Eight of the biggest, most publicly visible pay TV operators lost a combined 366,000 video subscribers in the fourth quarter of 2021, a marked improvement over the 600,000 these organizations shed in Q4 2020. 

More than half (five) of the operators Next TV looked at experienced improved video customer growth in the final three months of 2021. Hulu + Live TV showed the biggest improvement, moving from a loss of 100,000 customers in the fourth quarter of 2020 to a gain of 300,000 subscribers in Q4 2021. 

Our analysis looked only at publicly traded pay TV companies that cleanly break out quarterly video customer growth. That means the DirecTV and the rest of AT&T's pay TV assets -- which had been the biggest drivers of traditional video bundle subscriber loss over the past few years -- aren't included in our tally. 

Now spun off from AT&T as in a joint venture with private equity firm TPG, DirecTV's numbers for satellite- and IP-delivered services are no longer publicly accessible. However, renewed focus on DirecTV merchandising by the spinoff's managers suggest its platforms didn't lose over 3 million subscribers in 2021, as they did in 2020. 

Also excluded from the summary was what might be the biggest virtual MVPD, YouTube TV, with Google only occasionally breaking out quarterly subscriber metrics for this specific pay service. With Google making no price increases on its vMVPD service in 2021, it's doubtful that YouTube TV's subscriber metrics experienced major degradation in the fourth quarter. 

Indeed, the increasingly margin-challenged business of bundling licensed linear networks continues to shift toward IP-based distribution, with only Hulu and fuboTV reporting customer growth in Q4 2021. 

But the notion that the linear pay TV bundle is facing immediate collapse seems unfounded, at least based on this slicing of the lentil. 

Charter Communications missed analysts’ targets for broadband customer additions in Q4 by a hair, but ended the year on a high note, with cash flow and revenue growth rates that far outpaced the previous year. 

Charter closed out the fourth quarter adding 246,000 broadband customers, slightly below some analysts’ predictions of 300,000 additions. The broadband growth pace was considerably slower than the 850,000 customers the segment added in Q2 and the 537,000 added in Q3, but was expected. For the full year, Charter added 2.2 million broadband customers, compared to 1.4 million additions in 2019. 

Also read: Charter Pulled Off the Unlikely Feat of Adding Pay TV Users in 2020 

Residential video losses at 66,000 improved in the period, compared to the 2019 deficit of 105,000. Including small and medium business video additions of 31,000 customers, Charter lost 35,000 video customers in Q4, about one-third of the 101,000 it shed in 2019. For the full year, Charter added 19,000 video customers, compared to a loss of 484,000 customers in 2019.   

“Our 2020 performance demonstrates that our customer-friendly operating strategy works well for Charter communities, employees and shareholders, even in challenging economic and operating environments,” Charter chairman and CEO Tom Rutledge said in a press release. "We added nearly two million customer relationships in 2020 — 800,000 more than we added in 2019 — and demand for our connectivity products remains strong. As we look forward, we remain focused on the continued execution of our operating strategy, driving customer, revenue and free cash flow growth, enhancing value for our shareholders.”

Also read: Broadband Drives Gains for Comcast (Again)

In the meantime, revenue rose 7.3% in the period to $12.6 billion and adjusted EBITDA increased by 10.2% to $4.99 billion. Full year revenue increased by 5.1% to $48.1 billion and adjusted EBITDA rose 10% to $18.5 billion. Charter’s full year EBITDA growth rate was twice that of 2019, when it rose by about 5%. 

Charter's stock price was down about 6.5% in mid-day trading Friday (Jan. 29).

World Wrestling Entertainment stock continued to fall last week, even as chairman and CEO Vince McMahon repeatedly hinted that a deal concerning its WWE Network streaming service could be imminent.

WWE stock was down nearly 30% between Jan. 30, when it announced the firing of co-presidents George Barrios and Michelle Wilson, and its Feb. 6 earnings results. Although WWE reported some of its strongest financial growth ever in Q4 (revenue was up 18% and cash flow up 67%, mainly on the deal with Fox for WWE SmackDown engineered by Barrios and Wilson), investors were more concerned with the future. The scripted sports company’s guidance for 2020 was considerably lower than what analysts had expected. WWE said adjusted OIBDA, a measure of cash flow, would be in the $250 million to $300 million range for 2020, well below consensus estimates of $390 million.

