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.”

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.

Dish Network said it's offering a three-year "price guarantee" to new customers committing for two years to its "America's Top" satellite TV bundles, which start at $79.99 a month.

“Consumers today are facing real challenges when it comes to managing their finances,” said Brian Neylon, group president for Dish, in a statement. “We’re proud to announce stability for Dish customers with a three-year TV price guarantee that enables households to easily budget their entertainment costs through 2025 and beyond.”

Dish's press release wasn't terribly explicit in terms of what the pay TV company is actually guaranteeing. Will it also cover charges on associated CPE, such as the Hopper Plus set-top box? How about surcharges on regional sports networks and local channels? FCC-related fees? Taxes?

"Taxes are not included and subject to change," a Dish rep told Next TV via email. "Since Dish is customer-first, we don’t actually tack on a bunch of fees like the competition. Dish does not have a regional sports network fee (like our competitors) or separate retrans fees."

As the "local channels fee" on this Dish billing statement from 2021 shows, we'd probably check the ol' fine print before committing around $100 month for two year's of the pay TV Full Monty.

Dish lost another 184,000 satellite TV subscribers in the third quarter, whittling its base to just over 7.6 million customers. In the 12 months ending Sept. 30, Dish lost 14.3% of its satellite TV customers -- an attrition rate higher than even Comcast's 10.6% pace of blood loss.

So Neylon can profess a bleeding heart for the consumer all he wants, but Dish needs to find a way to reduce customer churn if it's going to stay in the pay TV game.

“TV entertainment should be effortless. We’re proud that time and time again we’ve had our customers’ backs,” Neylon added. “Alongside our three-year TV price guarantee, Dish customers deserve the best viewing experience in the industry and our next-generation Hopper Plus and award-winning Hopper whole-home DVR system, Chromecast built-in, and Dish Voice Remote with Google Assistant make TV simpler.” ■

The top seven U.S. cable companies collectively lost nearly 981,674  pay TV customers in the third quarter, according to estimates and tallies collected by Leichtman Research Group (LRG).

Overall, these same seven MSOs lost nearly 8% of their combined video customer base from Oct. 1, 2021 - Sept. 30, 2022, led by Comcast, which shed Xfinity TV subs at a 10.6% clip over that span (our math, not LRG's).

However, the heavy linear pay TV losses in Q3 were offset by the biggest growth quarter for virtual MVPDs in two years, with Hulu Plus Live TV, Sling TV and fuboTV combining to add 898,265 customers from July - September.

Google doesn't often break out customer growth for market leader YouTube TV, and LRG doesn't hazard estimates for the platform in its quarterly report on the state of pay TV cord-cutting. But assuming YouTube TV grew like the rest of the market did, the vMVPD sector just had its best quarter since Q3 of the pandemic 2020 frame.

Officially, LRG said it was the third biggest growth quarter for vMVPDs ever, trailing only the third quarters of 2020 and 2019. Hulu + Live TV, Sling TV and fuboTV -- the vMVPDs that LRG does count -- have collectively grown their customer bases by around 7% over the last 12 months. Going back two years, however, the growth rate for these three companies comes in at just under 4% (again, our math).

Meanwhile, in U.S. pay TV, linear losses remained steep beyond cable.

Dish Network lost another 184,000 satellite TV customers. And LRG once again estimated that DirecTV lost 400,000 customers across DirecTV satellite, DirecTV Stream and U-verse TV. (Note that LRG has been estimating quarterly losses of 400,000 for DirecTV since it was spun off from AT&T last year and disappeared from public view.)

Collectively, the top 13 U.S. pay TV companies -- minus Google -- represent 92% of the market and lost a combined 784,409 customers in the third quarter, vs. 653,616 in the third quarter of last year.

Sports fans may not punt away their pay TV subscriptions in big numbers should live NFL, MLB or NBA games move exclusively to streaming services, according to a new study from research company Aluma.

Only 8% of pay TV subscribers said they would definitely cancel their subscription if their favorite sport moved its games exclusively to a streaming service like Netflix, Hulu or Amazon Prime Video, Aluma said. 

In terms of specific sports, 11% of National Football League fans would cancel their pay TV subscriptions if games moved exclusively to streaming, while 8% of National Basketball Association or Major League Baseball fans would abandon pay TV if those leagues went digital-only, according to Aluma.

Aluma founder and director of research Michael Greeson said that while live sports continues to be a major draw for pay TV, it’s not as big a factor in subscribers staying put as originally thought. One reason is that 80% of live TV sports viewers also subscribe to at least one of the top-five SVOD services.

Also: Big 12 Conference Seals Stabilizing $2.28 Billion TV Rights Extension with ESPN and Fox

Also, one-third of subscribers who aren’t fully satisfied with their pay TV service continue to subscribe because they are used to having it, while only 18% do so as their main source for live sports programming, according to Aluma. 

“Perhaps live sports are less critical to pay TV's stickiness than we’ve long believed," Greeson said in a statement. “The findings are contrary to the dominant narrative that, without TV sports, pay TV couldn’t survive.”

While streaming services have made inroads in gaining exclusive rights to live pro and college sports events, including Prime Video’s multi-year exclusive deal for NFL Thursday Night Football, most major live sports events remain on linear television. Pay TV platforms should continue to secure live sports content, Greeson said, but he  warned that sports rights could eventually become too expensive for linear TV distributors.

“There is a point at which the exorbitant fees MVPDs pay to license sports are no longer worth the cost,” he said.■

Four months after closing the deal that created one of the largest content creators in the world, Warner Bros. Discovery CEO David Zaslav is messing with the magic, mixing new ingredients (a refined direct-to-consumer strategy) with some old ones (a commitment to theatrical film distribution and pay TV) that he hopes will bring the competition to its knees. But with a stock price that has been at best anemic and rival streaming services that have considerably raised the bar, Zaslav is under the gun and the clock to come up with the right incantation to bring the storied media brand back from its current realm of uncertainty.

I promise, the Harry Potter references end here. 

In the days leading up to WBD’s Q2 results, the rumor mill was wild with tales of what Zaslav would do to the company that he bought just a few months before. Thankfully, Zaslav’s new direct-to-consumer path was not laden with the landmines that many expected. There were no massive layoffs, HBO Max isn’t going to disappear into the ether, there are no weapons of mass destruction hidden somewhere on the Warner Bros. Studios’ lot, at least for now. But there are going to be changes. Spending is going to be tighter. WBD is going to take a harder look at how it develops programming. Warner Bros. is going to recommit to theatrical releases for movies. 

Some films earmarked for streaming won’t see the light of day. And there is probably more to come. While Zaslav and team laid out some of the streaming strategy on August 4, more details are expected at a planned Investor Day toward the end of the year, including the new name of the combined HBO Max/Discovery Plus streaming service.

So just what is Zaslav’s new formula for success? Here’s a look at five ingredients in the soup that is to be the new Warner Bros. Discovery:

1. Reformulate the way that it counts streaming subscribers.

WBD said total streaming subscribers (HBO Max and Discovery Plus) rose by 1.7 million to 92.1 million customers in Q2. That growth was mainly outside of the U.S. International added 2 million customers while domestic streaming subscribers fell by 300,000, to 52 million from 52.3 million in Q1. That appears to be a big miss from Q1, when HBO Max said it had 76.8 million total customers, and Discovery Plus reported 24 million customers. The Q2 results reflect a new way to count subscribers. WBD said the earlier subscriber count included about 10 million non-core Discovery Plus subs and HBO Max subscribers that were part of AT&T mobility promotions and never activated service. 

“No one else is telling you how many subs they have that get it for free, whether they watch it or not,” FBN Securities media analyst Robert Routh said “They should really break it down on whether or not it is something that people actually pay for, and if it's something they actually watch. That’s a more valid metric, but we don’t get that metric.”

2. Scrap movies that were originally for streaming only — most notably Batgirl, which the company already spent $90 million on before it was ever seen publicly — as well as the animated Scoob! Holiday Haunt that was four years in the making. 

Some saw the decision to shutter the Batgirl film as a financial one — apparently there were tax incentives to cancel the project this year — while others saw it as a move to erase the legacy of executives before him. Zaslav didn’t really address specific films on the call, but some reports have said that Batgirl fell through the cracks because it wasn’t a billion-dollar blockbuster, and the additional investment needed to market and distribute the film in the theaters would have more than doubled its $90 million price tag. To Zaslav, taking the tax write-off and moving on just made sense. 

Aside from the Batman franchise, WBD has had little luck with the rest of DC’s characters on the big screen — certainly nowhere near the success of Disney’s Marvel Entertainment. But some believe it could be a matter of simply finding the right person to run that part of the studio.

“They have a DC Universe, and universes are really hard to create and cultivate,” said producer and filmmaker Gary Pearl, CEO of Aquarius Content who’s Flowers in the Attic: The Origin aired on Lifetime last month. “Look how many years it took [for the Marvel Cinematic Universe]. Kevin Feige [Marvel Studios president and chief creative officer Marvel Entertainment] had to be born and grow up. I remember when Marvel sold for $60 million. … How is it all of a sudden worth $6.5 billion? Because other people came along and made change.”

Pearl said that one sign that Zaslav is serious about turning around the studio is his hiring of two Hollywood veterans — former MGM chairman Michael DeLuca and former MGM Pictures Group president Pamela Abdy — as co-chairs of Warner Bros. Pictures Group. Both have long track records, producing recent buzzworthy and critically acclaimed films like Licorice Pizza and House of Gucci, as well as past box-office hits like Boogie Nights, Fifty Shades of Grey and Austin Powers. 

“I can understand how people feel about Batgirl,” Pearl said. “I haven’t seen it, but I will guarantee you, it’s a bad film. He’s not going to dump $90 million just to make a statement. He’s saying we have a big asset in DC and it's been mismanaged for 30 years. And my definition of that is ‘I don't have my Kevin Feige yet.’ Maybe he hasn’t been born yet. That guy is that brilliant. So who’s the DC guy? I’ll bet you he thinks that is DeLuca.”  

While some critics have accused new WBD management of trying to erase former WarnerMedia CEO Jason Kilar’s legacy, many forget that the decision to put the Warner Bros. slate on HBO Max endangered a lot of relationships with creatives. Dark Knight and Inception director Christopher Nolan told The Hollywood Reporter at the time that Warner “blindsided” the creative community and instead of working for the best studio, they are working for the “worst streaming service.” 

Many of those creatives changed their tunes when they saw the generous bonuses Warner Bros. offered to compensate for missing out on theatrical box office. But there were still a lot of egos that needed stroking.

After the merger was announced, Zaslav went on a highly publicized listening tour to repair those relationships with the creative community. Committing to theatrical releases is just another part of that. 

3. Double down on Warner’s commitment to theatrical releases of films and release no expensive movie on streaming services before theaters.

Kilar introduced the controversial decision to release Warner Bros.' entire 2021 slate day-and-date to streaming, it obviously goosed HBO Max streaming subscriptions and helped put the service on the map. But that was during a pandemic when theaters were closed and Kilar had let it be known that it was only a one-year experiment.

Nevertheless, some directors and producers were outraged at Kilar’s move, with some vowing never to work for Warner again, claiming that once the day-and-date cat was out of the bag, it would become the norm for the industry. They didn’t and it didn’t.

But it did cast a light on what can be bewildering Hollywood economics, where accountability can sometimes be murky. Zaslav, who according to some reports has been notoriously frugal at Discovery — asking some producers to take out loans to front their own production costs — said during the Q2 call that he can’t justify releasing an expensive movie online.

“We’re not going to release any film before it's ready,” Zaslav said. “There is no comparison to what happens when you launch a film in the theaters. This idea of expensive films going to streaming, we cannot find an economic case for it, we cannot find an economic value for it.”

Pearl said that while Kilar’s strategy worked during the pandemic, it is time for a more pragmatic approach. 

“In a weird way, Jason’s approach worked, but it worked in a pandemic,” Pearl said. “I don't know how you call that solid business change. It was the right thing to do for one year. He was gaining subs. And what was he going to do with all of those movies anyway? Shut down Warner Bros. and not make anything?”

4. Combine Discovery Plus and HBO Max into one streaming product.

That shouldn’t have come as a surprise. WBD streaming chief JB Perrette told the ad community in May at the upfronts the company would do exactly that.  

During the Q2 conference call, Perrette said the combined offering would debut in the summer of 2023, adding that it will first be launched in existing HBO Max markets in the U.S., followed by Latin America later in that year and in Europe and Asia in 2024.

Perrette acknowledged that both services have different audiences: HBO Max is more appointment TV than Discovery Plus, which is more “comfort viewing.” But he was confident that the two services would mesh well.

“These are two critical and powerful components of a strong and sustainable subscription business,” Perrette said on the Q2 call.  

Some analysts wondered how the combined offering would be priced, adding that a combined HBO Max/ Discovery Plus might have some flexibility, especially with existing ad-supported versions of both streaming products. Zaslav said that coming soon are an ad-light service and a free ad-supported television (FAST) offering that should satisfy more price-conscious consumers.

At $14.95 per month, HBO Max is one of the more expensive streaming services. Netflix raised charges for its standard streaming service to $15.49 per month from $13.99 in January and others have followed suit. At the same time, these companies are launching less expensive ad-supported versions. HBO Max has an ad-supported service priced at $9.99 per month. Disney just unveiled plans to debut its ad-supported version on December 8 for $7.99 per month. Netflix plans an ad-supported version this year. Disney released other new pricing details last week. 

Discovery Plus has been fairly steady at $6.99 per month for an ad-free service and $4.99 with ads. Just how that pricing will mesh with HBO Max charges remains to be seen. 

5. Preserve the pay TV distribution relationship, even as cord cutting has accelerated to record highs. 

One of streaming’s dirty little secrets has been that although it is without a doubt the future of content distribution, it is a huge drain on finances. Not one of the major content players is making money off of streaming— not Peacock, not Disney Plus, not Paramount Plus, neither HBO Max nor Discovery Plus. All of them are supported by traditional linear networks that are losing subscribers by the bucketful. So the biggest question among content investors is what happens when the traditional content cash cow, and its fat affiliate fees, dries up? The answer may come sooner than anyone thinks.

The pay TV business lost nearly 2 million subscribers in Q2, according to Leichtman Research Group, up from a loss of 1.2 million customers in the same period last year. So, as subscriber losses accelerate, it's only a matter of time before linear networks can no longer feed the streaming beast. 

But it shouldn’t come as a surprise to programmers.  

MoffettNathanson warned back in 2019 that pay TV subscriber erosion was having an effect on affiliate fee growth. While the pandemic may have slowed that erosion down slightly, cord-cutting has come back with a vengeance. In Q1, MoffettNathanson estimated that overall pay TV subscribers (cable, telco, VMVPD and satellite) were down 5.1%, or 2.1 million customers, in Q1, close to the record 5.5% decline set just prior to the pandemic. It is shaping up to be even worse in Q2, with Comcast and Charter alone shedding more than 700,000 subscribers in the period, and heavier losses at satellite and telco providers. 

Zaslav has long been a proponent of keeping the affiliate fee relationship intact. In his early days at Discovery, he was one of the last remaining holdouts for keeping its content offline. While other networks were releasing episodes of popular series on their websites, Zaslav only allowed clips, adding that he didn’t want to dilute the value of the television subscription.

The 100-Plus Percent

In a blog post, LightShed Partners co-founder and partner Rich Greenfield said more than 100% of WBD’s trailing 12-month cash flow comes from its basic cable networks. 

“Unfortunately for WBD (and everyone else in legacy media), cable network affiliate fees are no longer growing and appear set to enter secular decline (thanks to cord-cutting) and advertising faces increasingly stiff headwinds as linear TV viewership erodes along with the impact of a global recession,” Greenfield noted.

Adding to the concern is that as affiliate fees and ad revenue decline, sports costs are rising exponentially, placing further pressure on EBITA growth. WBD’s rights deal with the NBA expires in 2023.

“It appears WBD is now taking evasive action as their dramatically enlarged (via merger) cash cow cable network business is on its way to becoming a starving cow,” Greenfield wrote.

 Disney’s Better, But Not Best 

 While WBD struggled with forces both in and beyond its control, The Walt Disney Co. made it a little worse by reporting much stronger fiscal Q3 results on August 10. Disney appeared to be firing on all cylinders in FQ3, adding 14.4 million global streaming customers, far outpacing analysts’ estimates of 10 million additions. Disney, with 221 million global customers, is now tied with Netflix for the top spot among streamers. Financially, overall revenue and cash flow growth beat consensus expectations. But Disney revised its subscriber growth estimates for 2024 to 215 million to 245 million from 230 million to 265 million, mainly because of the loss of cricket rights in India. Almost all of Disney Plus’s growth in FQ3 was in India, while its domestic growth was nearly stagnant at 100,000 additions.

That caused some analysts to fear that maybe Disney isn’t being conservative enough with its 2024 growth estimates. 

In a research note, Barclays Group media analyst Kannan Venkateshwar argued that Disney’s revised projections should be lower. The top four streaming services -- Netflix, HBO Max, Hulu and Disney Plus -- showed subscriber declines or minimal growth in the last quarter, which Venkateshwar said “speaks to saturation levels in the marketplace.”

“Streaming growth domestically is increasingly becoming a zero sum game and will need distribution models to change for further growth,” he wrote, adding that while Disney’s FQ3 growth was strong, it was almost entirely outside of the U.S. “Domestically, Disney Plus barely grew and was just 100,000 and could see some slowdown in FQ4 due to price increases.” 

Where Are My $3 Billion in Synergies? 

 When they unveiled the deal in May 2021, both AT&T and Discovery believed they could pull $3 billion in cost synergies out of the business in the first year. After a deeper look at the books, WBD isn’t saying that anymore. Cost savings, at least initially, will come from reduced content spending. Zaslav said HBO’s and Warner Bros. Studios’ budgets will grow, but everything else is fair game.

