some headwinds,” Roberts said of the cable business. “But move activity should return to some level of normalcy, mobile substitution will eventually  stabilize and we believe fixed wireless has inherent performance and capacity limitations that sharply limit the number of people on a network using a given amount of spectrum, which should provide a natural cap on their overall industry penetration.”   

Other Than That… 

Despite the less than expected broadband performance, the rest of Comcast’s businesses appear to be doing well. Theme Parks cash flow nearly tripled in the period, its highest quarterly cash flow growth in that segment ever, movie studio revenue was up 33% driven by strong theatrical releases, wireless subscriber additions at 317,000 was the best Q2 ever for that segment. Even Sky, Comcast’s European satellite unit, saw cash flow rise 54% in the period. But for investors, that didn’t seem to make a difference.

“With full acknowledgement that the broadband debate isn’t just the most important debate right now, but in fact is the only debate right now, it is worth noting that everything else in Comcast’s report was very strong,” Moffett wrote, adding that the overall takeaway is “almost certainly going to be negative.

“Broadband subscriber growth is all that matters,” he continued. “And even if our ‘saturation rather than share loss’ thesis is correct, there is a risk that by the time the evidence of causality becomes a little clearer, competitive share losses to fiber actually will have begun to accelerate… even if the growth rate of FWA has by then abated.”

Moffett noted that although housing moves is a common excuse for the slowdown, Comcast was less dismissive of fixed wireless than it has been in the past, and seems to be committed to growing the footprint. 

“None of this is likely to shift sentiment, which, in the face of slower broadband growth, remains rather dour indeed,” Moffett wrote. ■ 

Altice USA stock continued to rise on Friday, albeit at a much slower pace than the day before, as investors started to realize that if a sale of its Suddenlink unit were to happen, it would likely be at a more reasonable price than the $20 billion that had been previously speculated.

Altice USA shares spiked as high as $13.17 each on Thursday, up 43%, after Bloomberg News said the company had engaged investment banker Goldman Sachs to look for potential buyers of its Suddenlink systems in the Midwest, South and West. According to the Bloomberg report, buyers could pay as much as $20 billion for the unit. The stock closed at $11.24 each, up 22.5% on July 21 and rose another 2% in Friday afternoon trading.

A $20 billion price tag would imply the deal could be done at a 14 times multiple of cash flow -- the prevailing metric for cable deals -- or about twice that of earlier deals. Suddenlink has about 1.8 million subscribers and passes about 3.9 million homes, which would make it the fifth largest cable operator in the country on a standalone basis. 

In a research note, MoffettNathanson senior analyst Craig Moffett wrote that while a Suddenlink sale would seem to contradict Altice USA’s previous direction -- it has pumped billions of dollars into building out its fiber network and has said Suddenlink was its clearest growth engine -- a deal could be done. Moffett noted that there has been substantial interest in cable assets from private equity funds recently -- Stonepeak Infrastructure Partners, TPG  and Macquarie Capital all have done recent deals -- as well as from smaller strategic players. But paying twice the prevailing rate for cable operations that will still need to be upgraded may be a tough row for Altice USA to hoe. 

Moffett also questioned Bloomberg's $1.3 billion cash flow estimate for Suddenlink, adding that was the company's trailing 12-month EBITDA in 2018. It likely has risen since then -- and if it hasn't Suddenlink has more serious problems -- and Moffett predicted that today it is more likely in the $1.6 billion range. That would value a $20 billion deal at about 12.5 times cash flow, still high, but more palatable to a potential suitor.    

As far as potential buyers Moffett wrote that the two largest operators -- Comcast and Charter Communications -- have held back on system purchases because of regulatory concerns. That leaves Cable One as the most likely strategic player interested in Suddenlink, because it is around the same size. 

But he added that Cable One would likely have to issue equity in a deal, and Altice USA probably has little interest in owning another cable stock. While Cable One has issued shares to the public and used the proceeds for deals in the past, the size of a Suddenlink deal would make that infeasible. 

“To be sure, none of this means that Cable One couldn’t be a potential buyer. It is simply to say that it wouldn’t be easy,” Moffett wrote.

That leaves private equity players. And though there haven’t been any significant PE cable deals this year, meaning the desire to pay high prices for assets may have waned, Moffett noted that there should be both significant amounts of capital available and a high degree of interest in Suddenlink. 

“In short, then, while we don’t expect the two largest cable operators to be active buyers, we nevertheless believe that Altice could mount a robust auction process, and that they could likely be able to attract a fair price,” Moffett wrote. “It’s just not likely to be a price comparable to what they might have gotten nine to twelve months ago.” ■ 

Cord-cutting continues to get worse, with the linear video industry suffering its biggest quarterly losses since COVID-19 knocked out live sports and scripted programming, according to new figures from MoffettNathanson.

Traditional pay TV distributors lost 9% of their subscribers year over year in the first quarter of 2022. The 9% rate of decline compared to 8.9% in the fourth quarter of 2021 and ties the worst level ever, set in Q1 2021.

Virtual MVPDs aren’t picking up lapsed pay TV subscribers the way they used to either, contributing to a worsening picture for the traditional pay-TV bundle. In the first quarter, the conversion rate fell to 32.8% from 35.6% in the fourth quarter. 

When looking at traditional and virtual pay TV distributors combined, subscribers were down 5.1% year over year, close to the all-time worst of 5.5% set in the second quarter of 2020, when COVID knocked out new scripted shows and most live sports.

In all, the linear video industry lost 2.1 million subscribers in the first quarter, the worst since Q1 2020.

Looking at company reports, MoffetNathanson said the biggest losers of subscribers in the first quarter were Comcast, down 511,00 and DirecTV down 496,000. DirecTV, spun off from AT&T last year, reported its latest subscriber numbers to bondholders and debt analysts.

Including estimates for some outfits that don’t publicly report numbers, MoffettNathanson said the Q1 performance left the linear TV business with 81.048 million subscribers.

Cable had 41.661 million subscribers, down 6.9%, satellite had 18.5 million subscribers, down 12%  and the telcos had 5.829 million subscribers, down 13.5%. 

Total traditional subscribers were 66.118 million, down 9% and the virtual MVPDs had 14.930 million subscribers, up 16.7%.

Separately, YouTube TV reported on Tuesday that it now has more than 5 million subscribers.

“The rate of decline of the linear business is not something that ‘just happens,’ “ noted the research firm’s principals, Craig Moffett and Michael Nathanson. “Many of the media companies have made conscious decisions to strip-mine their cable networks, shifting their best content to their streaming platforms. 

“At the same time, they have raised prices relentlessly to offset declining viewership. Both strategies have alienated distributors, who are now more ambivalent than ever about trying to retain video subscribers who are themselves increasingly ambivalent about lower and lower quality video services for which they are asked to pay higher and higher prices,” Moffett and Nathanson said.

Several sports leagues have started to put games on streaming platforms, a trend that may accelerate, further hurting the linear TV business, which was expected to be supported by live programming, including news as well as sports.