That low guidance doesn’t take into account expected carriage deals in India and the Middle East but nonetheless spooked investors, who drove the stock down as much as 15% in early trading Feb. 6, ending the day at $44.50 each, down 9%. The slide continued on Feb. 7, with the stock falling another 4.2% to close at $42.62.

While investors continued to worry about the management shakeup and the reduced guidance, they also were concerned whether WWE was ready to throw in the towel on its streaming service, WWE Network. Launched in 2014, WWE Network peaked at about 2.1 million subscribers in 2018. In Q4, that base had dropped to about 1.5 million. Initially, some critics feared the streaming service would cannibalize its other businesses — particularly pay-per-view — something the company said it would strive to avoid. Now, with declining membership, that may have changed.

WWE said prior to the call that it was evaluating strategic alternatives for WWE Network, which usually means it is pursuing a sale. That is an option, but McMahon said the company could also keep it as is, or form a partnership. He repeatedly interjected during a conference call with analysts that “the majors” are “clamoring” for WWE content. If the company did decide to do a licensing deal, he said, it could announce it before the end of next month.

“We’d be announcing that deal, if we go that way, in the first quarter,” McMahon said. “That’s how far along we are.”

McMahon also was open to the idea of an ad-supported version of WWE Network. He said if the decision is to keep the service as is, WWE would consider pursuing ads. That makes sense, especially since The Walt Disney Co. revealed in its fiscal Q1 results that streaming service Hulu generates about $13 in month revenue per subscriber per month for a $5.99 service.

While Hulu has an $11.99 per month ad-free option, Disney chief financial officer Christine McCarthy said on the company’s earnings call that most of the service’s 30.5 million subscribers opt for the ad-supported service.

But WWE content has been on the skids in the past several months, with ratings down and fans complaining of tired storylines. Several script writers have left the fold and McMahon has vowed to inject more excitement into the programming. On the conference call, he mentioned a culture change at WWE — to become more inclusive — and pointed to changes that have already been made to bring in new talent and improve ratings.“You can see there is growth there,” McMahon said, adding that past problems were exacerbated by a rash of injuries to top talent last year.

FBN Securities media analyst Robert Routh said that he believes the panic around WWE is a bit overdone, adding that ratings have started to improve, partly because it has a broadcast outlet (Fox) reaching a larger fan base. And he expects that McMahon has a deal up his sleeve.

“It sounds like he [McMahon] has something transformational that he could do if he wants to but he hasn’t decided yet. The question is who is it that might have offered him a ton of money to own WWE Network or to bundle it with what they have?” Routh said, adding that WWE content could be attractive to streaming services like Hulu, Netflix or NBCUniversal’s Peacock.

‘SmackDown’ Ratings Down

In a blog post, LightShed Partners media analyst Brandon Ross said viewership for SmackDown on Fox has been light, averaging about 2.4 million weekly viewers instead of the 3-million-plus most analysts expected.

Righting the WWE ship will be critical over the next three years, Ross wrote, because that’s when Monday Night Raw, which airs on NBCU’s USA Network, and SmackDown enter their next renewal cycle. With the shift in overall TV viewership toward streaming, the analyst predicted total pay TV subscribers could be reduced to as few as about 70 million, substantially reducing the WWE’s negotiating leverage.

“Vince McMahon, the pressure is on,” Ross wrote.

VINCE’S DILEMMA

WWE chairman and CEO Vince McMahon laid out the future of WWE Network to analysts:

1. Maintaining the Status Quo: WWE continues to run the streaming service “as is,” with the possibility of adding advertising, a move McMahon said he would “definitely consider.”

2. Adding ‘Free’ and ‘Enhanced’ Tiers to WWE Network: A free option was quietly introduced in December, offering nonsubscribers access to some short-form content, and McMahon said a pricier “enhanced” tier also could be on the table. WWE Network costs $9.99 per month.