Pearl, who has more than 30 years in the TV and movie business as an agent, writer, director, producer and entrepreneur, said belt tightening is par for the course, especially during an ownership transition. And Zaslav is no different. 

“Yes of course he’s a cost-cutter,” Pearl said of Zaslav. “Because it’s a business.”

And though the massive layoffs some expected didn’t come, it’s probably a fair guess that there will be some down the line. Discovery has a track record of stealth layoffs according to some reports, reducing its workforce in bursts of 30 employees or less, being careful not to trigger any disclosure requirements. So, layoffs could be a series of small cuts instead of one massive beheading.

That apparently has already started -- Variety reported Monday that HBO and HBO Max will lose about 70 employees (14% of its workforce) amid some other restructuring around chief content officer Casey Bloys.

Whatever form it takes, WBD is going to need to find some way to squeeze those synergies out of the business, because cash flow growth is going to be less than expected for a while. And they need to find something to help pare down debt.

WBD has about $53 billion in debt. EBITDA for Q2 was $1.8 billion for the entire company, down 31% from the prior year. While WBD has said previously it expects EBITDA to grow to $12 billion in 2023, down from previous forecasts of $14 billion, most analysts are guessing it will be even lower. Earlier this week MoffettNathanson analyst Robert Fishman estimated 2022 EBITDA will be $9.2 billion (down from his previous prediction of $10.2 billion) and his 2023 estimate to $11.8 billion (down from his earlier $12.6 billion estimate). 

Waiting it Out

Wells Fargo Securities media analyst Steven Cahall downgraded his ratings on WBD to “equal weight” from “overweight” and reduced his 12-month price target on the stock to $19 from $42 per share. He sees WBD as undervalued -- its 7x cash flow multiple makes it one of the cheaper stocks in the sector due to above average execution and earnings risks, he wrote -- but suggests the best strategy for investors may be to wait it out.

“100 days on and the dust has hardly settled, and we thus think the best course is to let the internal work take its course for a bit,” Cahall wrote. “[Discovery] was a ~$45 stock prior to the deal, these assets are the best in content offerings, so when things do start to improve we think investors will be able to be late and still have plenty of upside.”

Routh added that WBD’s problems may be a combination of being first to publicly tighten its purse strings at a time when investment opportunities for investors are varied and plentiful. 

“He [Zaslav] got penalized for being honest,” Routh said of WBD’s precipitous stock price drop. “We haven't seen the cost savings from this merger yet, [but] the integration of media companies takes time. Currently the Street has a lot of other options in terms of where they’re going to  put their money.” 

WBD shares were hit hard after the August 4 earnings report. The stock dropped by 16% on August 5, the first full day of trading after results were disclosed, and fell another 11% between August 5 and August 9. The price has been down all year, though. Shares got a little lift on August 11, rising 4.4% to $13.68 each, as some began to see a bargain in the world’s second largest content operation, but they were flat on August 12 and fell another 3% in early trading on August 15. WBD shares are down 46% since the deal creating the company closed on April 11 and are down 44% for the year.  

While WBD’s decline has been dramatic, streaming stocks across the board have been feeling the pain for months. Before it released fiscal Q3 results on August 10, Walt Disney Co. stock was down 27% for the year. Even with Thursday's increase, the stock is still down 24% for the year.  

Other content creators with a streaming presence have had similar declines. Paramount Global, parent of Paramount Plus, has fallen 13% this year. Amazon, parent of Amazon Prime Video, is down 15%. Even Apple is off 5% for the year. 

“No one knows how to value the content companies,” Routh said. “Look at any of them, people are not giving any value to libraries, people are giving no value to current production, because they’re saying there are so many platforms now, what are the odds that what you make is actually going to become watched and monetizable and worth what you paid for it?”   

So if everyone is feeling the effect of a slowing streaming business, why is everyone picking on WBD? The company is getting a lot of attention because of the merger and because HBO is one of the content brands most associated with quality, having  received 140 Emmy Awards nominations this year, leading all networks. People just seem to expect more from HBO’s parent. 

Zaslav will have to weather the criticism for a while, at least until Q3 results are released. My guess is he’ll be able to do it. There will be other reasons to panic from other companies, especially if Netflix misses Q3 subscriber targets. 

In the meantime look for other streamers to tighten their belts, keep a closer eye on profitability and nurture relationships with traditional distributors. It’s either that, or blow the whole thing up and start over. Nobody wants to do that. ■

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.”  ■

A new poll said that an important tipping point has been reached, with more Americans saying they’ve streamed TV or movies in the past month than watched cable and satellite TV.

According to the survey, conducted by The Harris Poll for TransUnion, the credit agency that has gotten into the connected TV ad business through a series of acquisitions, 70% of Americans who watched TV between mid-November and mid-December said they streamed programming, compared to just 56% saying they watched cable or satellite with 67% of those who watched both streaming and pay TV agreeing they’ rather be streaming.

When it comes to finding something to watch, 70% who watch both said there is enough programming on streaming services for them to completely replace cable and satellite.

Also: Tubi: AVOD Users Set to Surpass SVOD in 2022

The trend is even more pronounced among viewers under 35 years old, among whom just 36% said they used cable or satellite to watch TV in the past month, compared to 84% who streamed programming.

Consumers said they are more likely to turn to streaming when the are looking for something new to watch, to escape and lose themselves in a program, to relax and unwind or to really pay attention to a program.

Also: Is Roku Right? Has TV Streaming Really 'Passed the Tipping Point'?

When it comes to watching the news, 50% said they turn to cable and satellite, compared to 33% who chose streaming.

The poll says that the shift to streaming is good for advertisers because of higher content engagement and shorter ad break.

A majority (58%) said they prefer ad-supported TV services to paying for ad free services (42%), and 33%.of those who watch both streaming and pay TV said they pay more attention to commercials on streaming, compared to 22% who do so while watching cable or satellite.

Among consumers under 45 years old who both stream and watch cable and satellite, 47% said they pay more attention to the ads while streaming, compared to 23% who said cable or satellite.

More consumers said streaming has more engaging and interactive commercials than pay TV. While streaming they watch the ads because they’re really engaged with the programming. Consumers also complain about seeing the same commercials over and over on cable and satellite more than via streaming.

“As consumers stream across connected devices, their digital footprints allow for precise audience-based targeting, rather than program-based buys,” the report noted.

Also: Merkle’s Merkury Data Platform Using TransUnion Marketplace for CTV Ads

The report also notes that identifying viewers plays a key role in addressing the challenges a fragmented streaming market pose. Consumers are tough to identify because more than half watched more than six channels in the past month, 38% have more than one brand of smart TV in their home and 45%% have three or more streaming-capable sets in their homes.

“It’s clear that streaming television generates more interest among viewers across content and ads, making free, ad-supported streaming TV channels critical to advertisers. Streaming viewing time will soon eclipse traditional TV, and with tens of millions of streaming-only households already, advertisers need the right tools to identify and reach audiences through streaming channels,” said Matt Spiegel, executive VP of Media and Entertainment Vertical at TransUnion.

Fortunately, TransUnion notes that its data marketplace can help advertisers link people, households and devices.

“Consumers are telling us how they want to watch TV, and that is increasingly on streaming services. It’s now up to our industry to deliver the seamless, engaging TV ad experiences streaming enables. It starts with being able to recognize consumers across platforms and devices. That will require advertisers, media companies and ad tech platforms to evolve toward an identity infrastructure for TV that serves the needs of all constituents,” said David Wiesenfeld, Lead Strategist, Media and Entertainment Vertical at TransUnion.

The survey was conducted online within the United States by The Harris Poll on behalf of TransUnion between December 9-13, 2021 among 2,043 adults ages 18+, among whom 1,878 watch TV. ■

The share of U.S. homes with standalone broadband, that is internet not bundled with another service like pay TV or landline telephone, was up to 41% in the first quarter, according to Parks Associates.

That compares to 33% in the first quarter of 2018, with millions more U.S. households ditching bundled pay TV service over the three-year span.

However, with the number of U.S. pay TV homes now dwindling below 80 million—after exceeding 90 million just a few short years ago—a new trend has emerged among what remains of bundled telecom services.

According to Parks, which said it surveyed 10,000 households for its latest Home Services Dashboard report, mobile services are emerging as a popular bundling complement for wireline broadband, replacing pay TV. 

The research company said 19% of U.S. broadband households currently bundle mobile and home internet services, paying an average of $128 per month.

Comcast, for example, said it experienced its greatest quarterly expansion for mobile in Q1, adding 278,000 lines, all of them through bundled offers. Both Comcast and Charter Communications have launched mobile services within the last four years. 

“Falling pay-TV subscriptions among consumers are negatively impacting bundles with other services—bundles with four or five services in particular are losing their value,” said Kristen Hanich, senior analyst for Parks Associates, in a statement. “However, a growing crossover between mobile and home broadband services is helping to stem the gap. The fastest growing segment of these bundles is a standard double-play combining home internet and mobile service.”

Of course, with the number of standalone broadband subscriptions higher than ever, pricing has increased. 

Notably, these homes are paying an average of $64 a month for broadband service—an uptick of more than 64% over the average $39 they were paying in 2011, when the practice of bundling video with broadband was much more widely adopted.

Parks believes that average price will soon rise even further. 

The research company said 24% of U.S. broadband households reported plans to upgrade their home broadband in the next six months, which would drive broadband service ARPU upwards 5% year-over-year.

Notwithstanding the cratering of viewership in last Sunday’s Super Bowl LV, which collapsed quicker than the Kansas City Chiefs’ offensive line, streaming services could be poised to snatch what has been the last vestige of appointment television: live sports, according to at least one influential analyst.  

According to Nielsen, 96.4 million homes watched Super Bowl LV on TV, the lowest number since 2007. About 5.7 million homes streamed the game, the highest level for that metric ever. 

In a research note that was issued before those ratings numbers were released, MoffettNathanson media analyst Michael Nathanson pointed to the growing trend of younger viewers migrating to streaming video, and that it would likely mean that sports would have to follow them. Nathanson didn’t expect big tent sporting events like the Super Bowl or the World Series to switch exclusively online, but he said games from various professional and college sports leagues, a staple of cable networks like TBS, TNT and regional sports networks owned by teams, could be in danger.

“We would think that the NFL, NCAA, ‘March Madness,’ NBA and MLB Playoffs will remain the domain of broadcast and will have digital rights that are monetized via affiliated services like Paramount +, Peacock or ESPN +,” Nathanson wrote. “Fox, the odd man out without a paid OTT service, will have a decision to make about how they move forward.”

Fox bought entertainment streaming service Tubi last year, which offers free ad-supported movies and shows from several networks, including Fox, doesn’t have a sports component. On Feb. 9, Fox said it expects Tubi to reach $1 billion in revenue over the next few years. In 2021, it anticipates revenue at the service will double to about $300 million. 

Keeping tentpole sporting events on the four major broadcasters makes sense for now because that’s where the majority of viewers are. Even the worst-viewed Super Bowl in 14 years was watched on traditional TV by a nearly 20:1 margin over streaming. 

But for nationally televised sports like the NHL, NBA, golf, tennis and college sports, the staples of sports-based cable channels, networks may have to make some hard choices soon, Nathanson continued, adding they may have to adopt a hybrid approach like Peacock and NBCU, putting a limited number of events across a smaller number of networks. That, Nathanson wrote, in turn “would mean the end of FS2, ESPNU, CBS Sports Networks and a greater number of games carried on OTT products also now including HBO Max.”

Analysts have been warning that streaming services like Netflix, Amazon Prime Video and the like could disrupt the televised sports business for years, but so far they have only dipped their toes in the sports business. But as new services emerge, they are beginning to pay attention to sports, and that should have linear networks worried.

In the past month Peacock, Comcast NBCUniversal’s streaming offering, has said it will assume sports programming from NBCSN at the end of the year, when that regional sports network shuts down. 

Peacock also reached a deal with WWE, where its WWE Network streaming service will be available exclusively to Peacock subscribers for $4.99 per month (free to Comcast Xfinity customers, who also get Peacock premium for free). In addition, WWE renewed its licensing relationship with NBCU’s USA Network, which airs WWE’s Monday Night Raw.  

Viewership on cable sports channels has been slipping as younger viewers cut the traditional pay TV cord. ESPN has lost about 9% of its subscribers since 2015 because of cord cutting, while FS1 has lost 5% and the Golf Channel has dipped 11%, according to MoffettNathanson. At the same time, overall time viewed on cable sports channels like ESPN and Fox Sports 2 has fallen a collective 5% since 2015. For some channels the drop is more pronounced -- ESPN2 dropped 12% and ESPNU fell 11% in that time frame. Also during that period, remaining viewers are getting older. According to MoffettNathanson, 65% of all cable network viewers are over the age of 50. 

“Obviously, if you are a sports league trying to build long-term connections with the next generation of fans, this is an increasingly terrifying outcome,” Nathanson wrote. 

Nathanson pointed to both the WWE deal and the NBCSN closing as signs of a sea change in the industry.

“If a Comcast-owned network decides the economics of a standalone national sports network no longer makes sense, what does this mean for other national sports networks?” Nathanson wrote. 

Sports consultant Lee Berke, president and CEO of LHB Media & Entertainment said that while the business is changing, it won’t necessarily be an either/or scenario. Berke believes that most sports networks won’t pick sides in the streaming wars, but will instead continue on a path toward multi-platform offerings.  

“I don’t see pay TV going away. I don’t see sports going away on pay TV. I think you see less of it,” Berke said. “I think you see a more consolidated bundle of fewer networks, that are general interest, sports, entertainment and news. Even in the worst scenarios, they’re still going to have 50-60 million TV homes that are subscribers to these bundles. So there’s still value there. There’s an audience there.”

Berke added that networks will continue to beef up their direct-to-consumer services with sports. He pointed to ESPN +, which has added considerable content from its launch in 2018, and which he believes will be nearly indistinguishable from ESPN- proper in the next few years.  

“You’ll see this sag in the pay TV universe,” Berke said, adding that some sports will migrate to streaming services, some will revert to broadcast and some will remain on pay TV. “I think the key is there has to be a multi-platform strategy. The idea of a linear-only sports network just is not going to work going forward.”   

Content companies already have started putting much of their linear content on their direct-to-consumer offerings. During the Super Bowl, ViacomCBS spent a lot of money on ads for its upcoming Paramount + launch, mainly showing shows that are already available on their linear channels. 

Making all of a network’s linear content available to stream on a separate app hasn’t sat too well with distributors in the past, especially if the streaming app is priced lower than the rate the distributor is paying. That, Berke said, will have to be negotiated out.

“There will have to be a reckoning,” Berke said.       

Programmers will have to start making those decisions soon. Although streaming has obviously been a part of at least some sports rights deals -- and the major broadcasters have already locked up Major League Baseball, PGA Golf and SEC Football agreements recently -- there are still several left to negotiate. According to Nathanson, ESPN’s MLB rights deals come due in 2022, as does NBC’s Premier League pact. In 2023, several NFL rights deals expire: ESPN’s Monday Night Football, Fox’s Thursday Night Football and Sunday NFC packages, NBC’s Sunday Night Football and CBS’s Sunday AFC football package. Also that year, Fox and ABC/ESPN’s Big Ten college football packages are set to be renegotiated.  

Further out, ESPN’s and Fox Sports’ Pac-12 and ESPN’s UFC deals expire in 2024. In 2025, the NBA’s rights agreements with  ABC/ESPN and TNT come due; as do Fox and NBC Sports pacts with NASCAR. 

While streaming is expected to play a big role in those negotiations, and sports has come under fire for driving most of the rate increases for pay TV, Berke said he still expects a robust rights market.

“Because every technology, every new platform needs sports to drive subs, the key properties that are out there will have healthy increases in rights fees,” Berke said. “I think the NFL is going to come close to doubling. The NBA, which has acknowledged that the one issue they have is that they haven't established a strong streaming presence in a sport that skews young, when their deals are up in 2025 they will go much more heavily into streaming platforms and direct-to-consumer. Because these media businesses will have multiple screens and multiple ways to make money, and because they need to drive subscribers across all of them, the rights fees will go up substantially.”  

A majority of pay TV subs want the ability to stream TV shows and movies to be part of their pay video service.

That is according to a new survey of consumer perceptions of Pay TV services conducted by Parks Associates.

"In late 2019, the market reached the crossover point where the same percentage of US broadband households subscribed to an OTT service as subscribed to a pay-TV service, and now OTT adoption outpaces pay TV by double digits," said Parks Associates senior researcher Kristen Hanich.

The good news is that OTT and traditional pay TV is not currently an either/or proposition since the vast majority of video subscribers (79%) have both a Pay TV and OTT subscription. But Hanich said providers need to come up with new business models or risk losing those video subs.

That is because while online video has grown, cord-cutting has too. "Pay-TV providers must keep offering their most valuable content, which includes live sporting and cultural events," said Hanich. "Additionally, they must offer access to streaming, target new service to their interested customers, and perhaps be willing to take a hit on pricing until this chaotic market stabilizes."

Among the new services the survey found could be value-added are video calls on the TV (43% said they were interested), controlling smart home devices through the TV (40% were interested), and playing on the TV with a cloud gaming service (34%).

According to Parks, the data was based primarily on an online survey of 10,000 heads-of-broadband households polled in third-quarter 2020. 

While all of the major programmers are touting their commitment to streaming and pouring billions of dollars into developing new content for those services, they are hardly abandoning the pay TV industry. 

“I’d say the challenge for us and everyone else continues to be how to reach and engage with consumers across a bunch of different options,” including direct-to-consumer and traditional pay TV, noted Disney Platform Distribution president Justin Connolly. “We still have, and we expect to continue to have, really strong relationships with a host of third parties in the multichannel environment, and we will continue to invest in those relationships because there are consumers who want those services.”