“Including vMVPDs, the rate of decline for linear video is hovering near its all-time worst levels,“ Moffett and Nathanson wrote. “And the rate of decline for traditional distributors is the worst it has ever been. That’s not what one would expect if we were gliding towards a stable sports-and-news floor.”  ■

At a time when Wall Street is pointedly negative about Roku, MoffettNathanson media analyst Michael Nathanson is pointing to three things the company has to worry about in a report released Wednesday (April 13).

Nathanson sees Roku shares falling to a target price of $100 from its $113.58 close Tuesday. Roku shares traded as high as $473 last July before plunging.

Roku benefited from the early days of the streaming boom, but Nathanson, who started urging investors to sell Roku shares back in November, said the market has changed.

Also: Roku Gets Boost From Analyst, Says Int'l Growth Is Still in 'Early Innings' ... but Stock Keeps a Fallin'

The strategic issues facing Roku start with slowing growth for high-margin content distribution revenue. Nathanson said Roku’s recent revenue growth was driven by launches of services such as Peacock, HBO Max and Discovery Plus. Roku was able to take a 20% cut of subscription revenues generated by the platform‘s users. But as content companies consolidate (see Discovery buying WarnerMedia) and top streaming services become more essential, he argued, programmers will have “greater leverage over Roku when the next deal renewal arrives.”

Also read: Roku Torpedoed by Yet Another Equity Analyst, Says Streaming Company Is Done Growing in the U.S.

Nathanson also pointed to more competition in the ad-supported streaming space where Roku is pushing The Roku Channel. Roku has been ramping up original content for The Roku Channel, which means spending more money to compete with the billion being shelled out by Netflix, Amazon, The Walt Disney Co. and the other heavy hitters. 

“Given this backdrop, Roku is starting to increase their investment in original content, which will likely pressure gross margins and free cash flow,” he said.

The last nail in the coffin is a shift among U.S. consumers away from the connected streaming devices sold by Roku to internet-enabled TVs.

“TV [original equipment manufacturers] and Google are driving hard to control these operating systems and create the same virtual cycle that Roku has enjoyed,” Nathanson said. 

Another risk for Roku is that it is becoming especially reliant on just a couple of retail channels for the sale of its streaming media players. Nathanson identified the three as Best Buy, Amazon and Walmart. “Each of those partners has their own connected TV ambitions,” he noted.

“We believe Roku’s operating model will be less profitable in the long run than other digital advertising platforms, given Roku has to acquire content, compete with other streaming OS platforms and TV OEMs, negotiate terms with streaming services that are getting stronger each day, and invest in product development against numerous other platforms trying to serve the connected TV industry,” he concluded. ■

As the record date comes to a close for AT&T’s divestiture of the last vestige of its most recent foray into the media business -- Warner Media -- MoffettNathanson’s Craig Moffett drove another nail into the telco’s already bullet-riddled coffin, slapping a $19 per share price target on the company, while maintaining his “neutral” outlook on the shares.

Tuesday (April 5) is the record date for the deal, when AT&T will spin-off 100% of WarnerMedia to its shareholders. Those shareholders will later receive 0.24 shares of Warner Bros. Discovery for every AT&T share they own. That final tax-free exchange is expected to happen later in the month.

AT&T agreed to sell its WarnerMedia unit (the former Time Warner Inc.) to Discovery last May, unwinding what was the last of its big media assets -- the other was DirecTV, which it sold to TPG in 2019. While AT&T shareholders will technically control a 71% interest in the combined Warner Bros. Discovery, former Discovery CEO and soon to be Warner Bros. Discovery CEO David Zaslav and his team will clearly be in the driver’s seat operationally. For AT&T investors, it is a welcome “see ya” to what was an enormous albatross around the telco’s corporate neck.

In unloading WarnerMedia, AT&T sheds a big debt load ($38.5 billion) as well as a big chunk of cash flow ($6.6 billion) that the analyst argues proportionally cancels each other out. While he cheered the divestiture, Moffett said AT&T still has an enormous debt obligation ($177 billion) and he wasn’t really convinced that this deal solves all of AT&T’s problems.

“It is tempting to think of this moment as a fresh start,” Moffett wrote. “Unfortunately for AT&T, the damage done by their acquisition of Time Warner, and by their earlier acquisition of DirecTV, cannot be undone with the stroke of a pen.”

On the surface it seems pretty simple: by moving WarnerMedia to Discovery, AT&T gets to focus on businesses it knows best -- wireless and wireline telecom. Except, Moffett pointed out, those businesses aren’t doing so hot either. 

Moffett wasn’t all doom and gloom. He said AT&T’s valuation is fairly unchallenging, has a fat dividend, low expectations and sentiment around the stock is already negative. But his main beef is that the growth outlook is nearly non-existent. 

In its Mobility segment, where AT&T has more than 180 million wireless customers, the company is expected to lose share in what Moffett called a “sub-GDP growth industry.” Its Business Wireline segment is expected to deliver negative mid-single-digit percentage growth, and its Consumer Wireline segment, which accounts for about 11% of revenue, is still mostly copper. Although AT&T has a fiber deployment plan, Moffett writes that it will mainly offset the declines in the copper network, and generate low single digit growth.

“The resultant mix yields little or no growth in an industry with little or no pricing power... At a time of high (cost) inflation,” Moffett wrote.

Moffett has been down this road before. In February he issued a detailed analysis of what AT&T would look like after the WarnerMedia spin, putting a $20 per share price target on the stock. Today, his outlook is equally glum, it’s just that now he sees AT&T as a $19 stock. For context, AT&T closed at $23.88 each on April 5, down about 30 cents per share, or 1%. In the past 12 months, AT&T shares have fallen about 15%. 

Maybe AT&T will shock us all. Maybe with its hands firmly on the telecom wheel, with no distractions, it will be able to drive this truck to Hawaii and make us all look like idiots. (You’ll understand that metaphor better if you’re a Robin Williams fan.)  

But history shows us this simply isn’t the case. Yes, AT&T is now in a business it knows. But it is also a business that has a lot of competitive pressure. How long will it be before the next crop of executives decides it’s time to branch out again? 

In the meantime, several analysts see telcos like AT&T positioning themselves to take broadband share away from cable, with AT&T committing to building fiber to 3 million homes this year and 4 million in 2023. Moffett agrees that is a plus for its Consumer Wireline business, but notes that segment is about 60% copper at the moment. In other words, it’s going to take a while. And we all know how important speed is in the telecom business. ■

With practically every telecom and cable company moving to step up their fiber buildout plans over the next few years, MoffettNathanson senior analyst Craig Moffett wondered last Friday if the recent acceleration in construction was indeed too much, and whether telcos and cable companies will be able to justify the cost.

There is no question that broadband subscriber growth is slowing down, and that the remedy for both telco and cable providers appears to be investing more in building out and expanding their fiber reach. It makes sense in that the only way left for most operators to grow broadband is to either expand their footprint to homes that don't currently receive service, and/or boost new home growth. Since providers have no control over the latter, the former has been a big focus. 

According to Moffett‘s report, over the past 20 years about 30% of the U.S. population has been overbuilt by fiber networks. But that coverage is expected to rise to 60% in the next five years and possibly 80% by 2033, as nearly every telco and cable operator has put forth plans to build new or expand existing networks. Based on announcements of fiber-to-the-home projects, Moffett estimated, telcos will add nearly 40 million new fiber passings between 2020 and 2025 for overbuilds alone. 