3. Licensing WWE Network content to ‘the majors’: WWE Network has a ton of pay-per-view and library content that would likely be attractive to several networks and OTT providers. McMahon said that there is high interest from “the majors” for WWE content, and the company could potentially announce a deal before the end of the first quarter (March 31). “That’s how far along we are,” he said.

After several failed tries at the wireless business in the past few decades, cable operators appear to have found the right formula, adding customers at a record clip and evolving the offerings from a retention tool to one that could start turning a profit.

Two years after launching Xfinity Mobile, Comcast has about 2 million wireless customers, generating $1.2 billion in annual revenue. Charter Communications, which launched wireless product Spectrum Mobile in July 2018, crossed the 1 million subscriber milestone in 2019.

Neither offering is expected to be a threat to the Big Three wireless carriers, Verizon Communications, AT&T or T-Mobile/Sprint, which each have well more than 100 million mobile customers. But for cable, a business that was once believed to be an afterthought is now being considered alongside broadband as a possible profit center.

No Drag Anymore

“Wireless, within the next few years, will be a contributor rather than a drag,” MoffettNathanson principal and senior analyst Craig Moffett wrote.

Cable’s forays into wireless are legendary. The first joint venture between cable and wireless can be traced back to the Sprint PCS partnership in the 1990s, in which the cable partners cashed out at a considerable profit. But the next two attempts to create a quad play — the Pivot joint venture with Sprint and a wireless broadband JV with WiMax pioneer Clearwire — failed miserably.

Cable operators, mainly Comcast and Time Warner Cable (now part of Charter), continued to accumulate wireless spectrum in various federal auctions, selling those licenses to Verizon Communications in 2015 for $3.6 billion. As part of that deal, the cable operators retained the right to form a mobile virtual network operator (MVNO) agreement with Verizon, that would allow them to offer wireless service in their respective footprints.

Comcast was the first to launch its MVNO, Xfinity Mobile, in April 2017. Charter’s Spectrum Mobile followed about 18 months later. Both companies saw the services as mainly retention tools for their broadband and video offerings, not as standalone services or as cogs in a larger quad-play wheel of video, voice, data and wireless. Now that attitude seems to be changing.

In 2019, Comcast grew mobile revenue by 31.2% to $1.167 billion, ending the year with just over 2 million customers, compared to 1.2 million in the prior year. On its conference call with analysts to discuss Q4 results, Comcast chief financial officer Mike Cavanagh, who, like the overall company, had been cautious about wireless predictions in the past, seemed more than optimistic about the service, adding that he expected the wireless subscriber momentum to continue into 2020.

“Our results to date indicate that adding mobile improves broadband customer retention and increases prospective customers’ consideration,” Cavanagh said on the call. “And importantly, we continue to see a significant improvement in the financial performance at Xfinity Mobile. We reduced our quarterly adjusted EBITDA losses at Xfinity Mobile to $116 million, a 40% improvement compared to last year’s fourth quarter, and we expect Xfinity Mobile to be EBITDA positive for the full year in 2021.”

Charter, which launched Spectrum Mobile about a year after Comcast, did even better. It added 288,000 wireless subscribers in Q4, ahead of bullish consensus estimates of 260,000 additions. Management appears to be taking a more aggressive stance concerning mobile, with predictions of meaningful profitability by 2021.

On a conference call with analysts, Charter chief financial officer Christopher Winfrey said the company expects mobile service revenue to “exceed all operating costs” in 2021, adding that by that time, mobile capex should “decline meaningfully.”

Charter Changes the Narrative

Sanford Bernstein media analyst Peter Supino wrote that the wireless performance, coupled with stronger-than-expected results in just about every metric — revenue was up 5% and cash flow rose 8% in the quarter — have helped change Wall Street’s perception of Charter and its $80 billion purchase of Time Warner Cable in 2015.

“Thirteen months ago, we perceived that the market assessed the Time Warner Cable merger as a failure and heard rumors of risk to Charter CEO Tom Rutledge’s job,” Supino wrote. “Today, 81% higher on the stock, that consensus is a skeleton in some closets, and investors are happily adding risk while scrutinizing Charter’s outlook in search of the next thing that ‘we know for sure that just ain’t so.’ To be clear, we still see more to hope for than to fear.”