Rick Cordella, executive VP and chief revenue officer at NBCUniversal’s Peacock, expressed similar sentiments. “I think Peacock is positioned to be complementary to the pay TV ecosystem,” he said. “We are not hoping to pull people out of that bundle, we are hoping to add to what people are already consuming from the streaming standpoint.”

A key question is how quickly the traditional pay TV universe will decline.
“If you look ahead 10 years, I think everyone, including the big cable operators, would probably predict that there will be more direct to consumer,” explained Andy Forssell, executive VP and general manager of WarnerMedia Direct-to-Consumer. “But nobody knows at what rate. So for us it involves a little bit of a balance and a recognition that consumers are going to decide. Given the trends in multichannel subscriber homes the last couple of years, you would assume that world would drop a little but there are tens of millions of those customers and they are really important to us.” 

Ian Olgeirson, research director at Kagan, the media research unit of S&P Global Market Intelligence, noted that in 2020 “we saw an acceleration of defections from traditional multichannel service and for the most part those are doing to streaming services,” though the losses were much less severe in the third quarter of 2020.  

Kagan data shows that in the first nine months of 2020, traditional multichannel TV subscribers declined by more than 5.6 million, down  6.8%, compared to a drop of 4.9 million subscribers, or 5.5%, in the first three quarters of 2019 and a drop of 3.1%, or about 2.9 million subscribers, in 2018.

Consumer Centric

To thrive in this rapidly shifting landscape, researchers stressed that companies will have to better understand consumer trends and rethink some of the old debates over streaming that no longer reflect the realities of the video business.

“We talk about cord-cutting as a central issue, but it is really bigger than that,” Adriana Waterston, senior VP of insights and strategy at Horowitz Research, said. “It is really about the ongoing value of multichannel services.” 

The lines between over-the-top video and pay TV are rapidly blurring, she said, with traditional cable operators adding SVOD services and streaming platforms like Roku offering live linear channels.

“What is going to be the actual value of a multichannel subscription when really all of the major media brands, with a handful of exceptions, can be accessed direct-to-consumer?” she asked. “What does that mean for the premise, the whole business model of multichannel TV?”

Meanwhile, many programmers are crafting streaming strategies that look far beyond their old focus on cord-cutters. “I think people are now recognizing that streaming is just TV and placing less emphasis on just the mindset of the cord-cutter,” Newsy chief of staff Tony Brown said. “Cord-cutting isn’t about a single particular mindset. In many ways it is a ubiquitous swath of the audience.”

Added NBC News Group executive VP of digital Chris Berend: “We’ve reached a state where streaming is no longer a niche experience and the connected consumer is no longer young first adopters. You are getting parents and grandparents using these apps.”

Old debates about cord-cutting can also obscure real consumer trends and changes in the business of multichannel TV. “Subscriber net losses are as much about provider strategy as they are about consumer behavior,” stressed Bruce Leichtman, president and principal analyst at Leichtman Research Group. 

“Over the past two years, AT&T has lost a significant number of pay TV subs,” Leichtman said of the DirecTV parent. “Over the last year, AT&T has accounted for 72% of all pay TV net losses. That wasn’t purely because consumers said, ‘I hate my satellite dish.’ There was not a dramatic increase in disconnects, but there was a slowdown in connects, because AT&T had a change in strategy and marketing” and was not heavily promoting the services.

Virtual Rebound?

Rethinking trends in the pay TV industry is also important because various operators and sectors have responded differently to consumer demands for new packages and content, producing notably different results. 

The top pay TV operators serving about 95% of the market lost about 120,000 net video subscribers in the third quarter of 2020, Leichtman noted, far fewer than the 945,000 lost in the third quarter of 2019. Virtual multichannel video programming distributors (vMVPDs), such as Sling TV or YouTube TV, “had the best third quarter they’ve ever had and the whole pay TV industry the best quarter since 2018,” he said. 

Consumers had embraced vMVPDs because they were generally less expensive and offered more flexible video packages. But growth slowed in 2019 as vMVPDs raised prices and saw subscriber declines in the first half of 2020 as live sports disappeared from the air.  

David Gandler, co-founder and CEO of FuboTV, noted that “in the first quarter pundits were saying it was all over for virtual MVPDs, but then in the third quarter there was clearly pent up demand for sports” and subscriptions dramatically increased with the return of live sports. 

“I think that vMVPDs will continue to take share, not only subscriber share from the traditional services, but I think they also start to take significant amount of time share in the video ecosystem and their share will be dramatically higher in 2021 than it was in 2020,” Gandler said, adding that FuboTV subscribers now spend about 120 hours a month on the platform. 

I Want My OTT

While operators continue to offer large traditional video packages, they’ve also embraced the idea of creating a variety of new products that include OTT content. 

“Do we want to start teaming up [with] more OTT providers?” Altice USA CEO Dexter Goei said during the company’s Q1 2020 earnings call, reflecting widespread industry sentiment. “Absolutely. We are in all those discussions as you may expect.”

“The video business is changing and we are innovating accordingly,” added Jodi Robinson, senior VP of digital platforms at Charter Communications. As part of that effort, Charter has developed lower-cost packages “targeted primarily at customers that are not currently purchasing our traditional video product,” she said. “Going forward, we will offer even more tailored programming packages.” 

Cox Communications senior VP of marketing operations Kristine Faulkner stressed the importance of rethinking video packages and offering consumers more choices.

“We are focused on hitting two primary segments,” she said. “Those are the more traditional sports enthusiasts who want it all and those who are really looking for a better search and discovery experience for their streaming services.”

All of this is part of a sea change in the way operators are thinking about their business, TiVo VP of product Chris Thun said. 

“Several years back, I’d get into religious debates with operators about whether it was really good for operators to combine OTT with linear or should the operator content be in a walled garden,” Thun said. “That phase is gone. I’m never in those debates any more. Everyone has accepted the idea.” 

Operators are also looking at video packages as a way to keep broadband customers, which have become the bedrock of their business. “They are saying we have a growing segment that isn’t taking video from us and are broadband-only customers,” Thun said. “That is actually their most profitable segment, and to make it more profitable they want to reduce churn.” 

This also opens up some opportunities for smaller niche programmers who can attract loyal audiences. “People are looking for brands they value and trust where they can go for news and entertainment,” said Patrice Courtaban, chief operating officer of TV5Monde USA, adding that the premium French-language channel saw reduced churn in 2020, increased viewing and more use of the authenticated TV  everywhere app.  “That is where we can help operators reduce churn.”

The explosion of content, though, creates problems for consumers and high levels of churn in the streaming world. “We still see high levels of churn,” Andrew Hare, senior VP of digital research and strategy at Magid, said. “About one in five say they sign up for an SVOD to watch a show and that they intend to cancel after they binge through it. The premiums have always had churn issues, but I think there is now a churn mindset in streaming.”

Churn Busters

To reduce churn and retain customers, pay TV operators and streaming services should try to improve the consumer experience, said Devin Emery, chief product officer and executive VP of content strategy at CuriosityStream. “Making it easier to find content is extremely important to consumers,” he said, adding that “we think our strength is becoming the best portal for factual content.”

In general, it’s important to be customer-focused. “One problem the traditional MVPDs have is the poor consumer perceptions they have gotten over the years,” Horowitz’s Waterston said. “Today, the product offering may better conform to what consumers want but the brand perceptions are still there. Nothing is really going to change until they deal with those perceptions and the very real problems they have with customers today.”

Cable distribution stocks overcame a scare earlier in the year — when the initial pangs of the pandemic drove shares down by double-digits — to finish 2020 up by more than 45%, while content stocks slipped as investors continued to weigh the impact of shifting to a streaming model.

Comcast, Charter Communications, Cable One and Altice USA all reported strong gains for the year. With just eight days left in the year, barring a meltdown of epic proportions, the sector will finish up 45.1%, lower than its 78% gain in 2019, but a healthy rise considering the pressures of COVID-19 and an uncertain economic outlook earlier in the year.

Cable One again led the pack with a 50% rise in its share price — Charter was second with a 33.5% increase — but all four stocks in the sector showed healthy double-digit increases. 

Comcast had the weakest performance of the distribution sector — 11.3% — but that was mainly because of its NBCUniversal content unit. Its cable division reported robust broadband growth. In Q3 it added 633,000 broadband customers, its biggest quarterly growth ever. Rounding out the admittedly short distributors list, Altice USA shares rose 32.1% for the year. 

“The trajectory of the cable industry over the past year is a simpler narrative. Up,” wrote MoffettNathanson principal and senior analyst Craig Moffett in a note to clients.

The full-year increases mark a big change in sentiment for the sector from earlier in the year. In the early days of the pandemic distribution stocks were hit hard. Altice USA fell 35% and Comcast, Charter and Cable One were all down around 20% each in the first quarter, a result of an overall decline in the Dow Jones Industrial Average and fears the economy would tank as COVID-19 spread across the country. 

Content stocks were also battered in Q1 with the sector down about 40% during that period. But unlike the distribution stocks — which rallied in the second half of the year — content companies, with the exception of The Walt Disney Co., continued to falter. 

Strong broadband growth — Comcast, Altice USA, Cable One and Charter all reported robust quarterly high-speed data customer gains in Q2 and Q3 — helped drive the stock up in later months. Not including Cable One, which actually saw its stock price rise 10% in Q1, the rest of the sector dipped 12% between January and March. But from then on, distribution stocks went on a tear, rising a collective 50% between March and December. (Cable One was up  35% during that same period. 

At the same time, content stocks that were not Disney continued to slide. Disney shares grew by 20% for the year — they rallied strong in the last three quarters of 2020 after a 33% Q1 decline — primarily on the back of its Disney Plus streaming service. Disney Plus has outperformed even the most optimistic expectations — it had 86.8 million global customers as of Dec. 10 and expects to have between 230 million and 260 million subscribers by 2024. Other content companies, most who unveiled aggressive streaming strategies earlier in the year — have yet to see the same effect.

ViacomCBS, which in June said it would launch an expanded version of its streaming service CBS All Access (renamed Paramount Plus) in 2021, saw its share price slip 14.3% for the year as investors appeared to be taking a wait and see attitude on the stock. An investor event to further detail those streaming plans is set for early next year. At Discovery, which unveiled a sweeping streaming strategy in December with its Discovery Plus product, the stock was down about 14% for the year. 

Other content companies with less pronounced streaming products — Fox and AMC Networks — also felt the sting of a lower stock price, with Fox shares down 24.2% and AMC dipping about 14.6% for the year.   

But cable operators, who were written off in prior years as pay TV subscriber rolls dwindled, found new life in their commitment to broadband service. While video subscribers are expected to continue to erode — Kagan, a unit of S&P Global Market Intelligence, has predicted pay TV will lose about 31.5 million customers by 2024 — broadband should continue to hum along, albeit at a slower pace. 

In a research note. Moffett predicted that the four top publicly traded cable operators (Comcast, Charter, Altice USA and Cable One) will add a combined 4.6 million broadband customers in 2020 (a 56% spike over the prior year). That pace will slow to 3 million additions by 2024. But Moffett stressed that he continues to be bullish on cable. 

Moffett noted that expansion plans by Charter and Comcast into the more rural part of their footprints, as well as Charter’s participation in the RDOF auction could help bolster broadband growth. Furthermore, rising profit margins and reduced capital intensity should help drive multiples for the stocks.

“In late 2019, we had argued that the market’s new heuristic will be to buy Cable at 9x and sell it at 12x,” Moffett wrote. “The COVID crisis only accelerated margin expansion, as more customers moved to self-installation and web-based self-service during the crisis. Even after two full years of upward revisions to margin estimates, the market consensus was too low in its forecasts for every one of the publicly traded cable operators in Q3.”

COVID-19 also helped accelerate the decline of video subscribers and the continued shift toward streaming services. While that is good news for pure-play distributors like Charter, Altice USA and Cable One, Comcast and AT&T, each with substantial content divisions, could see added pressure. 

AT&T has essentially thrown in the towel on distribution — its DirecTV unit has lost more than 6 million customers over the past x years — in favor of its HBO Max streaming service. For Comcast, the issue is a little more esoteric. 

Other analysts have called for Comcast to separate its distribution and content assets, either via a spin-off (more likely) or a sale (less likely). While Comcast has tried hard to show investors the value of its content units, declining affiliate fee revenue and a spotty ad market have added to the uncertainty. Comcast launched its own streaming service — Peacock — across the country on July 15 and as of Dec. 8 had 26 million customers. 

While streaming and virtual MVPDs have begun to take hold as the pay TV vehicles of choice for many consumers, analysts have warned there is a danger that subscribers will cancel their subscriptions once they finish binge-watching the most popular shows or their favorite sports' seasons end. Moffett estimated that a subscriber base that only stays with a service for 9 months out of 12 is the equivalent of losing 25% of its overall customers.  

“Again, this is a concern for media companies (yes, Comcast and AT&T) more than it is cable operators,” Moffett wrote. “Remember, the cable operators are infrastructure providers. As such, we’ve long argued that there are really only two risks to the Cable thesis: infrastructure-based competition to broadband, and regulatory risk.”

He added that infrastructure competition is mainly 5G offerings from wireless companies, which don’t appear to be an immediate threat. And regulatory concerns are minimal as well, with the main fear — a reclassification of broadband service to a Title II designation — increasingly unlikely. 

“...[W]e concluded that not only was a Biden Administration nothing to fear, it might actually turn out to be a positive for Cable. We still feel that way,” Moffett wrote. “...Cable still looks attractive as we enter 2021… notwithstanding fears of a possible broadband slowdown.”

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. 

Comcast chairman and CEO Brian Roberts said Thursday what every other cable observer has been thinking for months: the pay TV video business is moving quickly toward a direct-to-consumer, app-based model driven largely by broadband adoption. And any operator who doesn’t see that ship rapidly approaching is liable to get overrun. 

Cable operators have been laying the groundwork for an app-based model for years.   But the rapid decline of pay TV video customers, especially during the pandemic, has increased the urgency to replace the old ways of providing programming.

On its Q3 earnings call with analysts, Roberts said Comcast is taking a three-pronged approach to the business -- providing fast broadband service, providing the content consumers want through aggregation and using its scale and platforms to excel in the streaming business. 

Arguably, that strategy has been going on behind the scenes for awhile. In a research note, Bernstein media analyst Peter Supino said the Comcast results reinforce what he calls the “losing to win” strategy, where cable operators trade heavy video losses for broadband gains, higher margins and better returns. 

Roberts even so much as admitted it, adding that Comcast began shifting its focus to broadband years ago. Other operators have done the same --  how many times have you heard a CEO say “Connectivity” in the past year?  -- and broadband subscribers passed video subscribers for the first time in the industry way back in 2015.  But as the pandemic has helped accelerate pay TV’s video decline, the shift is becoming more prominent.    

Comcast’s Q3 results show progress in all three segments -- broadband subscriber growth was the best ever at 633,000 additions; content continues to be available on a variety of platforms including X1, Flex and Peacock. Peacock, which had its broad launch in July, already has 22 million signups, well ahead of expectations. 

On the conference call with analysts, Roberts said that Comcast has seen the market shift away from traditional video packaging, adding that he doesn’t see all consumers evolving to an app-based model, but the insinuation is that he, like the rest of the industry, expects the majority of the business to head that way.

“We’ve seen this ship coming,” Roberts said on the call. “ I think Dave [Watson, Comcast Cable CEO] and his team have done an outstanding job of having a connectivity platform and thinking of it that way so that we’re ready for that ship. I don't think it will be all or nothing.”

But then Roberts voiced what most analysts and observers have expected was the truth for years, but that some top cable executives have been reluctant to come right out and say: They don’t care where you get your content from, as long as it travels over their broadband.

“We want to get ourselves to a position of indifference,” Roberts said, adding that in this new model, the consumer drives the experience, not the distributor. 

Comcast Cable CEO Dave Watson articulated that the video business has been evolving rapidly and the cable company has been working hard to find new ways to get them what they want. 

“From our perspective, we have invested in a broad video platform capability that gives us a lot of options and can give customers a lot of choice,” Watson said. “We want to deliver to the customer what they want in a video experience. So we segmented the marketplace, we break it down, we’ve been doing that for some time and as Brian said we anticipated a lot of these changes." 

Watson went on to talk about how every segment is addressed -- for people who want everything -- all the channels, VOD and DVR capability, there’s X1; for streamers there is Flex; and for D2C aficionados there is Peacock. But he added that part of the strategy on the broadband side isn’t just to offer faster and faster speeds. 

“We’re surrounding broadband with a lot of video capability,” Watson said. “And with streaming and  Peacock we're giving them the best of aggregation, great streaming options. So we’re going to break down the marketplace, continue to compete and deliver to customers what they want. I think that will continue. We feel this is a sustained competitive difference that we have. We’ll go to where the customer wants to go. In terms of whether it’s a  more profitable outcome for us, then we’ll be indifferent;  if they want streaming capability with Flex, we’re going to be right there to deliver that.”

At Comcast’s Sky unit, the shift is even more pronounced. On the conference call, Sky group chief executive Jeremy Darroch used the satellite TV service provider’s relationship with Disney, where it switched a traditional programming contract for the Disney Plus app, as an example. 

“We took a very high fixed-cost, long-term contract and effectively turned it into an app, taking that cost out of our P&L and then getting a margin by selling Disney Plus through Sky,” Darroch said, adding that the savings can then be reinvested in content or other areas, like Sky Studios, which improves the customer relationship. “...When you get to the consumer side, there is virtually no change to that experience.” 