“If fully completed, the additions would amount to an additional 25% of housing units (assuming 1% growth in total housing units per year), nearly doubling the current overbuilt cable footprint,” Moffett wrote.

Buildouts Come with Risks

But Moffett warned that the success of those projects is reliant upon buildout costs remaining low, penetration rates and average revenue per user (ARPU) numbers staying high and capital to fund the projects being easily available and cheap. 

“Our conclusion is that there is simply too much enthusiasm for too many overbuilds,” Moffett wrote. “Some, it seems clear, will end in disappointment (or worse).”

Though buildout costs are relatively low now, Moffett noted that they probably won’t be as demand increases. Further pressuring companies is a shortage of available labor to build the networks that is only going to get worse as the number of projects increases.   

Also figuring importantly into the overall cost of a fiber build is whether it will be aerial or underground, and the housing density of the area it will ultimately serve. Moffett pointed to industry benchmarks that put the average cost of building aerial plant at about $25,000 per mile, with buried fiber costing about twice that. But that depends on a relatively large number of homes per mile, and the numbers can vary widely.

For example, Verizon Communications’ fiber network passes about 849.2 homes per mile, while Windstream passes about 126.4 homes per mile. The national average is about 37.3 homes per mile, but that too falls off substantially after the larger cities are taken out of the mix. According to Census data, the densest 10% of housing units are in areas where the homes number 10,100 homes per mile. The numbers fall sharply in the second 10% — 3,756 homes per mile and the last 10%, just 4 homes per mile.

Telcos tend to build fiber in more dense areas than their overall footprint. According to Moffett, based on Federal Communications Commission broadband deployment data, AT&T, Verizon, Frontier Communications, Lumen Technologies, Apollo, Ziply, Cincinnati Bell, Shenandoah Communications, and Windstream cover land areas averaging about 134 homes per square mile. Their fiber footprints average around 534 housing units per square mile.

Geography Matters

And then there is the geographical makeup of the area a company is building out. According to Moffett, the rockier the terrain, the costlier, and much of the less dense areas that are a key target of the federal rural broadband initiative are pretty rocky. He pointed to two builds — one in a particularly rural, particularly rocky area that cost $75,000 per mile to bury fiber. Moffett also cited a Communications Consulting Group study about the feasibility of building a municipal broadband network in Falmouth, Massachusetts, that said that hitting rock during construction could quadruple the cost per foot of building the network.  

How much providers will charge for service also is going to be a function of the build costs and expected penetration rates. Moffett estimated that a provider that wants to charge $50 per month for fiber broadband and anticipates a 40% penetration rate, needs to keep costs around $1,500 per home passed.  

In the end, whether telcos and cable operators continue their respective fiber buildout binges will depend on demand and how much customers are willing to pay. Despite the slowdown in broadband subscriber growth over the past few quarters, rural areas, where choices are few or nonexistent, appear to be hungry for higher-speed service. The economics of getting them that service will just have to work themselves out. ■

About seven years after embarking on a bold new strategy to transform itself into a media company, AT&T is months away from becoming a phone company again. But merely selling off its media assets -- and getting very little in return -- won’t solve all of the telco’s problems, says MoffettNathanson senior analyst Craig Moffett.

AT&T spun off DirecTV to TPG last year, in a deal that valued the satellite TV giant it bought for $65 billion in 2015 at about $16.5 billion, and is nearing the finish line in its spin off of WarnerMedia to Discovery Inc., a deal that will net AT&T $48 billion in cash and give its shareholders a 71% stake in the new entity. In a research report Thursday, Moffett wrote that although it's about time AT&T acknowledged its media experiment was a horrible mistake, merely selling off those assets won’t get it out of the hole the company has dug for itself. 

Taking a look at AT&T’s share performance over the past five years is a big indication of how dalliances with media have mostly had one effect -- seriously eroding value. 

Investors weren’t really pleased when AT&T said it would buy DirecTV back in 2015, driving the stock down about 6% from $36.38 per share when the deal was announced on May 18, 2014 to $34.29 each when it closed on July 24, 2015. But despite paying a hefty price for DirecTV just as the satellite TV provider was beginning its downward spiral (it would lose about 7 million subscribers over the next seven years). AT&T managed only to slightly underperform the S&P 500, lagging that index by about 3.6%, according to Moffett. But when AT&T doubled down on media and announced a $100 billion deal to buy Time Warner on October 22, 2016, the real slide began. For the next four and a half years, according to Moffett, AT&T stock trailed the S&P 500 by more than 100 percentage points.

So, it would seem logical that if investors hated AT&T as a media company, they’d love it when it finally unwound that whole mess, right? Not a chance. Since announcing the TPG deal in February 2021 and the WarnerMedia Discovery deal in May 2021, AT&T stock has underperformed the rest of the market by 29%, per Moffett. Over the full seven-year period, AT&T lagged the S&P 500 by 176 percentage points, making it one of the  worst performing stocks in the index over that time frame.    

Also: AT&T Investors Bail as Discovery Close Nears 

In his report, Moffett said there are two conclusions to take from that “soul-crushing trip down memory lane:” One, that the underlying telecom business was shaky to begin with; and two, that “the damage from the two acquisitions can’t be undone simply by selling them off.”

At the heart of AT&T’s problems are its debt, currently at about $153 billion as of December 31. According to Moffett, the DirecTV deal was less a sale than a leveraged recapitalization, so it won’t have much effect on its debt load. The WarnerMedia merger, expected to close in the second quarter, will pump about $48 billion in cash into AT&T’s coffers at least partly to pay down debt. But even after that cash infusion, AT&T will have obligations of well over $100 billion.

Also: Eureka, AT&T is a Phone Company Again 

While other companies have carried huge debt loads while managing growth businesses -- the cable industry for one -- Moffett’s biggest fear is that the wireless business, which will account for the majority of AT&T’s total business, isn’t growing as much as it used to.

AT&T added about 884,000 postpaid wireless customers in Q4, but the majority of those gains have been won through deep, deep discounting. And customers that sign on for a free handset or free months of service tend to go away when they see another promotion elsewhere.  

Also: AT&T and TPG: There is No Why 

According to Moffett, AT&T service revenue was up about 3.2% in Q4 while operating revenue rose about 4.2%. Back out WarnerMedia, video and Vrio (its Latin American operation sold to Groupo Werthein in November) and operating revenue grew 1% and service revenue was down 0.3% in the quarter.

Cash flow in the new core businesses also will be hit hard by the DirecTV and WarnerMedia sales. Moffett wrote that AT&T’s pro forma organic EBITDA growth in Q4 was 0.0%.

“Investors might be forgiven for their lack of celebration about stripping to this particular core of assets,” Moffett wrote. ■

Charter Communications’ strong Q4 mobile subscriber growth -- its best quarterly increase ever -- could be the thing that finally changes investor perception of cable wireless from mere “hobby” to “real business,” according to MoffettNathanson senior research analyst Craig Moffett. 

Both Charter and Comcast reported their highest quarterly wireless subscriber growth ever in Q4 -- Comcast also set a record for yearly growth -- and with aggressive pricing and rising profitability, mobile could become a strong second growth product behind broadband for the industry.