Basic video customer losses rose for Comcast in Q4 to 149,000 from just 29,000 in the prior year, but the company managed to add more broadband customers for the full year than it has in more than a decade, which should keep investors happy.

Comcast added 442,000 high-speed internet customers in the period, and gained 1.4 million for the full year, its best performance in 12 years. That helped drive revenue at the cable business up 2.6% to $14.7 billion and cash flow up 5.4% to $5.9 billion.

For the full year, video losses nearly doubled to 733,000 from 370,000 in 2018.

Consolidated revenue was up 2% to $28.4 billion and consolidated cash flow rose 3% to $8.4 billion in Q4. Comcast also announced a 10% increase in its dividend.

For the full year, cable revenue was up 9.4% and cash flow rose 7.3%.

At its NBCUniversal programming unit, revenue was down 2.6% to $9.1 billion and cash flow declined 4.7% to $2 billion in the quarter. Within the unit, Filmed Entertainment took the biggest hit (revenue fell 21% and cash flow was down 48%), offsetting a 1.2% revenue gain at its cable networks. Cable networks also saw a decline of 1.4% in cash flow in the quarter, while broadcast TV reported a 2.1% revenue gain and a 14% increase in cash flow.

For the full year, NBCU revenue declined 5% and cash flow rose 2%.

"We delivered strong operational and financial results in the fourth quarter, capping another great year for Comcast, including double-digit growth in full-year adjusted EPS, record free cash flow and 1.4 million broadband net additions in the U.S.,” Comcast chairman and CEO Brian Roberts said in a press release. “Our teams at Cable, NBCUniversal and Sky continued to execute at a high level, strengthening our leadership position in our markets. Looking ahead, in 2020 we are leaning into exciting opportunities, including: further differentiating our broadband product in the U.S. through innovations like Flex and xFi Advanced Security; accelerating the deployment of Sky Q; launching a new broadband service in Italy; debuting Super Nintendo World at Universal Studios Japan; and introducing a world-class streaming service - Peacock - which leverages capabilities from across Comcast.”

Mediacom Communications reported mixed results for the fourth quarter ended Dec. 31, with video subscriber losses up and broadband customer increases slowing, while revenue and cash flow continued to rise at a healthy clip.

Revenue for the quarter increased 5.2% to $496.4 million, while adjusted operating income before interest and depreciation (AOIBDA), rose 6.6% to $196.2 million. Despite those gains, Mediacom lost 17,000 video customers in the period, compared to a loss of 2,000 in Q4 2017. Broadband subscribers increased by 4,000 in the quarter, about one-third of the 15,000-subscriber gain in the same period in 2017.

Average monthly revenue (ARPU) increased 2% in the quarter to $62.26 from $61.04 per month per primary service unit. ARPU per customer relationship increased 5.3% from $115.42 per month to $121.59 per month in the most recent quarter.

For the full year, revenue was up 4.2% to $1.956 billion, and AOIBDA rose 4.6% to $745 million. Mediacom shed 45,000 video customers for the full year, an increase over the 14,000 it lost in the same period in the prior year. But broadband additions were up for the full year, numbering 55,000 at the end of 2018, compared to an increase of 47,000 in the prior year. 

AMC Networks reported higher fourth-quarter earnings as benefits from the new tax law helped offset lower income and revenue at its U.S. cable networks.

Net income was $146 million, or $2.33 per share, up from $14 million, or 20 cents a share. The earnings included a $67.9 million benefit from the new corporate tax law. The programmer also gained $11 million by repatriating foreign earnings.

Related: AMC Networks Offers to Buy RLJ Entertainment for $60M

Revenue fell 0.4% to $727 million.

At AMC’s national networks, including AMC, WE tv, Sundance, IFC and BBC America, operating income was down 6.5% to $176 million.

Revenue fell 1.3% to $606 million at the national networks. Distribution revenue was up 6.8% but advertising revenue was down 9.9% to $269 million because of lower delivery of viewers.