 Some have said that the thing that killed the a la carte movement was that the programmers never wanted to give up the massive payday they were getting by selling fat bundles of networks to distributors at high prices. But with streaming, those pay TV rolls are declining rapidly -- Kagan, a unit of S&P Global Market Intelligence, predicts that 31.5 million traditional pay TV customers will be lost by 2024 -- and affiliate fees are eroding just as fast. Operators, who have chafed for years at high programming fees would probably like nothing more than to be the conduit, aggregating the various content apps and selling them alongside broadband. And as  streaming options grow and video subscribers shrink, it looks as if D2Cs’ ship is finally coming in. 

After what was a devastating second quarter for pay TV — video customer losses reached a new record, fueled by the pandemic and the overall shift to streaming services — influential media analyst Craig Moffett believes that the worst is yet to come. 

Pay TV shed about 1.8 million subscribers in Q2, fueled by continued heavy losses at DirecTV and Dish Network, as well as pandemic-fueled declines at Comcast and telco TV providers. Comcast more than doubled its video losses in Q2 to 478,000 (from about 224,000 in the prior year), while DirecTV continued to bleed customers, losing 871,000 subscribers in the period. 

Charter Communications was the only bright spot on the video front in the period, adding about 102,000 video customers. But Moffett, principal and senior analyst at MoffettNathanson, doesn’t expect that trend to continue. In a note to clients, he said that the industry weathered yet another record subscriber decline and it shows no signs of letting up.

According to Moffett’s estimates, pay TV subscribers fell 7.7% in Q2 (8.3% if pandemic-related nonpay customers are excluded), the worst ever for the sector. And it comes after eight consecutive quarters of worst-ever losses. 

That forebodes a scary trend for the business.     

“At this rate of decline (somewhere between 7.7% and 8.3% per year), the traditional pay TV business would disappear entirely in another 12 years,” Moffett wrote, adding that just two years ago, the rate of decline was 3.3% while last year fell at a 5.4% clip.

Cable operators have shifted their focus toward broadband, which enjoyed record growth in Q2. Charter added 850,000 high-speed internet customers in the period, 50% above the prior quarter, while Comcast and Altice USA also had record growth in that segment. Broadband growth is expected to continue. And, at the same time, more customers are opting for broadband-only, service, using that connection to access Netflix, Amazon Prime Video, Hulu, Disney Plus and Peacock and driving a stake through the heart of the video business.  

Adding to the confusion, Moffett said, is the uncertainty around the Keep America Connected pledge, under which most cable operators agreed not to disconnect broadband customers during the pandemic for lack of payment. While no operators are being accused of skewing numbers, it is difficult to determine how many of those customers will convert to paying subscribers once the pandemic subsides.

Then there’s the question of new household formation, which according to U.S. Census Bureau statistics, reached 2.28 million additions in Q2. That, too, could be skewed by the pandemic, Moffett said, boosted in part by a moratorium on rental evictions, people occupying their seasonal second homes, or just a product of the “impossible environment for data collection.”

Other analysts expect video subscriber erosion to continue. In a research note, Evercore ISI media analyst Vijay Jayant predicted Comcast would lose around 400,000 video customers in Q3, while broadband subscribers would rise by 525,000.

At the Goldman Sachs Communacopia conference last month, Comcast chairman and CEO Brian Roberts said the company was on pace to break records in broadband additions, adding that it was already “well over 500,000” broadband additions in mid-September.

In a research note, Sanford Bernstein media analyst Peter Supino said the focus on broadband will help drive margins higher. “Comcast’s excellent internet sub results reinforce our ‘losing to win’ theme: that the confluence of robust Internet and relentless video subscriber losses means structurally improving margins and ROIC,” Supino wrote of Comcast’s Q2 performance. 

Altice USA, which surprised the industry with its $7.8 billion unsolicited bid (with Rogers Communications) for Canadian telecom company Cogeco on Sept. 2, also is expected to see continued video erosion. At press time, there had been little movement on that bid since Cogeco’s controlling shareholder flat-out rejected it in September, but the pace of video declines highlights the need to expand the footprint. Altice USA, which has the highest broadband penetration rate in the industry in its metropolitan New York area, lost about 35,000 video subscribers in Q2, but added a record 70,000 broadband customers, more than three times consensus expectations of 21,000 additions.

Supino expects video losses to level out at Altice over the next few years. In a research note, he estimate video losses would hover between 30,000 and 40,000 through Q1 2024. He estimated broadband growth would be around 20,000 to 40,000 per quarter during the same time frame.

DTC: The Last Nail

While broadband rolls rise, the shift to streaming video continues at an accelerated pace. And Moffett believes the transformation of the content business to a direct-to-consumer (DTC) model will drive the final nail in traditional Pay TV’s coffin. In his note, Moffett predicted that content redirection, the practice of taking A-list shows from traditional networks and offering them DTC, is the second wave that will ultimately make pay TV as we currently know it moot.

The analyst warned that as networks are redirecting content while their channels are still under contract with traditional distributors — with escalators that help partially offset subscriber declines — that train could stop running come renewal time. Moffett estimated that overall affiliate fees dropped 3% in Q2 for the first time ever. Over the next four years, he predicted that 0% affiliate-fee growth would be the new normal for cable networks. 

“The pay TV ecosystem is well and truly unraveling,” Moffett wrote.

After a long wait and much debate, professional sports are back. Opening Day for Major League Baseball, delayed from its typical Spring debut, kicked things off last week, with the National Basketball Association and National Hockey League following this week.

Every detail of these shortened seasons has been viewed and scrutinized by athletes, teams and fans alike - from protocols to schedules to health safety measures. But now that the seasons are in full swing, and since in-person attendance at games is limited, and in some cases, prohibited, how can we determine if these seasons are successful? 

Well, that’s debatable.

According to Nielsen, baseball’s opening weekend saw some of the largest audiences for a regular season game on any network since 2011. NBC Sports claims Saturday’s doubleheader games in the Stanley Cup Qualifiers games was the “most-watched NHL doubleheader in four years.” And Nielsen cites the Rockets-Bucks game on Sunday as the highest of any “non-Lakers or Christmas Day game of the season.”

But our own data shows a different side of the story. 

This week, Roku released the second wave of television viewing data analyzed from millions of Roku connected households that show the majority of Roku homes that watched traditional pay TV major league baseball, basketball and hockey during the 2019 season did not return to traditional pay television to view the COVID-19 delayed opening weekend for each league in 2020 -- 2 of 3 NBA viewing households, 7 of 10 NHL viewing households and 7 of 10 MLB viewing households did not watch any of the opening weekend games on traditional pay TV during the 2020 opening weekend. 

Super fans -- the top 10% of viewers by total hours watched per season on traditional pay TV -- are no guarantee for traditional pay television either. Among baseball super fans, who watched more than 34 hours of MLB on traditional pay TV last year, 1/3 did not watch a single minute of baseball on traditional pay TV. For basketball super fans, who watched more than 29 hours of NBA last season, 2 in 5 did not watch a single minute on traditional pay TV during opening weekend this year. And 56% of hockey super fans, those who watched more than 17 hours of NHL on traditional pay TV this season, did not return for a single minute of opening weekend.

This massive drop off in audience is being fueled by a shift away from cable to streaming. This past week, we released the findings from our annual cord cutter survey that showed 1 in 3 households no longer have traditional pay TV subscriptions as cord cutting accelerated earlier this year. The survey also found that less than 1 in 5 users who cut the cord said they would consider returning to cable if sports comes back.  Now, with the data back from this weekend, we see these numbers are holding true. 

So why the difference?

Size versus staying power. Nielsen reports out the total number of viewers for each game while our survey is focused on retention of individual households from one point to another.

More than 1 in 4 cord cutters surveyed this year ranked the loss of live televised sports as their #1 reason for cutting the cord. However, after cutting the cord, 92% of Roku users from that survey reported they are “very satisfied” with their decision to cancel traditional pay TV. And almost 1 in 4 (23.7%) of US live sports viewers will watch via digital channels this year according to eMarketer.

The big question on the minds of many is whether fans have abandoned sports or simply abandoned cable and found other ways to access their content. The amount of time spent streaming sports during the 2020 opening weekend for those households that watched any NBA or NHL on traditional pay TV last season but did not watch any during the 2020 season opener increased by a quarter year-over-year and the amount of time spent streaming sports during the 2020 opening weeks for those households that watched any MLB on traditional pay TV last season but not during the 2020 season opening was up by nearly half (49%).

So while sports are back and we can’t be more excited, it’s an entirely different story for traditional pay TV, which is facing a full count at the plate, a full court press and sudden death in overtime -- all at once. 

Roku is the #1 streaming platform in America, connecting users to the streaming content they love, enabling content publishers to build and monetize large audiences, and providing advertisers with unique capabilities to engage consumers.

Influential Sanford Bernstein media analyst Todd Juenger has long believed in the power of subscription video on demand king Netflix, predicting that the service would top 300 million worldwide subscribers by 2024. Now, in his most recent report, Juenger notes that in Brazil -- the second largest Netflix market behind the U.S. -- Netflix customers now outpace pay TV subscribers. 

Netflix’s growth in Brazil has been rapid. According to Juenger, there were about 6.5 million Netflix customers in Brazil in 2017, more than doubling to 17 million by 2020. Pay TV, with about 16 million customers in 2020, lost about 3 million subscribers in the same time frame, the analyst wrote. 

“Brazil matters: at 17 million plus subs, it is almost certainly Netflix’s largest market outside the U.S. in number of subscribers,” Juenger wrote. “And we expect many of the dynamics at work there are also playing out across other foreign countries, especially middle income/emerging markets.” 

Even at No. 2, Brazil is still far behind the U.S. market, which has about 73 million subscribers. Globally, Netflix has about 193 million customers. But even in the U.S., the gap is narrowing. According to MoffettNathanson, there were about 79 million traditional pay TV customers in the U.S. in the second quarter, down from 80 million in Q1. 

According to Juenger’s report, Netflix’s entrance into the Brazilian market wasn’t easy. It cracked the largest country in South America in 2011, and pretty much had the SVOD space to itself until 2015, when its first competitor -- Globoplay, a streaming service from Portuguese-language content producer Globo -- entered the scene. 2015 also was the beginning of a devastating recession and high unemployment in Brazil, and though Globoplay was priced at about one-third of Netflix, it only has about 6.5 million customers today. 

Juenger added that Netflix has prevailed despite Globo’s refusal to license any of its Portuguese-language content to the streamer. So, in a country where 99% of the population speaks Portuguese, Netflix has managed to attract three times the subscribers of its largest competitor by offering content in a language most don’t necessarily understand (English and Spanish) at a higher price (about 32 Brazilian real per month, according to Juenger). Granted, many Brazilians speak several languages and economic factors likely played a big role in the shift from traditional pay TV, but those alone don't explain Netflix's huge popularity in the country.

“Netflix provides a superior product at a quarter of the price of pay TV, and can be shared across different households much more easily than a pay TV subscription,” Juenger wrote, adding that Netflix hasn’t fueled growth by keeping prices low. 

“Netflix has raised prices of its Standard plan five times since its introduction in September 2011, more than doubling in nominal terms and up 37% in constant domestic currency,”  Juenger continued.

According to the analyst, Brazilians are watching a wide variety of programming, but not the same as their U.S. counterparts. According to Juenger, the top shows in Brazil are mostly Netflix originals, and mostly in English. He added that 58% of the shows that made the Brazilian Top 10 never made the U.S. Top 10.  

Competition in Brazil is expected to heat up in the next several months, with Disney Plus slated to launch in mid-November and HBO Max next year. But Juenger sees little impact from these services because he believes they are primarily competing on price -- Disney Plus at a 12% discount to Netflix and HBO Max still undisclosed. Amazon (the online retailer, not the rain forest) launched its full Prime package (video and the free delivery service) in 2019 and has grown quickly -- in September 2019 Amazon claimed Brazil had the fastest rise in Prime members in the online retailer's history. Still, that could be mainly because of pricing -- Prime is offered at a 70% discount to Netflix -- and free product delivery.         

“We doubt any of these services will be able to match Netflix's popularity in Brazil,” Juenger wrote, citing Google search statistics that show interest in Netflix far outweighs the competition. “We believe this is driven by Netflix being the first-mover and only relevant streaming service in Brazil for a while (not different than in other countries), as well as due to its massive production of high-profile content and an underlying strong technology base.” 

A new survey conducted by Roku finds that 32% of U.S. households do not have a traditional pay TV service.

The study said that 25% of households identified as cord shavers cut back on their pay TV service, with 45% of cord shavers saying they’re likely to cut the cord entirely in the next six months.

Only 17% of recent cord cutters said they would re-subscribe to traditional pay TV in order to watch live sports when they return this year. If sports don’t return, 52% of traditional and cord-shaver households are likely to reduce their package if live sports don’t return to TV. Meanwhile 31% said they would subscribe to a live sports streaming service.

The study points to the rise of streaming as the way more people are getting their video entertainment.

“While we entered 2020 with significant momentum around cord cutting, we’re now seeing that the COVID-19 pandemic and the pause of live sports has caused consumers to rethink how they access home entertainment and what they are willing to pay,” said Roku chief marketing officer Matthew Anderson. “It’s clear that value matters more than ever and the abundance of free content, free trials to premium streaming services and the savings that consumers achieve are fueling the shift to streaming.”

In terms of value, most cord cutters said that reducing entertainment expenses was their No. 1 reason for dropping pay-TV.

Roku users who cut the cord said they saved about $75 a month. That number was higher than for cord-cutters who said they use other streaming devices.

Nearly half of all U.S. households said they’re watching more free ad-supported TV during the pandemic than they were before and 40% of recent cord cutters said that free trials offered by streaming services helped convince them to drop their traditional pay services.

Roku’s study was conducted by MACRO Consulting, which interviewed 7,000 Americans over 18 in March, followed by 2,000 more Americans in May.

A new survey conducted by Roku finds that 32% of U.S. households do not have a traditional pay TV service. 

The study said that 25% of households identified as cord shavers cut back on their pay TV service, with 45% of cord shavers saying they’re likely to cut the cord entirely in the next six months.

Only 17% of recent cord cutters said they would re-subscribe to traditional pay TV in order to watch live sports when they return this year. If sports don’t return, 52% of traditional and cord-shaver households are likely to reduce their package if live sports don’t return to TV. Meanwhile 31% said they would subscribe to a live sports streaming service.

The study points to the rise of streaming as the way more people are getting their video entertainment.

“While we entered 2020 with significant momentum around cord cutting, we’re now seeing that the COVID-19 pandemic and the pause of live sports has caused consumers to rethink how they access home entertainment and what they are willing to pay,” said Roku chief marketing officer Matthew Anderson. “It’s clear that value matters more than ever and the abundance of free content, free trials to premium streaming services and the savings that consumers achieve are fueling the shift to streaming.”

In terms of value, most cord cutters said that reducing entertainment expenses was their No. 1 reason for dropping pay-TV.

Roku users who cut the cord said they saved about $75 a month. That number was higher than for cord-cutters who said they use other streaming devices.

Nearly half of all U.S. households said they’re watching more free ad-supported TV during the pandemic than they were before and 40% of recent cord cutters said that free trials offered by streaming services helped convince them to drop their traditional pay services.

Roku’s study was conducted by MACRO Consulting, which interviewed 7,000 Americans over 18 in March, followed by 2,000 more Americans in May.

While the rest of the analyst community braces for the COVID-19 pandemic’s full impact on second-quarter results, pay TV distributors and networks appear to have more than enough liquidity to weather the worst the lockdown has to offer, according to Moody’s Investors Service.

Cable distributors and networks have tapped the debt markets in earnest as the pandemic has cut into advertising budgets and a dramatic rise in unemployment has made it difficult for many Americans to pay their bills. Some of the biggest companies in the sector — The Walt Disney Co. and Comcast — as well as ViacomCBS, Discovery Inc. and others have used the bond markets to ensure the flow of available cash.

In the first quarter, Disney issued bonds in the U.S. and Canada worth about $7 billion, while Comcast tapped the debt markets for about $4 billion. At the same time, ViacomCBS issued about $2.5 billion in bonds, while Fox sold about $1.2 billion in long-term notes.

That activity didn’t seem to slow down in the second quarter. In May, Disney issued another $11 billion in notes, Comcast issued $4 billion and ViacomCBS issued $2 billion in debt. AT&T, one of the most highly leveraged media companies after its $100 billion-plus purchase of Time Warner Inc. in 2018, tapped the debt markets three times in Q2: A $12.5 billion bond offering on May 22 to help pare down debt, a $3.2 billion bond offering earlier in May for general corporate purposes, including debt retirement, and a $5.5 billion credit agreement with a consortium of banks led by Bank of America.

Still Room to Borrow

In a research note, Moody’s Investors Service senior VP Neil Begley wrote that despite the surge in activity, most pay TV companies still have ample liquidity as some states begin to lift restrictions associated with the pandemic.

Disney leads the list with about $42.3 billion in available liquidity, according to Moody’s, including $14.4 billion in cash; followed by Comcast, with about $21.7 billion in available liquidity. Even AT&T, which has the highest leverage of any media company after buying Time Warner Inc. in 2018, has about $25.4 billion in available liquidity, followed by ViacomCBS ($5.5 billion), Fox ($5.4 billion), Discovery ($4.4 billion) and Cox Communications ($3.5 billion).

Domestic advertising spending fell 31% in May, the third straight month of declines, according to Standard Media Index. While the numbers were bad, they were at least better than April, when ad sales dropped 35%, according to SMI. Ad sales fell 11% in March.

The lack of sports was the main culprit in the falloff. SMI said the
absence of NBA playoffs in the month had the biggest effect on WarnerMedia (home of the Turner Networks), which declined 45.5%; and Disney (home of ESPN), down 39.6%.

With sports expected to begin a comeback, the hope is those ad dollars will return. The NBA is tentatively set to finish the final eight games of the regular season and begin an abbreviated playoff schedule beginning July 30 and Major League Baseball is expected to begin its reduced 60-game season July 23 and 24.