Charter launched Spectrum Mobile, a Mobile Virtual Network Operator (MVNO) offering in conjunction with Verizon Wireless in 2018.  Since then, Charter has grown Spectrum Mobile from 0 to 3.6 million customers. With aggressive pricing and plans to expand its reach to rural markets funded in part by federal Rural Digital Opportunity Fund (RDOF) money, it can only get better. 

Spectrum Mobile isn’t profitable yet, but it’s getting closer. According to Charter, the mobile business had negative EBITDA of $92 million in Q4, and for the year EBITDA was negative $311 million. But the deficits are getting better -- EBITDA was negative $401 million in 2020 and negative $520 million in 2019. According to Moffett, Charter could reach EBITDA break-even this year. 

That would put it on a profitability path akin to its MVNO partner and the largest cable operator in the country -- Comcast -- which already has reported four straight quarters of positive wireless EBITDA growth.

Moffett doesn’t expect wireless to replace broadband in investors’ hearts -- he still believes  high-speed internet is a better business. But he does believe that investors have to stop thinking of cable as “only” a broadband provider.

“Cable isn’t a broadband-only business,” Moffett wrote. “It is, as we have repeated so often over the past two decades, an infrastructure business, with multiple revenue streams – residential and commercial, wired and, yes, wireless – riding on that infrastructure.”

To drive that point home, Moffett pointed out that mobile is becoming a larger component of overall revenue -- wireless accounted for 4.8% of total Q4 revenue, up from 4.1% in Q3. 

Also: Analyst Says It’s Time to Take Cable Wireless Seriously  

“Up to now, investors have treated Cable wireless as something closer to a hobby than a real business,” Moffett wrote, adding that while growth numbers have been good, the service has been pooh-poohed as just an MVNO. Spectrum Mobile’s 380,000 subscriber additions in Q4 -- beating analysts’ consensus estimates by nearly 100,000 customers -- could “go a ways towards changing that perception.”

Comcast is no slouch on the wireless front either. Xfinity Mobile launched in 2017  -- about one year before Charter, using the same Verizon MVNO agreement -- and ended 2021 with 3.98 million subscribers. Xfinity Mobile added 312,000 subscribers in Q4 -- its best quarter ever -- and 1.12 million for the year -- its best annual growth ever.   

Adding to the optimism is that Charter plans to expand its broadband and mobile footprint substantially over the next five years. Charter was the largest recipient of federal Rural Digital Opportunity Fund money last year, and launched its first market -- El Paso, Texas -- this month. According to Charter, the plan is to expand its mobile and broadband reach by about 1 million homes in that five-year period. That’s on top of the 1 million homes passed it is adding each year via edge-out and network expansion programs. 

Also: Cable Knocks on Wireless Giants’ Door 

Last year Charter committed to spending $5 billion -- including $1.2 billion from RDOF -- over five years to bring broadband to more than 1 million customer locations in unserved areas of the country. In El Paso, Charter said it will offer broadband, mobile, TV and wireline voice service to more than 1,200 homes. 

Broadband expansion can only help mobile growth -- customers need high-speed data service to be mobile customers. And at least for now, as the pandemic has caused more and more consumers to stay put and stick with existing providers, much of Charter’s mobile growth is coming from existing broadband customers upgrading to mobile service and existing mobile customers adding lines. 

“I expect that through time, we’ll get more pull-through on the new customer creation side of it,” Charter chairman and CEO Tom Rutledge said on a conference call with analysts to discuss its Q4 results. “But just when you do the math in terms of where the opportunity is to grow mobile, given our existing broadband penetration --  just mathematically, we have more upside in upgrades.”

Rutledge added that Charter also is making inroads in offloading mobile traffic from the MVNO to its own WiFi network, which makes service more cost efficient. Charter also has a large block of CBRS spectrum, which Rutledge said the company could use to offload as much as 30% of its mobile traffic. 

“We also are already offloading enormous amounts of traffic on WiFi,” Rutledge said on the conference call. “And I think that we have the ability to take that up significantly, too.”

That could be key. According to Moffett, the biggest goal for both Comcast and Charter in cable wireless is to offload as much traffic as they can onto their own networks to become both a Mobile Network Operator (MNO) and an MVNO.  

“A hybrid MNO/MVNO combines the best of all outcomes,” Moffett wrote. “They will be facilities-based where the returns are high and an MVNO in the places where the returns on building would be low. Margins will likely grow over time, but the real appeal of the strategy isn’t EBITDA margin but instead return on invested capital.” ■

Growth slowed for virtual multichannel video programming distributors (MVPDs) in the third quarter of 2021, as the category added just under 1 million subscribers compared to 1.7 million new subscribers a year ago, according to a cord-cutting analysis by MoffettNathanson.

Including the modest gains for the vMVPDs, total pay TV distribution was down 5.2% in the third quarter, the biggest drop since the 5.5% decline in the second quarter of 2020. 

Losses for cable operators reached 6.2% in the third quarter, the fastest decline on record. Satellite distributors lost customers at nearly twice that rate at 12%, but that was an improvement from a year ago, when subscribers declined 14%.

The vMVPDs now have about 14.2 million subscribers, MoffettNathanson estimates.

MoffettNathanson blamed the vMVPD deceleration in part on price increases.

“Six years ago, everyone burst out of the gate with eye-popping low prices,” MoffettNathanson said in a report Tuesday (January 5). “That helped them get out of the gate, but it undermined their longer-term prospects in two ways.”

The first issue was that the vMVPDs attracted price-sensitive consumers. The second issue is that the vMVPDs would have to their raise prices faster than traditional distributors as content companies increased their license fees.

DirecTV Stream has already raised the price of its Choice and Premier tiers, effective January 23. And having reached a new deal with The Walt Disney Co. at the end of the year, a price increase for YouTube TV — the biggest of the vMVPDs — is just around the corner.

YouTube TV added 225,000 subscribers in the third quarter, MoffettNathanson estimated, down from 400,000 additions a year ago. Hulu Live added about 300,000 subs in the quarter, compared to a gain of 700,000 a year ago. A big gainer in the quarter was FuboTV, which added more subscribers in the quarter than a year ago and now has a total of 945,000 customers.

For media companies, growth of affiliate fees slowed to 3% in the third quarter. Retransmission fee growth dropped to 11% in the third quarter from 15% in the second quarter. Cable-network fees rose 2%, down from 3% in the second quarter.

Retrans fees rose more than 14% for Disney, NBCUniversal and Fox, but less than 4% for ViacomCBS. NBCU also rang up the biggest cable affiliates fee growth at 7.5%. AMC and Turner’s fee revenue dropped compared to a year ago.

“There was a time when cord-cutting statistics were avidly watched,” MoffettNathanson concluded. “Not anymore.” 

“The market seems resigned to a steady deterioration. Yes, the rate of decline (when one includes vMVPDs) at 5.2% is among the worst on record, and is undoubtedly worse than we and others had once over-optimistically projected. But it is still orderly, and as long as the decline is orderly, media investors have leave to focus on the upside promise of DTC platforms rather than the downside certainty of linear,” the report said. 