Programming and other expenses were up, including a $38 million writeoff for programming assets.

"AMC Networks delivered record financial results in 2017, increasing net revenues and adjusted operating income for the seventh consecutive year since becoming a public company, and generating significant free cash flow that we are using to invest in key strategic initiatives and our networks," said CEO Josh Sapan.

Related: BritBox Crosses 250K Sub Mark

"Our recent distribution deals with the streaming services fuboTV and Philo make AMC Networks available on more virtual MVPDS than any other independent programmer, proving the value of our discrete brands and our desirable, high-quality content,” Sapan said.

“Our owned streaming services Sundance Now and Shudder are seeing healthy subscriber growth and their momentum, coupled with the growth of the other streaming services we have invested in, including Acorn TV, Urban Movie Channel, and the BBC and ITV's Britbox, highlights consumer demand for subscription streaming services with specialized content," he added. "As we continue to evolve and adapt in a world of changing viewer consumption habits, we believe AMC Networks occupies a position of unique strength and are confident that our size, our focus, and our portfolio of assets will enable us to continue to deliver strong financial results to our shareholders."

Altice USA said it was going to take a different approach to the cable business after it purchased Suddenlink Communications in 2015 and Cablevision Systems in 2016 for a combined $27 billion. And while its results since then have been pretty much in line with the rest of the industry, it has excelled in growing operating profits, which in the fourth quarter were more than twice some of its peers at 12.2%.

Altice USA finished the year with a loss of about 25,000 video customers, slightly higher than the 21,000 it lost in the prior year. High-speed data growth at 26,000 was in line with the prior year gain of 36,000. Revenue grew 2.6% to $2.4 billion.

But the company really outshone its peers with 12.2% cash flow growth, nearly two times the 6.2% much larger Charter Communications reported in its Q4 results and nearly three times the 4.2% at Comcast’s cable division in the period.

When Altice purchased Cablevision Systems in 2016 it said it had a plan to drastically cut costs and drive cash flow growth. Although it was met with some skepticism at the time, so far Altice as delivered.

In a conference call with reporters, Altice USA CEO Dexter Goei said the Q4 numbers shouldn’t come as a surprise.

“We’ve been very open that we’ve brought a differentiated approach to running these businesses,” Goei said. “Now we’re about two years into it and have been able to realize a significant amount of opex, capex and direct cost synergies here, to drive our business and drive better free cash flow margins. I think it’s a combination of coming from an environment which is very highly regulated in Europe and somewhat more competitive with much lower ARPU levels, which means we have to work a lot harder for less in our European properties. We’ve instilled that mentality into our Altice USA employee base. Secondly, I think we have taken the historic capex budgets and been able to save quite a bit of money with key suppliers as well as eliminate what we would view as non-core projects and reinvest that into things like the Altice One box which is a game changer for us, like fiber to the home and like a full MVNO.”

Altice USA unveiled its communications hub, Altice One, in November, offering seamless navigation across traditional video and over-the-top services as well as whole-home WiFi connectivity, a voice remote and other features. Its fiber to the home project, which will enable a more connected home and higher data speeds, is progressing with construction to connect several hundred thousand homes in New York, New Jersey and Connecticut underway. The fiber network build is expected to accelerate in 2018 with the first commercialization of FTTH services later this year. The company struck a full Mobile Virtual Network Operator agreement with Sprint to offer a wireless service. Goei said the company expects to launch the service in 2019.

Mediacom Communications reported fourth quarter results Thursday (Feb. 22), improving video losses significantly while stepping up gains in broadband and voice customers compared to the prior year.

Mediacom finished Q4 with 821,000 video subscribers, down by about 2,000 but still a big improvement over the same period in the prior year when the company lost 6,000 video customers. High-speed data subscriber additions also improved – to 15,000 compared with 11,000 in 2016. Voice customer additions also improved to 22,000 versus 12,000 in the prior year.

Revenue for the quarter was $471.8 million (up 2.5%), and operating income before depreciation and amortization (OIBDA, a measure of cash flow) was relatively flat at $184.1 million (up 0.5%). In a statement Mediacom said excluding advertising revenue – which benefitted from the 2016 presidential election – OIBDA would have increased by 3.1% and revenue would have been up 3.5% during the period.