“We expect to see a rebound as people leave their homes and increase their consumption and other economic activities,” Begley wrote. “We are forecasting a gradual ramp-up of depressed revenues at a cadence parallel to relaxation of COVID-19 fears and corresponding to the limitations of continued social distancing standards.”

That comes as most analysts are bracing for continued subscriber losses in Q2, the first full quarter affected by the lockdowns. Cord-cutting was at an all-time high in Q1: Cable, satellite and telco TV service providers shed about 2 million subscribers, or 7.6% of their video customer base. Most expect Q2 to be even worse.

An Unprecedented Crisis

Moody’s acknowledges that this more recent economic downturn is unlike any in recent memory, calling the current crisis different “because it is testing the depths of disruption, and for some media sectors will exceed any strains felt previously.” There is hope that by late Q2 and early Q3, as the economy restarts, relief will come.

That sentiment was shared by rival ratings agency Fitch Group, which noted in a June report that the cable sector has shown its resilience in the past, given the value of its video and broadband services. While the business segment may continue to suffer, broadband and mobile services should help take up at least some of the slack.

Fitch estimated the advertising market will decline by mid-to-high single-digit percentages in 2020, and by low-to-mid single digit percentages in 2021. Cable networks, Fitch predicted, will suffer revenue declines in the low-to-high teens, in terms of percentages. 

For the better part of the last decade we have been hearing about how massive change was imminent in the television industry. This included everything from claims that a “massive wave of cord cutting” would soon kill off the pay TV industry, along with more mundane predictions like the rise of Netflix-like TV Everywhere apps from MVPDs and the expansion of addressable TV advertising.

And while the TV industry has been changing, those shifts have largely been incremental, which is notable in that the actual technology to enable serious changes has existed for many years now.

The culprit? Inertia. Everyone was still making money hand over fist, and if there's anything that makes people resistant to change, it’s a flush bottom line.

That all changed back in March when the pandemic hit, followed closely by nationwide social justice protests.

Not that these events particularly devastated most industry players’ bottom lines—ad budgets got cut, but not to the level of “devastating” (at least not yet)—but something about the pandemic and the protests and the way they changed the way we see the world seems to have also shocked the broader media industry into realizing that maybe it was time to stop putting off all those changes.

Time is short, stability is fleeting, and all that.

This is not unusual. Periods of great upheaval traditionally result in periods of innovation, as clinging to the old ways no longer makes sense in the new world.

For the television industry, this shift will be helped along by the fact that many of the key pieces were put in place prior to and in the early days of the pandemic.

The launch of four new Flixes (giant multibillion dollar services) from Apple, Disney, Comcast and Warner (with a fifth, from ViacomCBS on the way) has more than doubled the number of streaming options available to consumers. This, in combination with over 40 million Americans unemployed, should also result in a larger-than-expected increase in the amount of cord-cutting as many viewers realize that the bulk of their paid TV viewing has shifted to the Flixes and the money they’re spending on a cable TV subscription would be be best spent elsewhere. Take food, for instance.

There are also the FASTs, the free ad-supported streaming TV services, whose rapid growth can be attributed to their large content libraries, much lower ad loads and, above all, the fact that they’re free for anyone with an internet connection. 

Combine the Flixes and the FASTs and suddenly you have a TV ecosystem that is completely digital, still includes all of the major players and series from the good old days, and seems to be doing a good job of meeting consumer needs.

It’s also doing a good job of meeting advertiser needs, which is critical, given their critical role in making the TV industry profitable.

Advertisers like smaller ad loads (it allows their spots to have more impact) and the increased ability to run addressable TV advertising, both on OTT and on linear is also gaining traction due to the pandemic. As various parts of the country are opening up and shutting down at different times, advertisers are realizing the need for flexibility and the ability to target their messages to specific households in specific regions.

For advertisers, this scenario, often referred to as “The Hammer and the Dance”  means the ability to be able to target local audiences is more relevant than ever before, which is why both local broadcasters and MVPDs are making increased use of OTT to help reach local viewers who are not easily found on linear. By combining both linear and OTT, advertisers are able to reach those local audiences, while maintaining the ability to adapt their messages at the last minute, depending on the situation on the ground.

What’s Next?

The biggest question is whether the industry continues to double down on innovation or whether it reverts to the dysfunction of the past. We are certainly seeing the latter play out with the HBO vs Roku and Amazon beef, which feels like an updated version of the carriage fee battles that certain satellite providers were well known for. 

This is unfortunate because doubling down on innovation would actually be a boon for everyone in the industry, consumers, programmers, distributors and advertisers. 

Take something like the oft-proposed personalized linear channels on the FASTs and even the Flixes, something akin to Spotify’s Daily Mixes, where an algorithm looks at your prior viewing history and creates a linear stream especially for you. That would be a huge PR win for distributors and programmers as the feature would get them a lot of positive buzz, and it would be a big win for advertisers too, as they’d know exactly who they were targeting and could potentially even personalize the ads,

The technology for these sorts of algorithms certainly exists and it wouldn’t be too hard to implement. It would even help the FASTs get viewers to sign up for an account, at which point their targeting could become even more precise.

Another area where innovation is needed is in managing TV subscriptions. While Roku, Apple and Amazon have made great strides, their approach is not necessarily appreciated by larger platforms (hence the current beef-fest with AT&T) but there’s still a need for a service that helps viewers manage their existing subscriptions, find new services and find shows they want to watch without having to resort to Google.

While there are no guarantees that the current global crises will lead to increased innovation when we get to the other side, history seems to indicate that is indeed what will happen. As people and organizations are knocked out of the old, comfortable ways of doing things, newer, better and more efficient methods suddenly seem a lot less scary. 

The status of the global pay-TV market over the next few years depends on where operators currently stand, according to a new report from Digital TV Research. Those among the top global operators are expected to see negative or flat growth, while those outside the top 50 are projected to gain subscribers and increase revenue.

According to Digital TV Research, of the 502 operators across 135 countries that make up the Global Pay-TV Operator Forecast, two-thirds will gain subscribers between 2019 and 2025, while 59% are expected to increase their revenue over the same period.

At the end of 2019, Digital TV Research says that the top 50 pay-TV operators accounted for 46% of the world’s pay-TV subscribers. But over the next five years, the forecast has the top 10 operators losing subscribers and the other 40 in the top 50 remaining flat, while those outside those top spots are expected to gain subscribers.

For those outside the top 50, Digital TV Research projects eight will add at least 1 million subscribers by 2025; leading operators will be China Unicorn (19.96 million projected new subscribers) and China Telecom (18.52 million). The report also forecasts eight operators will lose 1 million or more subscribers—the largest is expected to be China Radio and TV (37 million subscribers lost), but the next five are all companies from the U.S.

While there will be wide ranging swings of losses and gains, Digital TV Research sees growth for the global pay-TV market. “By end-2019, 13 operators had more than 10 million paying subscribers,” said Simon Murray, principal analyst at Digital TV Research. “This will reach 14 operators by 2025.”

This story was originally published in Next TV sibling publication TV Technology. 

Dish Network Corp. reported lower earnings as it continued to lose subscribers.

Net earnings fell to $73 million, or 13 cents a share, from $340 million, or 65 cents a share a year ago. The company said its earnings were impacted by $356 million in impairments related to its narrowband IoT network and the D1 and T1 satellites.

Revenue rose to $3.22 billion from $3.19 billion a year ago.

Dish said it lost 413,000 pay-TV subscribers in the first quarter, compared to a loss of 259,000 subscribers a year ago. It finished with 11.32 million pay-TV subscribers, including 9.01 million with Dish TV and 2.31 million with Sling TV.

Dish also said it paused service or provided temporary rate relief for some commercial accounts, many of which Dish expects to disconnect because of COVID-19 disruption. Those accounts represent about 250,000 subscribers, the company said.

Dish does not expect to incur significant expenses from the reactivation of any returning commercial accounts. While returning accounts will be added to future ending subscriber counts, they will not be counted as gross new subscriber additions in the period of their return.

Traditional pay TV subscriptions fell by a record-setting 1.8 million in the first quarter, according to an analysis by Craig Moffett of MoffettNathanson Research.

The 7.6% decline includes a 14.3% plunge for satellite, compared to a 4% drop for cable.

"With sports off the air, and with the pain of the tsunami of unemployment just beginning to hit as the quarter ended, all these numbers will get worse in Q2,” Moffett said.

But Moffett noted that even more depressing than the drop in traditional pay-TV subs was a surprising decline in subscribers to streaming virtual MVPDs like AT&T Now and Sling TV. Moffett said vMVPDs lost 341,000 subscribers in the first quarter.

“The vMVPDs, once viewed as the last line of defense for cable networks, imploded in Q1,” he said.

Moffett said that when Sony’s PlayStation Vue service closed in January, its subscribers appear to have gone nowhere. AT&T Now, Sling TV and fubo all lost subscribers.

The Walt Disney Co.’s Hulu Live TV vMVPD grew by just 100,000 subscribers. The category also includes YouTube TV, which this week agreed to add 14 more ViacomCBS networks.

Total pay-TV subscribers, including both traditional and vMVPDs, are shrinking at a rate of 5.3% per year, Moffett said.

“It is perhaps some comfort that some of the same companies losing distribution for their traditional cable networks – we’re looking at you, Disney and Comcast – have launched direct-to-consumer 'lifeboats' that are rapidly gaining traction with distraction-starved, shut-in consumers,” Moffett said. “AT&T will join this club in a few weeks with the launch of HBO Max. But it is increasingly clear that as consumers climb into these lifeboats, they are leaving the (sinking) motherships behind.”

A widespread coronavirus outbreak could have a short-term negative effect on ad-supported TV, Moody’s Investors Service said Wednesday -- mainly due to a broader economic pullback -- while a longer period of quarantine could actually help viewership numbers.

So far there have been more than 120,000 reported cases of coronavirus COVID-19 worldwide, with about 4,400 deaths so far. In the U.S., about 1,000 people have tested positive for the illness, with 32 deaths.

In a research report Wednesday, Moody’s said a widespread outbreak of the coronavirus in the U.S. could have a brief negative effect on ad-supported TV, with advertising sales impacted by the scarcity of consumer goods.

“If the virus spreads widely in the US, economic contraction and short supply of consumer products and durables is likely and would last through to the end of the outbreak, which could be more than one quarter,” Moody’s SVP Neil Begley wrote in the report. “The effect on US media companies’ advertising revenue would be significant. Yet, because of the nature of the disruption, we believe the duration could be short — unlike the longer consumer-led recession during and following the 2008-2009 financial crisis.”

Begley added that cable and broadcast networks; broadcast station owners; sports leagues, teams and regional sports networks; and internet advertising companies would all be affected by a broader coronavirus outbreak. So would pay TV service providers, but to a lesser extent.

According to Moody's should the spread of the virus require more people to self-quarantine, it could have a positive effect on TV viewership.  

“Pay-TV and streaming services may benefit from higher engagement and increased subscriptions as people remain at home,” Begley wrote. “That, together with political advertising ahead of the Presidential election, may partially offset the reduction in demand for ads.”

According to Moody’s more than two-thirds of ad-spending comes from areas that are at risk to see declines due to the outbreak, including retail and auto,travel and tourism, consumer products, restaurants, and theatrical films. Less vulnerable sectors - some that actually could see increased ad spending -- include telecom, financial services, insurance, political, pharma and media and home entertainment.

Moody’s added that even if ad sales do decline, broadcasters and cable networks are partially shielded by affiliate fees they are paid by distributors. 

ViacomCBS is launching a new ad campaign for its ad-supported streaming service Pluto TV that emphasizes that Pluto is free.

In commercials that will run in late night TV Monday, viewers are shown tuning into Pluto TV and then vanishing, much like subscribers are disappearing from pay TV.

“Where do you go when you drop in to Pluto TV? To a place far, far away from other TV. Where the TV flows like it’s free. Because it is. And oh, you’re going to love it. Hundreds of channels for zeros of dollars. Drop in. It’s free,” the spot says.

“Drop in. It’s Free,” is the slogan of the campaign, which will also run out of home in New York, Los Angeles, Atlanta, Dallas, Chicago, Minneapolis and Houston, on connected TV and streaming audio, digital, social and in-theater.

The campaign also touts a new logo for Pluto TV and upgrades to the product, including  an improved interface, watch lists, favorite channels and a “watch now” button. Pluto TV calls the product upgrade Project Venetia.

“Today marks another major step for Pluto TV in its mission to entertain the planet. Project Venetia makes it even easier for viewers to find and enjoy their favorite streaming TV programming,” said Tom Ryan, CEO and co-founder of Pluto TV. “And with our new brand campaign, we’re communicating the core value proposition of Pluto TV and inviting everyone to visit a bold new world of television. As our new tagline promises, you can drop in anytime and start watching hundreds of channels on any device, all for free.”

Evercore ISI media analyst Vijay Jayant believes that cord-cutting, after a record 2019, could ease up in 2020 as the remaining pay TV customer  base appears more enamored of live news and sports.

In a research note, Jayant acknowledged that cord-cutting reached a peak in 2019 -- 6 million pay TV customers left the fold by his estimate, up from 4 million in 2018 -- but that there are signs that 2020 could be better for traditional distributors.

Jayant added that the 2019 results were in part artificially skewed by DirecTV, which lost 1.1 million customers in Q3 after discontinuing heavy promotional pricing. He also pointed to a survey conducted by Evercore ISI (using about 600 pay TV customers) that suggested that  “with payTV penetration now sitting just over ~70%, the marginal cord cutter is more likely a stickier sports / news content consumer.”

As a result, he predicts that pay TV would lose about 4.8 million subscribers to cord-cutters in 2020. 

Virtual MVPDs, after two straight years of solid growth (2.5 million additions in both 2017 and 2018), slowed down in 2019, with Jayant estimating the category added less than 1 million customers in 2019. That slowdown should continue this year, especially since Sony PlayStation Vue, which Jayant estimated once had about 700,000 customers, has said it will close its doors early this year.  

“The slowdown in MVPD subscriber growth has been driven by a combination of lower promotional discounts, higher list prices, and possibly increased password sharing,” Jayant wrote. 

Growth in subscription video on demand services is expected to accelerate in 2020, as more new entrants come on the scene. The space, dominated by Netflix, Hulu and Amazon Prime Video, is getting increasingly crowded with the November launch of Disney + and the expected debuts of HBO Max (March), NBC’s Peacock (April) joining other existing services like CBS All Access and Showtime. Jayant estimated that SVOD providers would add 30 million subscribers globally in 2020.

“While these services are not true substitutes for pay-TV, incremental content made available in the direct-to-consumer arena could still weigh on multichannel subscriber trends,” Jayant wrote.

While Jayant expects video margins to continue to contract -- he estimated programming costs per subscriber for Comcast and Charter would rise in the mid-to-high single digit percentages in 2020 -- that should be offset by broadband gains. The analyst expects about 3 million net broadband subscriber gains for the year, with cable continuing to take share from DSL. Fixed wireless 5G, he added, shouldn’t have an impact in 2020.

As far as wireless, Jayant noted that the key themes should continue to be ongoing consolidation efforts and the deployment of 5G offerings.

Jayant expects the 2020 election and the summer Olympics to drive TV advertising revenue up by mid-single digit percentages, with political spending expected to be up by 60% compared to 2016 given a number of tight races, with local broadcasters, MVPDs and cable networks being the biggest beneficiaries.

Among Jayant’s top picks for the year: ViacomCBS (which he says has an underappreciated digital business); Nexstar Media Group (due to political ad seasonality and benefits from its recent Tribune Media purchase); Charter Communications (he increased his price target on the stock to $600 per share citing strong operating free cash flow growth and market share performance).

If streaming media is a revolution in the way video is delivered to consumers, it is also an example of how old issues can become new again.

Take churn, a familiar problem in the pay TV industry that is likely to explode into a much bigger concern in the streaming world.

VIEWER WATCH 2020:After the Fall

Magid executive VP Jill Rosengard Hill said consumers clearly love the choice offered by the newer streaming world, and Magid research shows them preparing to abandon the traditional pay TV universe at record rates. “In 2019, we saw that 8.9% of pay TV subs are planning to get rid of their pay TV service and not get another one,” she said.

But a Magid consumer survey also showed 42% of those aged 18-49 are finding that managing the complexity of all their SVOD subscriptions is a problem. Many of these subs are likely to churn in and out of these services, with 43% of the 18-49 age group saying they’re likely to cancel a service in less than six months. Nor are they willing to spend huge sums of these services. Magid’s 2019 research finds that 18-49s are likely to subscribe to only five services.

“We are seeing a fatigue in subscription and hitting a ceiling in terms of what the consumer is willing to pay as well as a fluidity in and out of many subscription services,” Rosengard Hill said. “The pain point of churn and how that is going to impact these services is a major issue.”

The Bundle Is Back

Consumer concerns about the complexity and costs of finding content among many apps highlights the importance of content aggregation in an increasingly fragmented streaming world. “The consumer is finding it increasingly confusing, chaotic and a lot of work to curate their own video experiences,” Horowitz Research president and founder Howard Horowitz said.

This opens up opportunities to reimagine the bundle for a new generation of tech-savvy younger viewers, Horowitz and other observers noted.

To that end, Comcast has added more than 100 streaming services to its X1 and Flex platforms, with plans to add Peacock and Hulu to the platforms in 2020.

Rebecca Heap, Comcast’s senior VP, video and entertainment, noted that the cable operator’s relatively new Flex product is bundled for free with broadband service. “We have launched 10,000 free TV and video programs on a range of different apps,” she said.

The operator is also working to improve the consumer experience with universal search across all those apps on both X1 and Flex. Voice search was averaging 1 billion commands a month in 2019 and is on track to hit 12 billion hours for 2019.