“But there is clearly a risk that the declines become disorderly. All it would take is one major player — ESPN is the obvious candidate — to decide that the future demands a bolder shift in their best programming to DTC, or, alternatively, that their entire suite of programming should be simultaneously available DTC … and the Jenga tower would collapse,” they said. ■

Commercial banking company SVB Financial Group has agreed to acquire MoffettNathanson, the influential media research firm founded by analysts Craig Moffett and Michael Nathanson, for an undisclosed sum.

News that a deal between the two companies was brewing was first reported by Bloomberg News last month.

SVB Financial Group is a holding company that includes commercial lender Silicon Valley Bank, investment banker SVB Leerink and private banking and wealth management with SVB Private Bank, and funds management and investment with SVB Capital. SVB Leerink primarily serves the healthcare industry but has recently expanded to include technology investment banking.     

“The MoffettNathanson team has built an incredible reputation as a leader in equity research,” SVB Financial president and CEO Greg Becker said in a press release. “The addition of technology equity research is another important step in further solidifying our place as the essential partner to innovation economy clients. I’m proud to welcome the MoffettNathanson team to SVB and continue to strengthen the capabilities of our investment banking practice.”

In an email message, Moffett called the deal a “perfect strategic fit,” adding that SVB’s relationships in Silicon Valley will help MoffettNathanson develop new opportunities for clients while expanding the research firm’s understanding of the sectors and companies it already covers today. SVB Leerink’s expansion into technology investment banking, led by Jason Auerbach, also is a big plus. 

“The opportunity to combine SVB’s unique ‘top of the funnel’ relationships with entrepreneurs, and the world-class capabilities in capital markets and investment banking brought by Jason and his team, with the research capabilities of MoffettNathanson, is incredibly compelling,” Moffett said in the email. “We believe we can build what will be the leading investment bank for the innovation economy.” 

Since its founding in 2013, MoffettNathanson has quickly established a reputation for insightful analysis in the media, communications and internet sectors and in 2018 expanded into the payments and processing space led by former Bernstein analyst and MoffettNathanson partner Lisa Ellis.

“I am incredibly proud of the firm’s success and momentum, which has enabled us to accelerate the addition of tech equity research and to attract the highly regarded MoffettNathanson team,” SVB Leerink CEO Jeff Leerink said in a press release “We are entering an exciting chapter in our firm’s history and we look forward to growing and evolving to meet our clients’ needs.” ■ 

The slowdown in Disney Plus subscriber growth has helped push the stock down by more than 7% over the past month, and two influential analysts said the entertainment giant will likely have to dig deep and spend more on content to get itself back on track. 

Shares in The Walt Disney Co. closed at $171.18 on Oct. 19, up 4 cents from the day before, but the stock has been on a downward slope since Sept. 17, when it closed at $183.47 per share, just before CEO Bob Chapek said at the Goldman Sachs Communacopia conference that Disney Plus additions would be in the “low single-digit millions” in fiscal Q4, which ends Sept. 30. That marked a big fall off from previous quarters — it added 12.4 million in fiscal Q3 and 21.2 million in fiscal Q1 — and spooked investors who saw it as a sign that the subscriber growth train was grinding down.       

Disney Plus launched in November 2019 and quickly became the gold standard for streamers, signing on 10 million users in its first day and passing 100 million paid customers just 18 months into its existence. Analysts and Disney executives all cheered at the astounding success of the product, especially since Disney didn’t seem to be spending a whole lot on additional content to attract that audience. Two years after that much-ballyhooed launch, the Disney Plus juggernaut has started to hit the brakes, adding about 42.3 million global subscribers over the past three quarters, compared to 57.5 million additions in the same period in 2020. That led some analysts to rethink their outlook on Disney as the entertainment giant searches for ways to boost growth.

In fiscal Q4, MoffettNathanson media analyst Michael Nathanson estimates that Disney Plus will add about 2 million subscribers, its lowest total since its inception. 

In a research note Oct.18, Nathanson, citing independent research from HarrisX, wrote that one reason for the subscriber slowdown could be the service’s poor adoption rates with older viewers. Citing a HarrisX poll that asked consumers by age group which service — Netflix, Amazon Prime Video, Hulu or Disney Plus — they or someone in their household used to stream content, Disney Plus logged the lowest viewership with customers older than 55. It tallied just 18% of respondents, compared to 66% for Netflix and 56% for Amazon Prime Video. Hulu, which is controlled by Disney, was also on the low end when it comes to older viewers, with 26% of consumers over 55 years old saying that they use the service.

That is most likely due to the type of content available on the various services. Disney Plus caters to homes with small children, as well as Star Wars and Marvel fans. 

“We think that Disney needs to both invest in more original scripted general entertainment content at Hulu and Disney Plus while marketing Disney Plus in a bundle to older households,” Nathanson wrote.

Disney has held to its forecasts that it expects to have between 230 million and 260 million Disney Plus subscribers globally by 2024. But to reach that target, the company will have to add about 37.3 million new customers per year, a figure that Nathanson wrote could be difficult, but not impossible, to achieve. 

Nathanson predicted Disney Plus would have about 245 million global subscribers by the end of fiscal 2024. But a lot of that will depend on how successful the service is in attracting customers outside the U.S. To date, between 30% and 40% of Disney Plus’s annual subscriber growth has come from Disney‘s Hotstar Plus service in India. According to Nathanson’s estimates, Hotstar Plus will account for about 47% of total Disney Plus subscribers by 2024.

Some See Structural Issues

But though Nathanson is optimistic that Disney Plus will reach its targets, other analysts aren’t so sure. On Tuesday, Barclays Group media analyst Kannan Venkateshwar lowered his rating on Disney to “Equal Weight” from “Overweight,” adding in a research note that the slowdown in subscribers is happening even as Disney has launched new franchise titles and  day-and-date movie releases and Star Plus sports content in Europe and Latin America..

“Part of this slowdown could be a function of growth pull forward into 2020 and promo roll-offs, but we believe it could be due to structural factors capping growth,” Venkateshwar wrote. “In order to get to its long term streaming sub guide, Disney needs to more than double its current pace of growth to at least the same level as Netflix. We believe this may be tough to do.”

According to Venkateshwar, Disney Plus has been adding about 2.5 million domestic subscribers — not including Hotstar Plus — every quarter for the past three quarters. To reach the 230 million goal, he predicts Disney Plus would have to more than double that pace to around 7 million subscribers globally (not including Hotstar +) per quarter. 

The Barclays analyst pointed to Disney’s industry-low streaming content -- 1,343 titles compared to 7,972 titles for Amazon Prime. And though Disney has stepped up its game to release at least one piece of new content each week, it often isn’t compelling enough to attract new customers.   

“In our opinion, the problem Disney faces is that of low engagement, as there are barely enough shows to keep audiences interested in the service,” Venkateshwar wrote. “While the company appears to be targeting one new piece of content a week, not every piece of content has the same franchise value or visibility which means the releases that actually drive origination or engagement have a much lower frequency.”

Adding more content could help subscribers growth, but Venkateshwar notes that Disney’s content structure — currently focused on theatrical releases of franchise movies ± may make that harder.

“In a streaming-first world, the proliferation of content and streaming services means that continuous engagement needs significantly more volume of content,” Venkateshwar wrote. He added that serialized franchise content across theatrical and streaming platforms becomes a problem because the timing shift of one title creates a ripple effect on the release schedule of other titles across other platforms. 