For the full year, revenue of $1.88 billion increased 3.7% and OIBDA rose 2.6% to $712 million. Excluding advertising, Mediacom said revenue would have been up 4.6% and OIBDA would have increased 4.6% for the full year.

Mediacom is the fifth largest cable operator in the country, with 821,000 video customers and 1.4 million customer relationships.

Wall street analysts are typically concerned about cable programmers’ cash-flow and affiliate fees during earnings season, but these days consolidation is commanding the conversation.

As earnings season begins for big programmers such as The Walt Disney Co., 21st Century Fox and Viacom, investors are concerned about the scale needed for content companies’ plans to stream direct to consumers.

“While advertising and subscriber trends are arguably not set to improve, they’re also not top of mind,” RBC Capital Markets media analyst Steven Cahall wrote in a note to clients, adding that tax reform and consolidation will more probably be the dominant themes. “There’s likely to be as much, if not more, debate around the [Department of Justice] view of media consolidation as there will be around cord-cutting.”

Disney and Fox have already announced their deal plans. In December, Disney agreed to purchase certain Fox assets for $66.1 billion.

Viacom and CBS are reportedly revisiting the possibility of recombining the companies — they split in 2005 — in a move that in the past many believed to be more favorable strategically to the cable programmer than its broadcast cousin.

Related: CBS, Viacom Form Special Committees to Evaluate Possible Merger

But as ratings have declined and cord-cutting accelerates, some analysts believe drafting a viable direct-to-consumer strategy is more important than ever, and consolidation is the only way to get there. “Viacom and CBS simply cannot wait any longer,” BTIG media analyst Rich Greenfield wrote in a recent note. While CBS already has a direct-to-consumer product in CBS All Access, the analyst said that alone isn’t enough.

The Fox deal would strengthen Disney’s programming dominance, adding Fox’s 22 regional sports networks, its 20th Century Fox movie and television production studio, and cable networks FX, FXX and National Geographic, as well as Fox’s 39% stake in U.K. satellite-TV service Sky. With the transaction expected to close by the end of the year — and already receiving a ringing endorsement from President Donald Trump — Disney appears to be taking the more-is-better approach as the content distribution sands continue to shift.

With viewers increasingly moving away from traditional distribution methods for mobile, over-the-top and online offerings, Disney is bulking up its already hefty content coffers to ensure no matter what method viewers use to consume content, they are likely to run into at least one Disney-owned property. As for sports, Fox’s regional sports assets should add fodder to Disney’s planned ESPN Plus OTT offering, scheduled for later in the spring.

Related: It’s Game On for ESPN After Disney-Fox Deal

Fox Takes a New Stance
Fox, in turn, is taking the sniper’s tack as opposed to Disney’s shotgun approach. By keeping its broadcast network and TV stations, perennial news ratings champ Fox News Channel, Fox Business Network and national sports channels FS1, FS2 and Big Ten Network, Fox is honing in on what it believes can still attract robust ratings and ad dollars — live sports and news. It further solidified that stance with its deal to pay about $3.3 billion over five years for rights to 11 NFL Thursday Night Football games.

Whether either, neither or both approaches win the day remains to be seen. But the fundamental truth behind both moves is apparent — traditional TV audiences are shrinking and are not expected to recover soon.

Disney seemed to verify the real impact of cord-cutting when it revealed in 2015 that sports channel ESPN had lost 3.2 million subscribers in the prior 12 months, a figure that rose to a collective 13 million viewers between 2011 and 2017. Since then the losses for pay TV programmers in general have averaged about 3% to 4% per year, although some networks, such as Fox, have experienced far less erosion.

According to Pivotal Research Group senior research analyst, advertising Brian Wieser, using Nielsen Universe data, the median growth rate for Fox networks improved to -1.6% in December from -1.9% in November. Nielsen’s February estimates show an even sharper improvement (-1.2%) compared to the prior month (-1.6%). But according to the Nielsen data, Fox is one of the exceptions.