Making content easier to access has led to increased use of Comcast’s traditional VOD platform, which is on pace to top 7 billion hours viewed in 2019. It has also boosted engagement with outside apps like Netflix that are available on both X1 and Flex. In 2019, Comcast’s X1 was the top platform for accessing Netflix, Amazon Prime Video and YouTube within its footprint.

David Gandler, co-founder and CEO of fuboTV, also stressed the growing consumption of streaming video, particularly on connected TVs. Their users average 103 hours in October of 2019, up 135% year on year.

A key part of that growth, he added, is related to improvements in their bundles, content offering and user interface. “The future is optimizing the bundle for users,” Gandler said.

The importance of bundles is also making alliances between streaming services and traditional MVPDs increasingly important. “We are distributing on a direct-to-consumer basis and for that you still need distribution partnerships,” said Otter Media CEO Tony Goncalves, who is also the top executive overseeing WarnerMedia’s HBO Max.

Those partnerships will include smart-TV manufacturers and connected-TV devices like Roku and Apple TV, but he believes “a good amount of those distribution partnerships will still be through the pay TV ecosystem.”

“I had an old boss who used to say to me that the consumer and the industry aren’t always aligned, but that the consumer tends to win,” Goncalves added. “Consumers are voting for choice and I think we are seeing the industry meet the consumer where they are, which is refreshing and encouraging.”

Roku is particularly keen to work with programmers in a variety of areas ranging from marketing and ad sales to app development and better search, said Scott Rosenberg, Roku’s senior VP and general manager of platform business.

“We see the aggregation of content into a smaller number of apps as a very important trend,” Rosenberg said. “So in addition to being a host and partner to big services like Netflix, Hulu, Disney+, etc., we can also act as an aggregator and use our capabilities as a platform to help drive audiences to content with our direct consumer relationships, rich data and marketing tools.”

Such alliances helped CuriosityStream increase its subscriber tenfold in 2019, from about 1 million at the start of the year to 10.5 million in early December, noted Clint Stinchcomb, president and CEO of the nonfiction programmer. In 2019, the service inked over 15 deals with operators to add CuriosityStream to their streaming-video offerings.

“The big trend we see is going back to the bundle and the bundle of bundles,” Stinchcomb said. “We are getting approached by distributors who were frustrated by the big legacy TV network groups who were jacking their rates way up.”

International growth has been particularly strong. More than half of CuriosityStream subscribers are located outside the U.S., with the service set to launch in nine Latin American countries this month.

I Want My Antenna

Many uncertainties about pricing and profitability remain, however.

In 2019, Sony shuttered its PlayStation Vue MVPD service, while other providers were forced to raise prices dramatically in the past year. “A lot of those services hit the market with fairly aggressive pricing and now are coming to terms with the economic realities of licensing this content and turning a profit,” said Ian Olgeirson, research director at Kagan, a research division within S&P Market Intelligence. “In 2019, we saw some of them announce as many as two rate increases.”

To address those issues, Sling TV has focused on reducing costs, improving the user interface and providing consumers with a great deal of choice and flexibility. They can add a sports package during football season and then drop it when the games are finished, Sling TV VP of operations Seth Van Sickel said.

To further control costs, Dish Network-owned Sling TV works with AirTV so consumers can get free over-the-air TV signals along with a program guide, which keeps their packages less expensive than operators who must pay retransmission fees to stream the affiliated stations.

A recent study from Horowitz Research found that more than four of 10 TV antenna users got their first antenna in the last three years and three out of 10 antenna owners say they got it to avoid having a pay TV subscription. “The rise of OTA over the last three years has happened under the radar because all of the big players don’t want to promote it because retransmission fees are so important,” Horowitz said.

The pressure to control costs is also driving two other significant trends: globalization and advertising on streaming platforms.

A recent report from the Motion Picture Association of America found that SVOD subscribers have now surpassed MVPD subs, as global streaming services added 131.2 million new subscriptions in 2019 for a total of 613.3 million worldwide.

There are also major growth opportunities for ad-supported services in the U.S. and internationally, Pluto TV CEO and founder Tom Ryan said, particularly since the acquisition of his company by Viacom (now ViacomCBS) in early 2019. “We’ve already launched in Europe but we are accelerating that rollout in Europe and launching in Latin America in the next quarter,” he said.

Closer to home, Ryan and others see a major opportunity for ad-supported video-on-demand services (AVOD) as subscription bills begin to mount for SVOD services and advertisers become more familiar with the medium.

“AVOD is a very hot space right now and growing like a weed, but the market is clearly in its infancy,” Ryan said. “Currently, about 29% of all TV viewership is happening on ad-supported OTT, but only 5% of the ad dollars are going to it.”

Roku’s Rosenberg agreed. “For a long time, the industry debated whether streaming would be ad-free,” he said. “But if you look at our own revenue growth and the fact that the ad-supported segment of viewing is the fastest growing segment, you see powerful evidence from a business and consumer perspective that advertising is here to stay as a vital part of the TV experience.”

While video consumers are increasingly dissonant to truck rolls and the two-year contract, there’s something to be said about the relative stickiness of traditional pay TV.

According to Parks Associates, churn rates for OTT services like Netflix and Disney+ are actually around nine times higher than they are for traditional linear TV platforms. And churn for subscription video on demand (SVOD) services is about 1 1/2 times greater than it is for virtual pay TV services like Sling TV, Hulu Live TV and YouTube TV.

As more consumers enter the SVOD market, and more services start competing with it, OTT service churn is increasing—from a rate of just under 30% at the beginning of 2018 to about 35% in the first quarter of 2019.

Speaking at Parks Associates’ “Future of Video” conference last week in the Los Angeles area, Marty Roberts, co-founder CEO of consultancy Wicket Labs, said OTT services that offer consumers the chance to sign up and quit instantaneously, and without penalty, must market effectively.

To combat churn, Roberts advises his OTT service clients to look for at-risk subscribers—those who have been inactive for a three-month period, say—and find ways to get them engaged.

Interestingly, however, he tells his clients to tread quietly around users who might have forgot they’re paying a monthly bill for video service.

“There’s causal relationship between inactive customers and churn after six months,” Roberts said. “The worst thing you can do is talk to those customers.”

MARINA DEL REY, CALIFORNIA — Should the definition of pay TV be broadened beyond bundles of linear channels delivered by cable, satellite, telco and virtual services?

That was the question asked this by Parks Associates’ top OTT research analyst, Brett Sappington, to a morning panel at firm’s “Future of Video” conference event. 

“We get lost in semantics,” said Sappington, proposing the possibility that subscription services like Netflix, Disney+ and HBO Max should also be labeled “pay TV.” 

“Most households have some money available for television service. And that bucket can include up to 10 services, which might include Disney+ and other subscription services, and it seems useful to call that pay TV, too,” said Trent Wheeler, senior VP of video product for Gracenote. “It’s video to be monetized.” 

Wheeler suggested re-defining larger, more expensive traditional linear bundles as “premium pay TV.”

“I think we need to broaden that definition a little,” concurred Virginia Juliano, founder and CEO of CobbleCord, a company that seeks to help consumers better understand the complexity of using streaming video services. “It doesn’t fit within the buckets we’ve been working with in the industry.” 

Rockbot, a Google backed company that already sells a professional grade music jukebox service to restaurants, bars and other commercial venues, is aiming to disrupt the out-of-home video business.

The Oakland, Calif., company last week debuted a new streaming, multichannel service that offers headend control of multiple TV monitors in multiple venues.

According to Garrett Dodge, CEO of Rockbot, the company has already deployed the service at the Hard Rock Hotel and Casino in Las Vegas. The service includes a range of smaller and niche channels. The limited programming selection includes Bloomberg TV, QuickTake by Bloomberg and Top Stories by Newsy for news; Stadium, ACC Digital Network and World Poker Tour for sports; and Outside TV and Fashion TV for Lifestyle.

Dodge said Rockbot is aiming to announce an expanded programming bundle next year. But beyond content, he noted that the service’s real advantage is in execution. Currently, commercial venues use what largely amount to residential pay TV technology to integrate multiscreen video.

“The average sports bar will have 15 individual cable boxes,” Dodge explained, each of them hooked up to an expensive AV cabinet somewhere at the facility. This box will cost, on average, around $50,000 to build, he said. For franchises, it’s an expensive solution offering little centralized control.

“Why are you using a consumer product, spending millions of dollars a year, and relying on a bar tender with a remote control?” Dodge asked. “If you’re going to run content in 10 to 50 locations, you want it to be a reliable and in your control. You don’t want to walk into your restaurant in Peoria and the staff has tuned to the wrong content.”

Out-of-home viewing accounts for 7% to 11% of overall video usage, Dodge said, citing Nielsen data. Usage has grown in the “flat-screen” era, whereby TVs have become flat enough, light enough—and above all, cheap enough—to be amply festooned all over venue walls. Back in the days of CRT televisions, which were considerably bulkier and heavier, this simply wasn’t feasible.

“Now you can get a 42-inch TV for 200 bucks and plaster it all over your walls,” Dodge said.

Rockbot is backed by Google Ventures and Universal Music Group. Dodge added that the company expects to grow its market share in video as linear pay TV operators retreat.

Comcast, he noted, had more than 1 million subscribers in the out-of-home market in 2017. “But that base has been rapidly declining, just as we’ve seen in the cord-cutting world.”

Rockbot, a Google backed company that already sells a professional grade music jukebox service to restaurants, bars and other commercial venues, is aiming to disrupt the out-of-home video business. 

The Oakland, Calif., company last week debuted a new streaming, multichannel service that offers headend control of multiple TV monitors in multiple venues. 

According to Garrett Dodge, CEO of Rockbot, the company has already deployed the service at the Hard Rock Hotel and Casino in Las Vegas. The service includes a range of smaller and niche channels. The limited programming selection includes Bloomberg TV, QuickTake by Bloomberg and Top Stories by Newsy for news; Stadium, ACC Digital Network and World Poker Tour for sports; and Outside TV and Fashion TV for Lifestyle.

Dodge said Rockbot is aiming to announce an expanded programming bundle next year. But beyond content, he noted that the service’s real advantage is in execution. Currently, commercial venues use what largely amount to residential pay TV technology to integrate multiscreen video. 

“The average sports bar will have 15 individual cable boxes,” Dodge explained, each of them hooked up to an expensive AV cabinet somewhere at the facility. This box will cost, on average, around $50,000 to build, he said. For franchises, it’s an expensive solution offering little centralized control. 

“Why are you using a consumer product, spending millions of dollars a year, and relying on a bar tender with a remote control?” Dodge asked. “If you’re going to run content in 10 to 50 locations, you want it to be a reliable and in your control. You don’t want to walk into your restaurant in Peoria and the staff has tuned to the wrong content.”

Out-of-home viewing accounts for 7% to 11% of overall video usage, Dodge said, citing Nielsen data. Usage has grown in the “flat-screen” era, whereby TVs have become flat enough, light enough—and above all, cheap enough—to be amply festooned all over venue walls. Back in the days of CRT televisions, which were considerably bulkier and heavier, this simply wasn’t feasible. 

“Now you can get a 42-inch TV for 200 bucks and plaster it all over your walls,” Dodge said. 

Rockbot is backed by Google Ventures and Universal Music Group. Dodge added that the company expects to grow its market share in video as linear pay TV operators retreat. 

Comcast, he noted, had more than 1 million subscribers in the out-of-home market in 2017. “But that base has been rapidly declining, just as we’ve seen in the cord-cutting world.”

Human nature inevitably involves a few bad people doing lots of bad, and a few good people occasionally doing some bad. It’s no surprise then that we have now – and will likely always have – safety and security concerns when it comes to using our electronic devices.

Thank goodness, last week I received the notice below from a friend who subscribes to a well-known pay TV service, known as Dish Network. The written warning is that good, and good enough that I wanted to share it with everyone who reads this and perhaps also pass it along to a friend or family member. That would especially include a dear one who is not as sophisticated as the sender, when it comes to avoiding losses coming from evildoers and their hacking/thievery.

The notice below succinctly and professionally notifies not just Dish subscribers, but really everyone how to avoid bad pay TV actors.

As easy as it is for some hackers/thieves to get into your computer, financial account, or similar electronic service, this kind of Consumer Protection 101 cheat sheet is essential.

Pass this along! It will help everybody to use their computers – be they PCs, laptops, set-tops, smartphones, or tablets, for example – better and safer!

“Webmail –Main Link:

Periodically, Dish gets reports from Dish subscribers regarding suspicious calls in which our subscribers are asked for their account information or to make additional payments. This is an annual protection reminder intended to keep you and your personal information safe. No action is required at this time. Never assume the caller ID is correct for any call you receive. Scammers can easily spoof (i.e., incorrectly alter) their caller ID.

Scammers use a variety of tactics:

· They will give you a sense of urgency. For example, you will lose your service if you don’t act now, or what they are offering is for a limited time

· Scammers may ask you to help someone in need or a loved one

· A scammer may offer some kind of incentive or something of value in return for your personal information

· Scammers impersonate government agencies. The scam may include saying your taxes are past due, or you are violating some law

· Scammers commonly reference computer vulnerabilities. They may say things like, “your device needs new software”, or “your computer has a virus”

Scammers have two main goals. They try to persuade you to:

· Make a payment by providing a credit card number or bank account number. Typically, these payment methods are different from your normal payment method

· Give up a piece of information: password, PIN, date of birth, social security number, account number or a device number - like a number from your receiver, computer or telephone

If you receive a suspicious call:

· Do not give out any information

· Do not make any payments or give out any of your banking information

· If you were left a voice message, don’t return the call

· If you have doubts, contact the company you’re doing business with directly. Get the company’s contact information from a separate source. Don’t use any number or email given to you by the caller.

For additional information and tips for protecting your information visit my.dish.com/support/consumer-protection or click the button below.”

Thank you, Dish.

And be safe!

Jimmy Schaeffler is the chair and CSO of The Carmel Group, a broadband, broadcast, and pay TV/video consultancy. He has spent nearly five decades producing, studying, writing, researching and analyzing, working with every type of player in the space. If you are looking to expand or better understand the industry, feel free to reach out to him at jimmy@carmelgroup.com, or go online to www.carmelgroup.com.

Looking at the early numbers in media companies’ third-quarter earnings reports, analyst Michael Nathanson needs to widen his vocabulary.

“In previewing the last quarter of media earnings, we used the term ‘freaking ugly’ to describe the current state of the U.S. Pay TV market,” Nathanson said in a research note Wednesday. “This quarter, we will need to find a new phrase that is even more negative to describe third-quarter trends.”

Nathanson, of MoffettNathanson Research,  said that with Comcast, AT&T and a few other reporting, there have been video subscriber losses of 1.74 million, which is 240,000 more than he’d been forecasting.

Related: AT&T Sets $14.99 Price Tag on HBO Max Streaming Service

That puts cord cutting on a 5.2% run rate.

Nathanson said he’s skeptical that the new virtual MVPDs like YouTube TV can pick up most of that slack as they raise their prices. (Sony on Tuesday said it was shutting down PlayStation Vue.) With the vMPVDs factored in, he estimates overall pay TV subscriber losses at 3.8%, compared to less than 1% 15 months ago.

Nathanson is cutting his estimate for cable affiliate fee growth to 3%, compared to about 6% a year ago. “The lagging nature of media’s affiliate revenue reporting cycle relative to the distributors, we expect that the rate will continue to decelerate in 4Q,” he said.

The analyst doesn’t paint a bullish picture for advertising revenues either.

Based on figures already released by NBCU and AT&T’s Turner networks that have been negative, he’s expecting ad revenues to be down for the industry as a whole.

“The shortfall in non-sports GRPs is just too big to be offset by continually rising CPMs this quarter… and that is saying something,” he said.

Nathanson notes that cable stocks have been down since the start of the second-quarter earnings season.

“We fear that there will be negative earnings revisions and continued multiple compression until we see stability in steepening cord-cutting trends,” he said. 

The popular “subscription fatigue” narrative is that consumers have topped out on the number of over-the-top services they’re willing to pay for and are now in pruning mode.

But Parks Associates—which was one of the first research outfits to put the notion of subscription fatigue into the lexicon—now says that the number of OTT services in the average home is still expanding, and it’s traditional pay TV that’s getting the pruning.

According to some of the latest Parks research, the percentage of broadband homes subscribing to pay TV dropped from 87% in 2014 to 79% last year. But the percentage of households subscribing to at least one OTT service increased from 55% to 64% over that span. And the amount of homes taking two, three or four OTT services also increased significantly over that time period.

Consumers, Parks said, are “not only willing to pay for a subscription, they are willing to pay for multiple services, even premium-priced services if value is perceived.”

This is a change of course from Parks’ previous position.

In September, Parks & Associates released a study suggesting the subscription OTT market had become “saturated.” Consumers weren’t necessarily tossing away subscriptions to popular platforms like Netflix, Hulu and Amazon Prime Video, Parks found, but they weren’t adding new services to their monthly expenses, either.

"In talking about market saturation in 2018, we were saying that household penetration had leveled off (% of households taking any OTT video service)," said Parks senior analyst Brett Sapington, explaining the firm's position. "We still think that there is lots of room for OTT to grow in terms of number of subscriptions per household. Our figures for number of services taken continue to increase, and the number of households with three-plus services continues to jump.

"So, we are not big believers in subscription fatigue in OTT," Sapington added. "Rather, consumers evaluate each service on its own perceived value rather than comparatively, and current pricing allows consumers to pack on more. I think that the launch of the new Disney and WarnerMedia services will prove that out (or not). We are looking for the average number of services per household to jump by ~1 service the end of this year.

Dish Network’s decision to do without key channels from Spanish-language broadcaster Univision and premium channel HBO weighed on the satellite giant’s subscriber rolls for the fourth quarter and full year 2018, with total pay TV losses rising sharply to 334,000 in the quarterly period.