A Changing Content Game

The content game also is changing, Venkateshwar wrote, as other players like Apple, Amazon and HBO spend as much or more on content as Disney. And Netflix added another wrinkle with its entrance into video games and local production facilities — which Disney does not have — around the globe.  

“This is why it is likely to get tougher for Disney Plus to get both price and volume,” he wrote.

In his note, Venkateshwar noted that even Hotstar‘s growth could be impacted, because it relies heavily on the rights to televised cricket matches, which reset next year. 

“Recent M&A in the market may result in either more pressure on rights costs or a loss of these rights,” Venkateshwar wrote, adding that he expects Disney Plus to end 2024 with about 200 million subscribers.  

The long-term agreement that has Comcast carrying programming from The Walt Disney Co. that was reached in 2012 is expiring Thursday, according to analysts Craig Moffett and Michael Nathanson of MoffettNathanson Research.

Unlike situations between YouTube and NBCUniversal and Comcast and MSG Networks whose deals expire Thursday, neither Comcast nor Disney have started to warn viewers of a blackout.

“Every indication is that the two are on good terms,” the analysts said in a report Thursday morning. “If they don’t announce by midnight tonight, no matter. A short — or even not so short — extension to buy more time  would be inconsequential.”

While there are many issues between the two companies, the one that rises to the top for the analysis is the future of Hulu. Comcast still owns 33% of Hulu and Disney is obligated to buy out Comcast by 2024.

Also Read: Comcast’s Hulu Stake Could Be Worth $15 Billion Today, Analyst Says

But with Comcast trying to build up Peacock with NBCU programming currently committed to Hulu there are incentives to unwind that stake sooner rather than later for Comcast. (Some have argued that the dispute between NBCU and YouTube could benefit Hulu, rasing its value for Comcast.)

And if Disney does buy out Comcast, the analysts wonder what Comcast would do with the influx of cash.

“To be clear, there is no indication that Disney and Comcast will use this programming renewal as an opportunity to settle the Hulu stake preemptively. Our analysis is therefor occasioned by what is almost certainly wishful thinking,” the analysts caveated.

Forget their declining subscriber bases, DirecTV and Dish Network face an even graver existential threat--their collective fleet of satellites are facing the end of their operational lifespans. 

"Dish launched its last satellite, EchoStar XXIII, more than five years ago," MoffettNathanson analyst Craig Moffett wrote in a note to investors, published earlier this week. 

"Of their 11 operating satellites, only two are less than a decade old. Each of Dish's satellites has an estimated useful life of about 15 years. In another five and a half years, only one of their 11 satellites will still be inside its estimated useful lifespan," Moffett added. 

Technically, the 5.5 metric-ton communications satellite known as EchoStar XXIII was put into orbit by SpaceX in March of 2017, putting it around five months past its fourth birthday. But Moffett's larger point is taken. 

And the situation is largely the same at the recently spun off DirecTV, where no replacement satellites are planned for launch, either. AT&T, which just completed its spin-off of DirecTV and its other pay TV assets to a joint venture with private equity firm TPG, declared in 2018 that it was done launching and buying satellites.

Both pay TV operators use proprietary set-tops that are incapable of decoding the other's signals, "so a longer life of one fleet wouldn't help the customers of the other," Moffett explains, should Dish Network Chairman Charlie Ergen's oft-stated prophecy of an imminent DirecTV-Dish merger actually come to fruition. 

"To dwell on whether a given quarter's subscriber losses are a little better, or a little worse, than expected, or than last quarter, is to miss the point," Moffett added. "We are witnessing the long, slow goodby of satellite TV."

With the three top publicly traded cable operators expected to report second quarter results later this week, all eyes will be on whether the slowdown in broadband subscriber growth will be larger than, less than or equal to expectations.

Cable broadband growth broke records in 2020, as the pandemic forced most Americans to work from home and buy faster and faster tiers of service. The expansion of streaming video, as services like Disney Plus, HBO Max, Paramount Plus and Discovery Plus chewed up bandwidth normally occupied by SVOD stalwarts like Netflix, Amazon Prime Video and Hulu, also increased demand. 

When the dust cleared, cable operators added about 5.6 million broadband customers in 2020, more than double the 2.5 million added in the previous year. Most operators warned that subscriber growth would slow this year and probably next, most likely to 2019 levels. That appeared to hold true in the first quarter, when total cable broadband additions were about 3.8 million, according to Wells Fargo Securities media analyst Steven Cahall.

In a research note, Cahall added that as Q2 is usually a seasonally weaker period, overall broadband growth is expected to be at about 0.6%. He noted that while this is a 400 basis point decline from the previous quarter, it would still be the highest Q2 growth rate in five years (excluding 2020). 

Cahall is one of the more bullish analysts regarding broadband growth, noting that the segment outpaced expectations in the first quarter, as many operators said trends associated with COVID-19 continued. While Cahall still expects a deceleration in growth for the full year in 2021 (3.5%, compared to 5.6% in 2020), he notes it is still higher than the growth rate in the prior four years. 

“Commentary from most of our covered companies suggests subscriber gains similar to 2019 levels, with a back-half weighted growth profile,” Cahall wrote.

Altice USA is the first major publicly traded operator out of the box, expected to report its Q2 results on July 28 after the market closes. Analysts are expecting the operator to add between 10,000 and 28,000 broadband customers in the quarter, compared to Q1 2021, when it signed on about 12,000 high-speed internet customers.

Altice USA, which operates as Optimum in its East Coast markets and as Suddenlink Communications in the Midwest, has some of the highest broadband penetration rates in the industry, which has limited its subscriber growth in the past. Earlier this month the company said it would rebrand its wireless service as Optimum Mobile across all of its systems, a move it said was the first step in rebranding all of its products under the Optimum name. 

Also Read: Analyst: After a Strong 2021, Cable’s Broadband Trajectory Could Reverse in 2022 

At Comcast, which is scheduled to report its Q2 results on the morning of July 29, analysts believe that broadband additions could come in at nearly half the level the company reached in Q1. Cahall estimates that Comcast will add about 260,000 residential broadband customers in Q2, while Evercore ISI Group media analyst Vijay Jayant and Bernstein media analyst Peter Supinio are in agreement that Comcast should add about 275,000 residential and commercial broadband customers in the period. Still, that’s nearly half the 461,000 residential and commercial additions the company added in Q1.

Charter is expected to release its Q2 results on July 30, and Supino, who downgraded the stock to “market perform” on July 12, expects the nation’s second largest cable operator to add about 250,000 broadband customers. That is about in line with Cahall’s estimate of 246,000 additions. Jayant predicts the company will add about 265,000 high-speed data customers in the period. 

For the full year, analysts are pretty much in agreement that growth will be slower than in 2020, with some predicting it could be even less than in 2019. 

MoffettNathanson expects the top three operators to add about 2.4 million broadband customers in 2021, around half a million subscribers behind the 2.9 million they added in 2019. Supino estimated that overall growth would be about 2.7 million. Supino predicted that Charter would have the biggest drop in growth over the next two years -- he estimated the company would add about 1 million broadband subscribers in 2022 and under 1 million in 2023 -- spurred by expected increased regulatory scrutiny and stepped up competition from AT&T and T-Mobile.