Those declines have begun to eat into affiliate-fee growth, although some networks are more affected than others. MoffettNathanson senior research analyst Michael Nathanson estimated that calendar Q4 affiliate fee growth would range from 11% at Fox to -6.9% for Viacom. Disney fees should rise about 2.5% in its fiscal Q1, while Discovery Communications and Scripps Networks should gain 3.2% and 5%, respectively.

Less Subs, Less Ad Bucks
Fewer subscribers and declining ratings (Nathanson predicts a 13% drop in primetime C3 18-49 ratings for broadcast and cable in Q4) translates into lower advertising revenue, and in the calendar fourth quarter, total national TV ad sales are expected to fall 2.7%, according to the analyst. Viacom once again is expected to show the biggest declines (-4.5%), with Disney not far behind at -3.6%.

Despite the erosion of core fundamentals, Nathanson urged investors to focus on names that have affiliate-fee pricing power, exposure to live sports and news and unique global content. “These companies are cheap and should likely hold their value when the next wave of worries come,” he wrote.

Traditional pay TV service providers continue to face headwinds as cord-cutters seek out new alternatives, but that trend is not dampening AT&T’s enthusiasm about the video sector.

“We’re very bullish on video,” Randall Stephenson, AT&T’s chair, president and CEO, said Jan. 31 on the company’s fourth-quarter earnings call.

Though U-verse TV and DirecTV’s satellite TV service took it on the chin, losing 207,000 subscribers between them, DirecTV Now, AT&T’s OTT-delivered service, balanced it out by adding 368,000 subs, extending DirecTV Now’s base past 1.15 million.

OTT, and the experience that streaming services can deliver, will serve as the centerpiece of AT&T’s video strategy going forward.

AT&T, for example, is preparing for the spring debut of an upgrade for DirecTV Now that will add in a cloud DVR service, a third concurrent stream (up from two today), a refreshed interface, a bulked up VOD library and support for 4K.

Stephenson also shed some light on AT&T’s plans to introduce a new “home-centric” streaming device that will “repurpose” the company’s traditional linear TV platform.

He said the new in-home offering will take the form of an inexpensive, “very thin client” that can be connected to any broadband service and include a voice-controlled interface. In addition to supporting DirecTV Now, it will also integrate access and search to other OTT services, including Netflix, Amazon, Hulu and YouTube, among others.

Stephenson didn’t elaborate on that product further, but FCC documents that emerged last fall showed that DirecTV is working on a 4K-ready, Android TV-based streaming device that includes voice search and access to apps and services from Google Play.

When the number of customers decline for a business, it’s always bad news. But in the cable industry, if subscribers aren’t leaving as quickly as they did in the last quarter, well — that’s good news, right?

While the ongoing trends of video subscriber losses and slowing broadband additions continued, they weren’t as bad as expected. And in this volatile media climate, that can be good enough.

Comcast’s 33,000 video losses in the fourth quarter were better than many had expected — consensus was for a loss of about 45,000 — but it was a reversal from last year’s gain of 80,000 customers. In what is usually a seasonally strong quarter, Comcast fell short. For the year, its video customers were down by about 150,000, nearly erasing the 161,000 video subscribers it added in 2016.

While the video declines seem to make a strong case for the growing impact of cord-cutting, the financial picture tells another story. Comcast grew cable revenue by about 3.4% in the period, a respectable level given the continued subscriber decline. Cash flow was up a strong 4.2%, and free cash flow — basically cash flow minus capital expenditures — was on pace to rise 8.2% this year. That, according to Moffett Nathanson principal and senior analyst Craig Moffett, is unprecedented.

Cost Curbs Boost Cash Flow
According to Moffett, Comcast is making accelerated video subscriber losses — and a slowing of its broadband additions — work by keeping its other costs down. One need only look at margin growth for proof. Comcast’s 40.7% cash-flow margins in the quarter were 40 basis points higher than consensus and 30 basis points above last year.

And while other operators are expected to report revenue growth in the 2% to 3% range and cash-flow increases approaching 4%, video losses are not expected to slow down soon.