The losses were an about-face from Q4 2017 when the satellite company added 39,000 total customers, mostly on the back of gains at its streaming video service Sling TV. 

For the year, Dish said it lost a total of 1.125 million satellite TV customers in 2018, up from 995,000 in 2017. Gains at Sling TV also fell sharply for the year to 205,000 from an increase of 711,000 in the prior year.

The company closed the fourth quarter with 12.32 million pay-TV subscribers, including 9.9 million Dish satellite TV and 2.42 million Sling TV customers.

Univision has been dark to Dish subscribers since June, with chairman Charlie Ergen stating that the blackout will likely be permanent. In November, Dish reached an impasse with WarnerMedia’s HBO service, causing the premium channel to go dark with a distributor for the first time in its 40-year history. 

In its 10-K annual report, Dish attributed at least some of the heavier losses to the blackouts.

“Our net Pay-TV subscriber losses during the year ended December 31, 2018 were negatively impacted by Univision and AT&T’s removal of certain of their channels from our Dish TV and Sling TV programming lineup,” the 10-K stated. “As a result, we experienced higher net pay-TV subscriber losses beginning in the third quarter 2018 and continuing into the fourth quarter 2018.”

The results come on the heels of a discouraging showing from Dish’s satellite rival AT&T, which saw net subscribers at its DirecTV fall by 391,000 in Q4, while its DirecTV Now streaming service shed 267,000 customers. 

For Dish, the subscriber decline translated into weaker revenue and profit for the quarter and the year. Revenue for Q4 was $3.31 billion down 5% compared to $3.48 billion in the prior year. Net income for the quarter was $337 million, compared to $1.39 billion in Q4 2017, which was positively affected by new tax laws.

For the full year, revenue was down 5.4% to $13.62 billion compared to $14.39 billion in 2017, while net income fell nearly 25% to $1.58 billion from $2.1 billion in 2017. Again, 2017 net income was positively affected by tax reform legislation. 

Traditional pay TV companies sweating out the streaming video revolution got some solace in a recent report from Limelight Networks that claims consumers place more emphasis on pricing and quality when picking a video provider.

According to Limelight’s State of Online Video report, consumers are supplementing their traditional pay TV subscription with streaming services not replacing them. Limelight said that while online video consumption is growing – consumers watch an average of 6 hours 45 minutes online every week, an increase of one hour per week over last year -- 62% of respondents worldwide pay for more video services in addition to their pay TV subscription, and said the top two devices for watching online video are smart TVs (31%) and set-top boxes/DVRs (18%).

Pricing is still important – more than half of respondents to the survey (55%) said that price increases would be the primary reason to cancel an SVOD service and nearly half (46%) said the same for their cable subscription. Quality of service also was a top priority – 43% said rebuffering was their primary frustration, with 66% said they stop watching a video after two rebuffers and 60% claiming they would be more likely to watch a live sporting event online if it was guaranteed there would be no viewing delays.

Globally, people watch movies online the most, followed closely by TV shows and news. Young millennials (18-25) watch professionally-produced video and user-generated content on social media more than they watch the news and sports online.

According to Limelight, data for the report was collected by a third party and was based on responses from 5,000 consumers in France, Germany, India, Italy, Japan, Philippines, Singapore, South Korea, the United Kingdom, and the United States age 18 and older who watch one hour or more of online video content each week. The survey responses were collected between Aug. 1-12, 2018.

In making its case for a proposed merger with Sprint, T-Mobile argues that the retail and customer scale achieved via that deal will help T-Mobile develop and launch a truly competitive and disruptive national pay TV service.

RELATED: T-Mobile, Sprint File With FCC

T-Mobile acquired Layer3 TV in late January, setting the stage for a national OTT TV service that will compete against other virtual MVPDs as well as incumbent pay TV providers. T-Mobile has not outlined specific plans for how that national offering will be priced and packaged, but has stressed that it will disrupt the pay TV market and take advantage of speedy, next-gen 5G-based mobile networks.

RELATED: T-Mobile Paid $325 Million for Layer3 TV

Prior to the acquisition, Denver-based Layer3 TV has focused on a full-freight, in-home, in-market managed IPTV service featuring 4K-capable boxes and a lineup of more than 275 HD channels starting at about $89 per month. Layer3 TV currently offers service in a handful of markets -- including Los Angeles; Chicago; Washington D.C.; Dallas/Ft. Worth; and Longmont, Colo. -- and had plans underway to extend service to New York, San Francisco and Philadelphia.

In the redacted public interest statement (PDF), T-Mobile noted that the acquisition of Layer3 TV gave it a “foothold” in the pay TV market, but also pointed to a challenge faced by Layer3 TV in the early going -- it is paying a sizable premium for its programming deals.

Per T-Mobile’s estimates, Layer3 TV’s content acquisition costs are between 20% to 30% higher than its larger MVPD rivals for the same programming. That challenge isn't Layer3 TV's alone, as it's also faced by other new pay TV entrants that don’t have large subscriber bases and, therefore, possess limited bargaining power with programmers.

Because of those higher licensing costs, T-Mobile held that further expansion of that business “will be limited for T-Mobile on a standalone basis” as Layer3 TV’s smaller customer base “does not provide the scale needed to leverage volume discounts.”

While that challenge will continue as Layer3 TV tries to beef up its sub base before the next round of programming renewals (T-Mobile added 5,000 “branded prepaid customers” to its reported sub base as of January 22 following the Layer3 TV acquisition), T-Mobile said a combination with Sprint will go a long way in creating scale for a mobile distribution network that can deliver a new pay TV service on a national basis.

T-Mobile also held Layer3 TV’s business, on a standalone basis, is presently hindered by consumer dependence on in-home broadband service from incumbent cable operators.

“Without these offerings, which are expensive and often contain monthly usage caps, Layer3 customers cannot access the company’s services,” T-Mobile said.

RELATED: Comcast Deploys 1-Terabyte Data Plan

However, T-Mobile believes that by matching up with Sprint, they can drive scale into 5G deployments that can expand the reach of Layer3 TV’s service. T-Mobile held that its current standalone network won’t have the capacity to handle projected future consumer demand for mobile video, absent the Sprint transaction.

RELATED: T-Mobile’s Jeff Binder: 5G Is ‘Perfect Delivery Mechanism for Video’

“In the near term, the customer and retail scale created by the transaction [with Sprint] will enable T-Mobile to more rapidly expand the current Layer3 model than possible without the transaction,” T-Mobile said. “This scale should allow the company to acquire content at lower rates and on better terms than T-Mobile and Layer3 can do on their own.”

T-Mobile’s estimate on how much lower those rates would be were redacted in the public version of the document, but believes that it would allow it to create a more affordable pay TV options for consumers. “The competitive imperative will demand that Layer3 pass these cost savings on to consumers through lower prices and more flexible rate offerings,” the company said.

T-Mobile: 5G Poised to be Viable In-Home Broadband Alternative

T-Mobile also used the filing to characterize 5G as a “bona fide alternative” to traditional in-home broadband service providers rather than just a more limited complement.

“The new 5G network’s speeds, capacity, and low prices will allow consumers to ‘cut the cord’ and use their mobile wireless service as their broadband service both inside and outside the home and pocket the savings from eliminating an unnecessary and costly wired broadband bill month after month,” T-Mobile claimed.

By combining with Sprint, the merged company is positioned to create a national 5G network that will close the speed gap between mobile and wired broadband and enable the company to compete in the in-home broadband services market against conventional ISPs and drive down prices.

By way of example, T-Mobile said a consumer might pay $80 per month for wired in-home broadband and $60 for mobile wireless service. Using 5G, T-Mobile argued that the same customer could take the wired broadband portion out of the picture and pay $60 for an equivalent combo of mobile service and in-home broadband.  

Taking aim at small- and mid-sized cable operators in need of a next-gen pay TV offering, MobiTV said more than 210 networks have signed on for a new, hosted IP video platform that will steer clear of traditional set-top boxes.

MobiTV hasn’t announced all the “major” networks that are on board for its new centralized, multi-tenant video delivery platform – branded as MobiTV Connect -- but did point to a representative group of programmers that includes C-SPAN Networks, Disney and ESPN Media Networks, Fox Networks, Fuse Media Networks, Hallmark Channel, Game Show Network, NBCUniversal, Pac-12 Networks, REELZ, Revolt, Showtime, Outdoor Channel, The Weather Channel, and Viacom. Time Warner and Discovery Communications are among the notables that are absent from the current list.

Under the hosted approach, MobiTV will transport national programming feeds from its centralized platform (the heavy lifting will occur at its facility in Sacramento, with support from points of presence in Atlanta, Ga., and Tennessee) to its MVPD partners. MobiTV will also ingest local broadcast feeds and distribute them for its cable and telco service provider partners.

MobiTV also sidesteps traditional set-top boxes by leaning on apps-based system that works with retail devices such as Roku players and Fire TV devices, web browsers, as well and smartphones and tablets.

MobiTV is also supplying the user interfaces, though the service will carry the MVPD partner’s brand and the MVPD’s individual channel lineups. The managed Connect system will also support the operator’s billing and authentication systems.

MobiTV’s hosted video system emerges as a new option that complements an on-premises version of its managed IPTV platform, and comes on the heels of MobiTV’s partnership with the National Cable Television Cooperative.

RELATED: MobiTV, NCTC Forge Next-Gen Video Deal

“We can basically take the headend infrastructure off their [the cable operator’s] plate, put it in a central location…and service many operators from a single source,” Charlie Nooney, MobiTV’s chairman and CEO, said of the company’s new hosted, multi-tenant version of Connect.

MobiTV’s new hosted angle aims to reduce the capital costs required to create a next-gen pay TV service for tier 2/3 operators, but Nooney said some larger MSOs have also shown interest in the deployment model.

Regardless of the size of the operator involved, the primary focus is to provide those service providers with an economic path to an IP-delivered, multi-screen pay TV service that can help them fend off a cadre of new OTT TV service and a bigger cord-cutting trend.

“It opens up a lot of options for it opens up a lot of options for cable and broadband operators to not only stay in the [pay TV] space but get aggressive in the space,” Nooney said.

As a point of emphasis, the programmers on board with MobiTV have given the nod to the company’s video transport platform, approving elements such as signal quality and security. MobiTV’s system works in tandem with the distribution rights of the pay TV partners that are actually selling the service to the end customers.

“They [the programmers] have approved our technical solution…but we’re not in the content business,” Nooney explained.

Despite some variances in technology approaches, MobiTV is targeting a sector of the cable and pay TV market that’s also being pursued by competitors such as TiVo, Evolution Digital and Adara Technologies.

RELATED: TiVo Goes Device-Agnostic With New Platform for MVPDs

For its part, MobiTV claims that more than 35 pay TV providers, representing a footprint of more than 600,000 U.S. homes, have signed on to deploy the managed service. MobiTV doesn’t plan to announce them until later this summer, but Nooney said the bulk of them are coming way of the company’s NCTC agreement.

RELATED: Evolution Digital Debuts App-Based OTT-TV Platform for Smaller Cable Ops

MobiTV, which is still working on deals with programmers that are not yet on board, intends to launch the new hosted version of its platform by the end of June or early July.

Hickory Telephone, DirectLink, USA Communications, C Spire and Citizens Fiber are among known service providers that are using MobiTV’s on-premises architecture to deliver IPTV services. It's possible that some of them will migrate to the new hosted version of MobiTV's platform. 

RELATED: Citizens Fiber Connects With MobiTV for App-Powered TV Option

Consumers are more satisfied with video streaming services such as Netflix and PlayStation Vue than they are with traditional TV services — and by a wide margin — according to a new report from The American Customer Satisfaction Index.

This year’s version of the ACSI Telecommunications Report, based on data from interviews with about 250,000 consumers, found that overall customer satisfaction with subscription TV services fell 3.1% to a score of 62 (out of a possible 100), an 11-year low.

By comparison, video streaming services, which included a mix of subscription and free VOD services and OTT TV offerings, pulled in a score of 75, getting high marks for ease of understanding of bills, ease of use of on-screen menus and guides and overall performance and reliability. Areas that need work are access to current TV shows and new movie titles. Netflix, PS Vue and Twitch led the group with a score of 78. Other examples: YouTube Red/Premium (76); Amazon Prime Video and Hulu (75); CBS All Access (74); HBO Now and Starz (72); Sling TV (71); and DirecTV Now (70).

Among traditional pay TV services, AT&T U-verse TV topped the charts in 2018 with a score of 70, followed by Verizon Fios TV (68), and Dish Network (67) and DirecTV satellite TV (64). Optimum (Altice USA) was the highest-scoring cable operator with a 62, down from 66 in 2017. Pay TV picture quality got high marks. Call-center satisfaction fell to the bottom.

The disparity in customer satisfaction comes as people continue to defect to lower-cost online video services alongside OTT experiences that have “fundamentally changed buyer expectations,” ACSI said. “OTT operators have raised the bar by providing greater personalization, lower prices, more mobility — and much better customer service.”

Denver – Subscriber losses are continuing to plague the world of traditional MVPDs, but a new wave of OTT TV services believes that providing more intuitive experiences and platforms that connect consumers to the shows they love are sizing up to be a big difference maker.

RELATED: Pay TV Subscriber Losses Drop to 305K in Q1

That was one big takeaway here Wednesday (May 16) at the Pay TV Show on a panel focused on a new wave of virtual MVPDs equipped with slick, personalized interfaces that deliver various types of packages to a wide range of mobile and TV-connected devices.

Session moderator, Jon Steinberg, founder and CEO of Cheddar, the business and tech news service tailored for younger audiences, asked why traditional TV is in trouble and ran through a list of TV shows and series that tend to appeal to an older set of consumers.

Tim Connolly, senior vice president and head of distribution and partnerships at Hulu, said that many of those shows are also popular on Hulu, whose average subscriber is 31 years old.

“It really is more about the platform and not the show itself,” Connolly said, adding later that a case study found that shows like The Good Wife have done a decent job finding an audience of young women on the streaming service.

PlayStation Vue, the Sony-owned OTT TV service, serves an audience that’s mostly in the low 30s.

“The reason we built PlayStation Vue was because the PlayStation audience is largely millennial and wanted a better way to watch TV,” Dwayne Benefield, vice president and head of Sony PlayStation Vue, said.

RELATED: PlayStation Vue Busts Out

To keep TV relevant, service providers need to create a better product experience, agreed Andrew McCollum, CEO of Philo, which launched a national, entertainment-focused package last November that starts at $16 per month.

Philo cut its teeth on a multi-platform TV platform tailored for college campuses, and found that 92% of those college users said they’d want to keep the service after they graduated. Philo has parlayed those learnings and those experiences into its new national OTT TV product.

“The content really isn’t the problem,” McCollum said. “It’s the cost and the delivery.”

Consumer cost isn’t an issue for Pluto TV, the free, ad-supported linear-style TV service.

RELATED: Virtual Pay TV Market Set for a Shakeout: Analyst

Traditional TV didn’t keep up with consumer expectations, Jeff Shultz, chief business officer of Pluto TV, said. He argued that while the customer experience continues to be an issue, the challenges affecting the overarching business model remains a more significant hurdle for the pay TV industry to overcome.

“We’ve learned that free and instant scales in a way that’s remarkable,” he said.

But Steinberg wondered if MVPDs, virtual or traditional, have a “tortured relationship” with Pluto TV, given that networks and programmers, including Cheddar, offer some content on the free streaming service as well as through pay TV distributors, creating a challenge to provide enough value across the board. Why not create a “front porch” that gives consumers access to that free content alongside an avenue to the paid product?

Shultz said Pluto TV is starting to do that, citing some work with SVOD service DramaFever, whereby season one of a multi-season series from DramaFever appears on Pluto TV’s free, ad-supported service while also giving viewers a clear path to DramaFever’s full SVOD offering.

Others see the path to success being paved by a mix of both free and paid.

France-based Molotov runs a freemium style service that offers some free content with an upsell option. Blanc said Molotov’s simplified approach has enabled the company to draw consumers of all ages.

“Everything is about the experience,” JeanDavid Blanc, CEO of Molotov, said. 

DENVER -- 5G’s promise of faster speeds teamed with low latencies make the emerging next-gen mobile technology a great fit for video and pay TV services, Jeff Binder, executive vice president of home and entertainment at T-Mobile, said here Tuesday at the Pay TV Show.

“5G is the perfect delivery mechanism for video,” offering improvements over 4G/LTE, said Binder in a keynote conversation at the event, put on by Fierce and parent company Questex.

Binder, who joined T-Mobile following the mobile service provider’s acquisition of Denver-based Layer3 TV, reiterated that leading the 5G wave is a key component of the proposed merger between T-Mobile and Sprint.

RELATED: T-Mobile Paid $325 Million for Layer3 TV

Binder wouldn’t reveal much more new detail about T-Mobile’s plans for an OTT-delivered pay TV service in the wake of its acquisition of Layer3 TV, with respect to pricing and packaging, but said the plan remains to bring to bear a “disruptive” offering. He also reconfirmed that the current plan is to launch that product later this year.

Prior to the acquisition, Layer3 TV was largely focused on an in-home, full-freight pay TV service with 4K-capable boxes delivered over IP. Moving forward, T-Mobile’s plans is to bridge the TV with the more advanced and personalized capabilities that consumers get with their smartphones.

The TV has “been an island in the home,” Binder said. “Mobile and TV [today] look more alike than less alike." T-Mobile intends to change that, he said, adding that the plan is also bring T-Mobile’s “Uncarrier” principles to the pay TV realm.

“It’s more than branding,” Binder said of the Uncarrier approach, holding that T-Mobile’s approach has changed the wireless/mobile industry.

Pay TV, which continues to see subscriber numbers erode, is “ripe for disruption in that sense,” he added.