T-Mobile has said it expects to add 7 million to 8 million 5G wireless broadband customers by 2025, implying additions of about 1.5 million annually. While Supino wrote that wireless broadband can’t match fiber-to-the-home, he believes a new segment is emerging in the market. 

“Consumer markets naturally segment ‘good, better, best,’" Supino wrote. “Historically, the enormous up-front capital costs and logistical challenges of supply growth have inhibited the segmentation of the broadband market. We believe the natural segmentation of the broadband market will provide more consumers with an opportunity to pay a lower price for ‘good enough’ broadband.”

Dish Network shares were up more than 3% in early trading Monday after influential media analyst Craig Moffett raised his rating on the stock from “sell” to “neutral” and upping his 12-month price target on the stock to $40 from $15, adding that its recent MVNO deal with AT&T erases the biggest overhang on the shares.

In a research note Monday (July 26), Moffett said the biggest weight on Dish stock had been the 2027 expiration of its MVNO deal with T-Mobile, a deadline that the analyst had said previously would make it difficult for the satellite TV pioneer to build out the remainder of its network after that date. But the AT&T agreement, which is essentially for 12 years, pushes that MVNO agreement out to 2033, giving the company the ability to be a hybrid Mobile Network Operator/MVNO “indefinitely.” 

Dish has said it will launch its first 5G wireless market -- Las Vegas -- in the third quarter. In June it launched a website -- Project Gene5is -- that will provide consumers updated information on the launch and possibly gauge interest in the service in markets outside of Las Vegas. 

Also Read: Cable Wireless Grows Up 

“Now, with the stroke of a pen, all those rakes are off the table,” Moffett wrote. “Dish is virtually assured a path to viability.”

Dish shares responded accordingly, rising as high as $43.41 each (up $1.73, or 4.2%) in early trading July 26. The shares were trading at $43.10 (up 3.4%) at 10:50 a.m. on Monday. 

Moffett has been a critic, along with several other analysts, concerning Dish’s wireless prospects, saying in reports several years ago that the company’s claims it could build a nationwide wireless network for $10 billion was dangerously low.  

Also Read: Dish Wireless Pushes Forward 

Moffett still harbors those fears. In the most recent report he noted that the  AT&T deal won’t help the build out at all (Dish is required by federal mandate to make its network available to 70% of the country by 2023) and he estimated that its $10 billion price tag is still incredibly low. But the AT&T deal removed the worst-case scenario from the table, he added.

But making the wireless business easier for Dish doesn’t necessarily bode well for the remaining wireless players. Although Dish will pay AT&T about 4% billion over the life of the MVNO deal, it also allows the satellite company to pick and choose which markets it will build out itself -- most likely the denser, more profitable ones -- and leave the more sparsely populated areas to AT&T.  

“Good news for Dish is bad news for the industry,” Moffett wrote. “We are incrementally more bearish about AT&T and Verizon, and less bullish about T-Mobile, than we were before.”   

Less than five years after first launching the latest iteration of cable wireless service, the major operators have finally got it right, according to influential media analyst Craig Moffett. 

Moffett, principal and senior analyst at MoffettNathanson, makes his case In a 44-page report issued Thursday, adding that he believes that annual revenue at Comcast Xfinity Mobile, which launched in 2017, could reach $5.1 billion in sales (more than twice the $2.3 billion expected in 2021) by 2025. Moffett also expects Xfinity Mobile to have 7.9 million subscribers by 2025, nearly double the 3.9 million customers estimated for this year.

Moffett expects Charter Communications, which launched its Spectrum Mobile service in 2018 and shares an MVNO agreement with Comcast, to also aggressively price its wireless service. As a result, he estimated that Spectrum Mobile revenue will double from $2.1 billion in 2021 to $4.2 billion by 2025 and that subscribers will double from 3.5 million to 7.2 million in the same time frame.

“Cable wireless is now ready for its star turn,” Moffett wrote, adding that the product “offers the potential for significant value creation for the MSOs and their investors.”

That’s a far cry from 20 years ago, when cable first ventured into the wireless business with Sprint, the first of three failed attempts at a wireless product with that company. Now Sprint is no more -- it was purchased by T-Mobile in 2020 in a $26 billion deal  -- and Comcast and Charter smartened up, reaching a mobile virtual network operator deal with Verizon in 2015 that has paid off in spades. 

Also Read: Comcast, Charter Eye Wireless-Broadband Double Play  

According to Moffett, in the four years since Xfinity Mobile launched, cable wireless has grown to 6 million subscribers, becoming the fastest growing segment in the industry and accounting for about 30% of new additions. The cable wireless segment, he added, represents about 2% of the total U.S. mobile phone market.    

Because cable operators are regional players -- they only market service in their respective service territories, their wireless success is even more impressive. Moffett estimated that assuming each home has 2.5 people, Comcast and Charter have reached 4% penetration among their existing customers. 

Also Read: Cable Knocks on Wireless Giants’ Door 

Comcast said in Q1 that Xfinity Mobile reached break-even, a milestone that was helped by the restructuring of its MVNO agreement with Verizon last year. With the mobile service no longer losing money and a new, more economical MVNO deal in hand, Moffett said that encouraged Comcast to aggressively price its unlimited wireless data plans.  

“With more aggressive family plan pricing, they have a much longer runway,” Moffett wrote of Comcast’s wireless business. “And while their new pricing will mean a step backwards in near term profitability, their ability to offload traffic in the future means that they can eventually achieve at least adequate margins on what is now likely to be a much larger revenue base than we had anticipated.”   

ViacomCBS shares continued to take a beating on Thursday, down as much as 8% in early trading as MoffettNathanson media analyst Michael Nathanson slapped a “sell” rating on the stock.

ViacomCBS shares are down about 35% in the past three days,  as the streaming frenzy that lifted its shares by more than 100% in the past three months seems to have reversed. ViacomCBS shares were trading at more than $100 each as recently as March 22, but the bottom seemed to fall out of the stock after the company priced a $3 billion stock offering aimed in part to raise money for its streaming efforts.

The offering was praised -- if half-heartedly -- by most analysts, who saw the issuance as a way for ViacomCBS to take advantage of its rising stock price. Prior to announcing the deal on March 23, ViacomCBS shares had risen 170% since Dec. 31. Even with the sharp declines of the past few days, the stock is still up 74% for the year.

ViacomCBS shares were priced as low as $64.52 each on March 25, down 8%, or $5.58 per share. The stock closed at $66.35, down 5.4%, or $3.75 per share, on Thursday. 

But analysts had worried about the multiples assigned to the stock -- and to another streaming programmer Discovery Inc., which has seen a less sharp decline (20%) over the past two days. In several reports, analysts questioned the logic of valuing ViacomCBS and Discovery shares at more than 20 times earnings, compared to Google, a vastly larger company, which trades at 16 times.

Also Read: Islands in the Streams 

On Thursday, Nathanson lowered his rating on ViacomCBS from “neutral” to “sell” and his 12-month price target on the stock from $67 each to $55 per share. In his note to clients he added that programmers that are shifting programming that once resided on their linear channels to streaming, run the risk of rapidly accelerating cord cutting. He pointed specifically to ViacomCBS and Comcast’s NBCUniversal, which will stream NFL games on their respective Paramount Plus and Peacock services simultaneously with their broadcast networks, beginning in 2023.