“By now, the litany of worries that has kept investors on the sidelines should be familiar to everyone,” Moffett wrote. “Video subscribership is being hammered by cord-cutting. Video margins are being squeezed by [virtual multichannel video programming distributors]. Broadband industry growth is hitting a wall. AT&T is expanding its fiber footprint. Verizon is deploying 5G fixed wireless. Cable’s growth phase must surely be over.”

Even Comcast admits that the pressure isn’t expected to let up.

But Comcast’s better-than-expected numbers are at least somewhat encouraging, especially since it was able to post strong financial results.

“How many companies growing revenues by 4%-plus have free cash flow yields of 8%-plus?” Moffett asked.

Comcast said it is combating the competition through new products like its wireless offering — which has more than 380,000 customers, but is not yet profitable — and Instant TV, its streaming video offering, as well as innovative video bundling and broadband packaging. On the minus side, Comcast could be the exception to the rule — its Q4 video subscriber losses represented less than 1% of its base. The rest of the industry has been shedding video customers at a 3.5% clip.

Verizon Communications’s Fios TV offering shed 29,000 customers in the quarter, compared with a gain of 21,000 in 2016, reflecting “the shift from traditional linear video to over-the-top offerings,” the company said.

Verizon has reportedly been focusing on its own OTT offering. The company didn’t mention that product on last week’s conference call, but most analysts believe it will launch in the spring. Whether that means the company will focus less on its landline Fios TV business — subscribers are down to about 4.6 million, from 4.7 million at the beginning of 2017 — and more on its streaming offering, remains to be seen.

OTT Growth to Cool Down
Over-the-top providers are expected to continue to disrupt the pay TV model, but more established players should begin to see their growth rates start to slow. Evercore ISI Group media analyst Vijay Jayant predicted a slight fall off for Dish Network’s Sling TV in Q4, to 250,000 additions from 286,000 in the prior year, but UBS telecom analyst John Hodulik estimated Sling TV’s growth would be cut in half, to about 100,000.

For other cable operators, the fight will be a mixture of the same — higher video subscriber losses, slower broadband gains and accelerated efforts to cut costs.

That means most analysts expect AT&T, the next big distributor up to the earnings plate on Wednesday (Jan. 31), to see further video customer erosion.

Jayant predicted AT&T would shed about 300,000 video customers at its DirecTV and U-verse TV units in the quarter, up from a loss of 27,000 subscribers in the previous year. Hodulik was slightly less optimistic, predicting fourth-quarter losses of about 330,000 subscribers.

Charter Communications, which is scheduled to report fourth-quarter results on Friday (Feb. 2), is expected to lose about 79,000 video subscribers while its broadband growth slows to about 300,000 additions, down from around 360,000 in the previous year.

AMC Networks reported lower fourth-quarter earnings as an impairment charge more than offset increases in revenue and operating income.

Net income fell to $14 million, or 20 cents a share, from $90 million, or $1.23 a share a year ago.

The company said the fourth-quarter results include the impact of impairment charges of $68 million related to AMCNI-DMC, the company’s Amsterdam-based media logistics facility. Adjusted earnings were $92 million, or $1.30 a share, down from $102 million, or $1.39 a share, a year ago. Adjusted operating income was up 7.9% to $212.7 million.

Revenues rose 7.5% to $730 million in the quarter.

Read more at broadcastingcable.com.

CBS chairman and CEO Les Moonves isn’t worried that fears over lower pay TV affiliate fees and continued consolidation of distributors could affect retransmission growth for his broadcast network, adding that fees are expected to continue to grow at a healthy pace.

On a conference call with analysts to discuss fourth-quarter results, Moonves said retransmission-consent fees grew more than 40% at CBS in the fourth quarter. He estimated that total retrans revenue is on track to grow to $1 billion in 2016, a year earlier than previously expected, and double to $2 billion in 2020.

“Everybody knows what the ballgame is with retrans,” Moonves said on the call, adding that its last negotiation with Cablevision Systems was “no muss, no fuss.”

“Retrans is stronger than ever,” Moonves continued. “Every deal is larger than the one before. The tone hasn’t changed.”