He said the T-Mobile deal will bring scale that Layer3 TV didn’t have on its own.

Before the deal, Layer3 TV was focused on an in-home product in a handful of markets, and found that the acquisition costs “were pretty reasonable,” Binder said.

RELATED: Layer3 TV: A Different Kind of Animal

However, the big challenge for a new, relatively small entrant is reach and cost of marketing, Binder pointed out. “You need scale. Scale is really important.”

Binder also hinted that the coming product won’t be a mobile-only play or rely solely on TV-connected devices that would only come from the company.

“We’ll look at various ways to serve what the customers want,” he said. “It’s about how customers want to consumer video.” 

IPTV is radically changing the way that content gets consumed by giving TV viewers greater control over the entertainment they want to watch.

This rate of disruption is driven by the emergence of new consumer experiences, new distribution options for content, new devices, new competitors, new sectors in the ecosystem and new content sources and creators. Here are the top five challenges that pay TV operators need to surmount to thrive in the rapidly evolving IPTV landscape.

Streaming services are raising user expectations

Over-the-top (OTT) services like Netflix have changed the game. Consumers today have far different—and far more diverse—expectations when it comes to entertainment content.

Consumers have greater exposure to a range of OTT/web-based content, and that is influencing their perception of innovation and raising the bar for every player in the industry. They don’t only expect their pay TV service to provide a channel guide and the ability to search for their favorite shows. They also expect greater personalization and discovery. They expect their pay TV service to learn their tastes and continuously provide innovative new features and next-generation discovery options that allow them to connect quickly to content they like.

Traditional pay TV operators need to respond if they want to hold onto existing customers, minimize churn and attract new ones. The good news is that pay TV operators are uniquely positioned to solve an increasingly chaotic entertainment experience for consumers by leveraging their strengths in live and recorded/VOD content availability, bringing OTT and pay-TV offerings together and upgrading to next-gen, cloud-based solutions that up the pace of innovation.

Conversational voice interfaces are going mainstream

Voice interaction is entering the mainstream as tech giants like Google, Amazon and Apple heavily promote voice-based features and drive consumer adoption. Consumers can now speak to their devices and actually be understood with accuracy and reliability. This is driving pay TV operators to look very closely at their own voice-based interfaces and how they can extend them to consumers.

If done right, voice offers the optimal user experience for not only command and control but content discovery and navigation. It not only helps users get to their content faster but also enables operators to expose users to a much greater breadth of content. For example, voice enables operators to offer a highly personalized, highly conversational interface capable of addressing complex queries such as, “Show me popular sitcoms from the ’90s, available on Netflix.” The ideal offering for operators is one that combines a deeply media vertical content solution with the broader voice ecosystems of Google, Alexa, Siri, etc.

Operators are embracing Android TV and unmanaged devices

Not long ago, Android TV was a controversial topic among pay-TV operators. But not anymore, now that Google has been continuously listening to operators and addressing the majority of their concerns.

Today, Android TV is highly attractive to operators for a number of reasons. In addition to being able to address a wide range of devices that consumers can access content on, the OTT ecosystem available through Google Play brings together thousands of apps that operators can instantly tie into. However, as the content grows, so does the need for a superior, differentiated and consistent user experience flowing across all client platforms and backed by a powerful cloud service that’s flexible, agile and scalable.

RELATED: TiVo Goes Device-Agnostic with New Platform for MVPDs

What’s more, with Android TV’s Operator Tier, Google has addressed concerns around security and control. Specifically, operators now have full control over operator experience and boot screen, as well as the ability to tie into Google Assistant and Google Play. As a result, Android TV offers another viable option for operators who may be looking at ways to integrate its offerings into their overall strategy.

Cable operators are starting the transition to IPTV

As operators look to IPTV, they’re encouraged by new and unique revenue opportunities, such as the ability to provide more OTT-like services to certain market segments.

But many operators wonder how they can they transition from their current infrastructure to IPTV, while controlling costs and minimizing disruption to users. Some operators will manage the transition more seamlessly and cost-effectively than others and that will make a significant competitive difference.

The reality is that the right next-gen solution can provide versatile deployment options—from QAM to hybrid to full IPTV. Such a solution can assist operators in their transition to IPTV by maintaining support for QAM deployments, while still offering a flexible migration path by addressing the capital expenditure, networking and rights constraints of the operator. As a result, operators can address their most strategic concerns while quickly adapting to the evolving needs of customers.

Dynamic features and partnerships are rising in importance

These days, new enterainment features pop up all the time, and pay-TV operators need to be evaluating their services on a daily and weekly basis, rather than quarterly or annually. But, it takes a great deal of agility and flexibility to capture customers in today’s dynamic, hypercompetitive marketplace – how can you stay ahead?

The best way is by leveraging a cloud service that gives operators the flexibility to anticipate market needs or consumer trends, as well as the robust ability to roll out quickly across all device platforms.

They should also form more partnerships. Savvy operators are starting to bundle OTT services like Netflix with their own offerings because such partnerships open up new opportunities for them. In fact, in a market that is increasingly fragmented, there is a window for providers to serve as the starting point for consumers’ entertainment experience and guide them through the maze of content options. It’s no longer a deal-breaker if the operator must hand off the consumer to a partner service. The goal is to own the race track, not the individual horses.

In the days, months and years ahead, IPTV will become an increasingly important part of the broadcast landscape. Operators that look beyond their traditional business model and embrace emerging IPTV opportunities will be the big winners going forward.

-- Michael Hawkey is senior vice president and general manager, user experience, TiVo

A new Parks Associates study that found 27% of pay TV homes say "sports programming is the primary reason" they subscribe comes at a time when sports content is preparing for a distribution overhaul.

Parks' figures fall toward the high end of the long-held range of households that watch televised sports on a regular basis -- about 15% to 30%, depending on which research study you believe. Subscribers' appetite for sports may be encouraging to cable executives -- for now.

Operators have often cited the modest viewing levels to fend off high-priced sports packages, although as the Parks study affirmed, devoted sports fans buy whatever it takes to see their preferred programming. And that's where the looming appeal of streaming enters the picture.

Brett Sappington, Parks' senior director of research, cited the shifting trends in sports carriage.

"While broadcast and pay TV remain key sources for live sports, OTT streaming options have become an important part of the live sports landscape," Sappington said. "Increasingly, leagues and networks are offering direct-to-consumer options. These services offer access to content that would otherwise not be broadcast and subscription options to those not subscribing to pay TV."

He pointed out that CBS and ESPN recently launched their own streaming services for sports content, and noted that these services will "both compete with and complement major services such as WWE Network and MLB.TV."

Related: CBS Sports HQ Service Hits the OTT Field | One Small Step for ESPN+

Sappington predicted that "over time, pay TV providers will likely partner with these types of services in order to round out their existing channel packages."

Migration Already Underway

One indicator of the shift to different platforms is the paucity of baseball games on over-the-air broadcast channels -- making it impossible for fans, for example, in Washington, D.C., to see games of the nearby Baltimore Orioles or for Los Angeles viewers to see any games without a pay TV subscription.

This year, only 199 Major League Baseball games will air on broadcast channels, compared with 338 games in 2013, according to data compiled by John Mansell, an independent sports business analyst. That means only 4.3% of local games appear on OTA TV; five years ago it was 7.3% of games. Mansell's data show that regional cable sports networks are carrying 4,420 baseball games this year compared with 4,270 games five years ago.

Just as broadcast TV -- once a staple of local sports fans -- has shifted to cable, there are many indicators of sports' looming move to streaming platforms. But that move is not without challenges.

"What's happened now for cable is extremely predictable," said a former sports network executive who requested anonymity. 

"If technology takes us to streaming, then the programs will go there," he added, calling it "the evolution of the economics."

"If streaming becomes the way we consume media, then the rights will go there," he said.

Viewing habits are changing, especially among millennials, who are already a problematic audience for sports producers and distributors. The leagues and some individual teams that control media rights to games are looking deeply at streaming options. In some cases, the streaming rights (for now) are bundled with cable rights, although that connection is likely to be a major negotiating point in future contacts, according to lawyers who are involved with the process.

Major League Baseball's emergence as a leading streaming technology provider (using tech it developed for its own MLB Network) is an indicator of the emphasis that sports producers are placing on the potential of that distribution platform, which eliminates the middleman (conventional networks).

Amazon last month nabbed the U.S. Open Tennis championship streaming telecasts in the United Kingdom for the next five years, a deal which analysts believe is the opening volley in Amazon's next wave of sports deals. Amazon's package will include live coverage plus on-demand highlights and other enhanced features.

Related: Greenfield Says Amazon Poised to be Most Disruptive Tech Giant

Social media platforms are also accelerating their sports programming line-ups. For example, Twitter recently unveiled plans with Disney's ESPN to create live sports programming and other content, including carriage of SportsCenter Live, with viewer participation. Twitter will also live-steam ESPN's fantasy sports podcast.

Related: 'SportsCenter' Expanding on ESPN’s New App

Facebook began live-streaming baseball games on its MLB Live page in March, carrying about one game per week. Although usage data so far is not available, a report this week indicated that latency glitches have annoyed viewers: 34% would cancel a service if they encountered such technical problems, the study found.

Twitter recently published its own research to show advertisers that the social media platform "makes live sporting events more engaging and memorable." The study emphasized fans' experience during live events when they use Twitter "as their second — and primary — screen to learn what’s happening in real time." 

The study, which used comScore data, showed an average 4.1% lift in unique visitors during sportscasts, and the "difference is even more pronounced with tentpole sports events" such as the Super Bowl or other championship games.

Sling TV subscriber additions weren’t enough to overcome broader satellite TV losses at Dish Network in Q1.

Dish said net pay TV subs declined about 94,000 in Q1, narrowed from a year-ago decline of 143,000.

In Q1, net Dish satellite TV subs dropped by 185,000 offset in part by adds of 91,000 Sling TV subscribers.

Dish closed Q1 with 10.84 million satellite TV subscribers and 2.3 million Sling TV subs. Dish ended the period with combined pay TV sub base of 13.14 million, down from 13.52 million in the year-ago quarter.

Dish said satellite TV’s average monthly subscriber churn rate was 1.47%, improved from 1.92% in Q1 2017. Overall pay TV ARPU in Q1 was $84.50, down from $86.55, reflecting an increase of subs on the lower-margin Sling TV service.

RELATED: Sling TV Rolls Cloud DVR to More Devices

On the financial end, Q1 revenues were $3.46 billion, down from $3.68 billion in the year-ago quarter. Q1 net income was $368 million, versus $376 million in Q1 2017.

Dish is scheduled to discuss Q1 results in more detail today at noon ET. 

T-Mobile’s pending merger with Sprint and its recent acquisition of Layer3 TV will help to power a new “quad play” that includes speedy wireless broadband and pay TV services, company execs said on Tuesday’s Q1 earnings call.

RELATED: T-Mobile, Sprint to Combine in $146B All-Stock Deal

With an eye toward 450 Mbps via a national 5G network, “of course, we can be a competitor in that [broadband services] space,” Braxton Carter, T-Mobile’s CFO, said, when asked if wireless can be viewed as a wireline replacement. “And this is a market that is incredibly underserved…There’s a huge opportunity here for us to bring real competiveness to that market for the first time.”

T-Mobile’s ambitions for entering the TV business, via the Layer3 TV deal, is also poised to ratchet up with the proposed combination with Sprint, he said.

RELATED: T-Mobile Paid $325 Million for Layer3 TV

“Now you have a network, where you can provide...IPTV service not just through [the] home broadband connection…but through a wireless alternative to their home broadband as well,” Carter added.

T-Mobile’s Q4 release also shed a bit more detail on the Layer3 TV acquisition, which closed on January 22. As a result of that deal, T-Mobile included an adjustment of 5,000 “branded prepaid customers” to its reported subscriber base as of January 22. Customer activity from Layer3 TV post acquisition was included in T-Mobile’s net customer additions for Q1 2018. T-Mobile reported 1.43 million total net adds in Q1, which included 199,000 branded prepaid net adds.

Prior to its acquisition by T-Mobile, Layer3 TV was focused on an in-home, IP-delivered pay TV offering in select markets that include Los Angeles; Chicago; Washington D.C.; Dallas/Ft. Worth; and Longmont, Colo. (in partnership with a municipal provider called NextLight).

Looking ahead, T-Mobile has plans to launch a national OTT TV service later this year. T-Mobile has not announced pricing and packaging for that offering, but it’s expected to compete with traditional MVPDs (cable, telco and satellite) as well as a growing mix of internet-based, virtual MVPDs that today include DirecTV Now, Sling TV, Hulu, YouTube TV, fuboTV and PlayStation Vue. 

From a pay TV perspective, AT&T’s Q1 results delivered some good news and some bad news.

On the good side, 312,000 subscriber gains at DirecTV Now, AT&T’s OTT TV service, more than made up for losses on the “linear” side of the house – DirecTV’s satellite TV service shed 188,000 while U-verse TV, AT&T’s managed IPTV service, actually gained 1,000 subs.

RELATED: DirecTV Now Gains Offset AT&T’s Traditional Pay TV Losses in Q1

The bad news is that DirecTV Now subs are worth less. They aren’t on long-term contracts, so they are exposed to higher levels of churn, and the margins are significantly lower than they are for AT&T’s traditional pay TV business.

But AT&T also believes that a mix of new product-enhancements underway will help to bridge that margin gap.

In addition to beta-testing a new interface that aims to improve the experience, DirecTV Now is also kicking the tires on a cloud DVR service, and options that let subs pay more to add streams to their account. Later this year, DirecTV Now will also introduce an improved VOD service and release new pay-per-view options. Further out, it hopes to bring in more revenues from advanced advertising.

“We do expect revenue and margin pressure as we manage through this, especially this year, but we're excited about DirecTV Now’s product improvements” that will be rolling out soon, John Stevens, AT&T’s senior executive vice president and CFO, said Wednesday on the company’s Q1 earnings call.

“We’ll see a replacement of the margins and a growth in those margins on an extremely low capital expenditure basis…so we’ll transition through that,” he added later in the call.

Stephens also pointed out that AT&T, thanks to help from the OTT bucket, has more video subscribers than it did two years ago.

“This is especially important at a time when the industry is seeing increasing pressure from customers cutting the cord,” he said. “Transitions such as this are never easy, but we have shown that we're able to do this time and time again, whether it'd be with our voice or broadband or wireless services. We don't expect video to be any different.”

Stephens didn’t have much to add about AT&T Watch, a no-sports skinny TV bundle that will be offered for free to customer’s on AT&T’s unlimited mobile plans, and for about $15 per month to anyone else.

RELATED: AT&T Eyes Launch of Sports-Free Skinny OTT TV Service: Reports

AT&T chairman and CEO Randall Stephenson alluded to AT&T Watch during antitrust trial testimony for the pending AT&T-Time Warner merger, noting that it would launch in the coming weeks.

Stephens said he’d leave it up to others at AT&T to shed more details on it. “I think the more important message is that we are willing to innovate,” Stephens said.

Turning to broadband, AT&T continues to transition off from legacy DSL, with only about 800,000 residential subscribers still using it, compared to 4.5 million about four years ago.

Stephens said AT&T’s fiber build now passes more than 8 million customer locations, and expects to reach 10 million by year-end toward a goal of 12.5 million tied to commitments from AT&T’s acquisition of DirecTV.

Those deployments and fiber builds to millions of business locations will serve as the backbone of the wired network that will support and backhaul AT&T’s shift to 5G, he noted.

AT&T’s initial 5G efforts will focus on fixed wireless broadband services using millimeter wave spectrum that requires solid line-of-sight. Stephens said AT&T is seeing speeds of 1 Gbps-plus at distances of up to 900 feet and latencies as low as 9 milliseconds in tests.

RELATED: AT&T and Mobile 5G: The 'Puck' Starts Here 

“These trials as shown in millimeter-wave is able to penetrate foliage, glass and even walls better than anticipated with no discernible signal performance impacts due to rain, snow or other weather issues,” he said. “Granted, these are early results in trial conditions, but we are excited about what we have seen so far. 

AT&T said sub gains for DirecTV Now, its OTT TV service, were more than enough to offset losses from its “linear” video service category, comprised of its DirecTV satellite TV service and U-verse video, its managed IPTV offering.  

During Q1, AT&T added 312,000 DirecTV Now subs, extending that total to 1.46 million.  

On the linear/traditional side of the pay TV ledger, AT&T lost 187,000 subs (188,000 DirecTV satellite sub losses, and 1,000 U-verse video sub gains).  

AT&T ended the quarter with 25.36 million total video connections, made up of 20.27 DirecTV satellite subs, 3.63 million U-verse video subs, and almost 1.5 million subs for DirecTV Now, the national OTT service that was launched in November 2016.  

Though DirecTV Now adds more than offset traditional pay TV losses, those lower-margin, no-contract customers are on less expensive, skinner video packages. With that as the backdrop, AT&T’s linear video ARPU for Q1 was $113.43 (or $114.91 using the company’s historical video ARPU model), well down from linear video ARPU of $121.16 in the year-ago period.  

AT&T added a net 82,000 broadband subs in Q1 via the addition of 154,000 IP broadband subs alongside a loss of 72,000 DSL customers. AT&T ended the period with 14.43 million total broadband subs (13.61 million IP, and 816,000 DSL), and more than 8 million customer locations passed with fiber. 

AT&T also ended Q1 with 9.64 million wired voice connections, down from 11 million in the year ago period.  

It also notched 3.2 million total wireless net adds – 2.6 million in the U.S., and 543,000 in Mexico.  

The company posted Q1 earnings of 85 cents per share on revenues of $38.04 billion, off from Wall Street expectations of 87 cents and $39.31 billion. AT&T shares were down  

AT&T shares were down $1.59 (4.52%) to $33.61 each in after-hours trading Wednesday.