“In particular, those programmers -- again ViacomCBS and NBCU -- who appear to abandon their linear programming obligations by rapidly shifting premium content over to their DTC platforms run the risk of getting dropped by MVPDs and/or suffering lower annual price escalators, especially as it related to growth in retrans,” Nathanson wrote.

Nathanson added that smaller networks that don’t attract as high affiliate fees for their linear channels -- like AMC Networks and Discovery -- would gain from a shift to a direct-to-consumer model. In his report he estimated that Discovery receives about $6 per subscriber per month in linear network affiliate fees and $7 per month per customer for its Discovery Plus streaming service. AMC Networks, he estimated, receives about $2 per subscriber per month for its linear channels and $4 per month for its AMC Premiere streaming product.

But the exchange is different for ViacomCBS. According to Nathanson, ViacomCBS receives about $12 per subscriber per month for its linear channels line MTV, Comedy Central and Nickelodeon, and just $6 for Paramount Plus and $2 for its mostly ad-supported Pluto TV streaming offering. For companies that already get a healthy amount of revenue from traditional network affiliate fees, a sudden collapse in pay TV subscribers could be devastating.

Nathanson added that he sees similar difficulties for Fox, Turner and NBCU as more and more pay TV customers cut the traditional TV cord. The analyst already is predicting that traditional pay TV will lose about 15 million subscribers to cord cutters by 2024. But if those losses accelerate to 25 million, Nathanson estimates it would result in single-digit advertising and affiliate fee revenue declines for Disney’s and AMC Networks’ respective linear and streaming offerings, and double-digit losses for ViacomCBS, NBCU, Fox and Turner.

“This is especially true for ViacomCBS without a clear positive pivot in either the U.S. or internationally,” Nathanson wrote. “While we have increased worries about pressure on the company’s linear affiliate fee negotiations post the NFL announcement, we see a tough economic trade of shifting linear revenues to DTC, even before we factor in the lonely lower margin profile.” 

The first shocking thing that came out of MoffettNathanson principal and senior analyst Craig Moffett’s latest quarterly cord cutting monitor was that traditional pay TV companies have lost more than 1 million video subscribers for nine straight quarters. The second most shocking thing is that nobody cares.

There was a time when video subscriber losses were seen as a sign that the cable business was fading away, to be replaced by whatever technology was the latest thing, much like cable pushed broadcast aside in the 1980s and 1990s. But thanks to broadband, current cable investors are hoping for continued video losses -- as long as they coincide with high-speed internet gains -- because they mean higher margins for the overall business.

Moffett noted that Q3 had all the signs of cable video customers bottoming out -- subscribers fell at 4.1% rate, about the same as the previous period. Overall traditional pay TV penetration dipped to 61% -- its lowest point since 1994 and well below its peak of 88% in 2010. At the bottom or near bottom, cable losses will either get better or, more likely, “less bad,” according to Moffett, as the base whittles itself down to a core of sports enthusiasts and rural customers with fewer alternatives.  

In his latest cord cutting report, Moffett noted that cable, satellite and telco TV lost 1.45 million subscribers in Q3, or a decline of about 7.4%. That was actually an improvement over the previous quarter, where the rate of decline was about 7.7%.  

Satellite TV service providers Dish Network and DirecTV were responsible for 863,000 of the total subscriber losses in the quarter, and telcos made up about 155,000 of the decline. Cable operators actually fared a little better in Q3 on the subscriber front -- Moffett estimated the sector, which includes privately held companies, lost about 430,000 in the period, slightly better than its year-ago numbers. Charter Communications, which added 53,000 video customers in Q3 (and 112,000 in Q2) helped ease the decline. 

On the upside, virtual MVPDs like Sling TV, Hulu Plus Live TV, YouTube TV and others saw subscriber gains in the period, despite each raising their rates during the period. According to Moffett, vMVPDs added about 1.5 million customers in Q3, meaning that overall pay TV could have shown a gain in subscribers, or at least broke even for the quarter. Others like Leichtman Research Group have predicted that total pay TV customers (MVPDs and vMVPDs) pushed the sector into the black during the quarter. 

What makes that even more remarkable is that the vMVPDs gains came after significant increases in rates. YouTube TV raised its monthly charges by 30% in Q3 -- from $49.99 to $64.99. Hulu Plus Live TV didn’t raise rates in Q3 but is expected to hike prices by $10 per month to $65 beginning in December.

According to Moffett, YouTube added about 400,000 customers in Q3, twice the 200,000 additions it had in the previous quarter. Hulu Plus Live TV added 700,000 customers in Q3 compared to 100,000 additions in Q2.      

But Moffett warned that the gains aren’t likely sustainable. The third quarter was when every major professional and college sport returned to the airwaves, and a contentious Presidential election kept many tethered to their TV sets. 

“Against that backdrop, it’s not surprising that the rate of decline slowed,” Moffett wrote. “That set up won’t be repeated.”  

He added that the forces that had chipped away at the traditional pay TV subscriber base -- rising sports costs and the shift of non-sports content to on demand and streaming platforms -- aren’t going away either.

“That the improvement came during a quarter when broadband and even wireless phone subscriptions also surprised to the upside only raises more doubts about sustainability,” Moffett wrote. “And, lest we get carried away, the rate of decline, particularly for traditional video distributors, only slowed a little.”

So that will likely mean an eventual return to increased video subscriber churn in later quarters, but you know what? Nobody cares. In particular, cable investors really don’t care about video anymore, evidenced by the rise in the stock prices of the major publicly traded cable companies. 

Related: Wireline Broadband Just Had Its Biggest Growth Quarter in Over 11 years 

Since Oct. 29, when Comcast reported its Q3 results -- losing 273,000 video customers but adding a record 633,000 broadband subscribers -- the stocks as a whole are up a collective 14%. 

In that short time frame Comcast shares have risen 14.1% to $49.14 from $43.06; Charter is up 11.5% to $642.44 from $576.00; Altice USA gained 19% to $31.52 from $26.40; and Cable One increased 15.1% to $1,981.11 from $1,721.72 per share. I would hazard to guess that the vast majority of those increases were due to rising optimism about broadband growth, not because video customers are jumping ship at a less alarming pace.  

Margin growth is the new mantra for cable companies, and has been for the past several quarters. The three major publicly traded cable companies -- Comcast, Charter Communications and Altice USA -- each boosted margins to 42.7%, 38.5% and 46.3% in Q3. At Cable One, which began focusing on broadband over video service in 2013, Q3 margins were 51.4% compared to 49.1% in the prior year, tops in the business.

Moffett had done a report last year looking at the possibility of 50%-plus margins in the cable business, fueled by broadband increases, and what that could mean for valuations.  The pandemic has only proven that broadband is a necessity, and cable operators are moving to bring service to as many people as they can, by extending fiber in their existing footprints, to participating in federal RDOF auctions to fund extending wireless broadband service to rural areas. So whether video subscribers hit bottom or not, cable operators should continue to feed nicely as broadband rises to the top.