As analysts scrambled to recalculate their year-end estimates for broadband subscriber growth after a worse-than-expected Q3, they might have to take out their calculators once again as video subscriber losses, once expected to accelerate as the year progressed, actually improved during the quarter and should continue that momentum for at least the next few years. 

The severity of the slowdown in broadband subscriber growth took some analysts by surprise in Q3, forcing most to rejigger their estimates for full-year growth. But video losses, which should spike for cable operators to about 2.4 million in 2021, are expected to slow as well, to about 1.98 million in 2025, per MoffettNathanson. At the same time, pay TV subscriber losses in general are expected to temper to about 4.3 million for the full year, according to Wells Fargo Securities media analyst Steven Cahall. That’s better than the 4.7 million he estimated were lost in 2020 and is tied in part to subscriber apathy as well as a sense that as streaming services continue to increase their prices, the wired bundle isn’t such a bad value after all.

Over the past few months, streaming service Disney Plus raised its monthly rate to $9.99, up from $7.99 when it launched in 2018. Hulu Plus Live TV said it would raise the monthly price of virtual MVPD service by $5 beginning on Dec. 21, adding that subscribers would get access to Disney Plus and ESPN Plus included. 

While no one suggests wireline video is making a comeback, its demise may not come as fast as first predicted. Cahall now sees pay TV subscriber losses reaching 4.7 million by 2024, while SVOD subscriber additions should decelerate from 5 million in 2020 to 1.3 million in 2024. 

Video’s Transition Phase

In an interview with CNBC’s David Faber on Nov. 18, Charter Communications chairman and CEO Tom Rutledge said that while pay TV still has its problems, improving video subscriber growth shouldn’t come as a total shock.     

“It’s a problem business in the sense that it’s a business in transition,” Rutledge said in the CNBC interview. “The cost of video has gotten really high ... It’s difficult from a pricing perspective to create value for a lot of customers. On the other hand it’s still the best product out there. … I think it’s still a business that we need to be in. I think it’s a value to our customers, [and] the rate of loss in the bundle will probably slow.”

Still, Rutledge said he sees the new “double play” bundled offering from cable as a broadband/wireless package instead of a broadband/video pairing. 

Rutledge reminisced back to 2004, when as CEO of Cablevision Systems he launched a wireline telephony product to compete with the big telcos, which were charging as much as $72 per month for service. Now, wireline phone service is priced at about $13 per month and cable has the lion’s share of that market. 

“The major share of that business has moved to our business,” Rutledge told CNBC. “I think mobile has a similar opportunity.”   

Depending on the researcher, broadband subscriber growth was between 630,000 and 726,000 new customers in Q3 2021, about half the increases of the same period in 2020 but in line with the tally from the prior two years. Pay TV video losses, on the other hand, were at  about -4.8%, better than the -4.9% of the prior year and on pace to reach 4.3 million for the full year (down 4.8%), a big improvement over the 4.7 million lost in 2020, according to Cahall‘s estimates.  

While total video subscriber losses are on a path to improve this year, the question remains whether that pace will accelerate, decelerate or stay the same. 

“It’s a tough dynamic to pick apart given the unknowns in large variables,” Cahall wrote in a note to clients. “We view potential price increases of pay TV bundles and how much incremental live content is heading to streaming either simulcast or exclusive as major swing factors.”

Sports a Leading Indicator

Cahall said sports could end up being the key determinator as to which way the video pendulum swings. So far, most major rights deals have adopted a hybrid approach to sports, with exclusive content on both linear and streaming platforms. At least for the near term it seems sports lovers will need pay TV for game content. 

“We don’t think ESPN will house its premier content on DTC [direct-to-consumer platforms] anytime soon,” Cahall wrote. “Disney and the rest of its legacy media peers are for now striking the right balance of keeping enough content on linear to drive higher affiliate fees while adding incremental content on streaming on a selective basis.”

Cord-cutting has been talked about for years, but didn’t really take a bite out of linear TV until 2019, when pay TV (cable, satellite, telco TV and virtual MVPDs combined) lost 3.8 million subscribers, compared to just 900,000 in the prior year, according to MoffettNathanson. Video subscriber losses continued in 2020 when the industry shed about 4.4 million, a combination of the pandemic and an increase in the number of major streaming services. 

MoffettNathanson agrees with Cahall that total video-sub losses should dip slightly to 4.3 million in 2021, and expects the slowdown to continue in 2022 (3.8 million losses), 2023 (3.3 million) and 2024 (3.0 million). In a research report issued on Nov. 30, MoffettNathanson saw access to sports and news programming as the deciding factors.  

MoffettNathanson predicts that there will be about 73.2 million pay TV customers in 2024, but sees the segment bottoming out at about 53 million subscribers. That is the number the researcher, along with telecom consulting firm Altman Solon, estimated are news and sports junkies, the stickiest segment for linear pay TV. Just when that floor will be reached is anyone’s guess, but will largely be determined by when and where distributors move more sports and news content over-the-top.

Some networks already have begun to move some sports content to OTT — NBC’s Sunday Night Football is on Peacock and CBS’s NFL games are simulcast on that broadcaster’s streaming service, Paramount Plus — but that hasn’t been enough to force sports lovers to make the switch. MoffettNathanson estimated that while pay TV subscribers (including vMVPDs) have declined by nearly 9 million since 2019, regular sports viewers actually increased by 2 million during the same time frame. A combination of the 2021 Olympic Games, legalized sports gambling and pent-up demand for sports after shutdowns likely drove that increase, but those conditions could change as leagues, teams and distributors move more and more content to OTT. 

“Meanwhile, the number of sports fans outside the linear ecosystem is rising, suggesting that sports on DTC services are driving incremental reach and viewership for the leagues,” MoffettNathanson wrote. “As such, we expect the leagues and media owners to become more aggressive in bringing sports to DTC platforms to broaden their reach beyond the pay TV base.”  

SVOD Saturation

At the same time, SVOD penetration is quickly nearing the saturation point. In his report, Wells Fargo’s Cahall estimated that SVOD penetration should rise by 1.6% per year, reaching 92% by 2024. He also predicted that the average number of SVOD products per household will rise from 1.7 in 2019 to 3.0 by the end of 2021, peaking at 4.2 per household by 2025.

Concurrently, traditional video subscriptions will fall at a slightly faster rate, Cahall calculated. He estimates that SVOD subscriber additions, 7.1 million in 2020, will dip to 5 million in 2021 and to 1.3 million by 2024. Pay TV subscriber losses, he predicts, will rise slightly from 4.3 million in 2021 to 4.5 million in 2022, 4.6 million in 2023 and 4.7 million in 2024. But that pace is dependent on the level of SVOD saturation and the pace of cord-cutting.

Cahall still expects a “healthy amount” of cord-cutting, a trend worth watching. As an SVOD service’s monthly charge is only about one-tenth of the average pay TV subscription, pricing will be a big factor.

“Ultimately, where content sits will answer a lot of these questions, in our view, but it’s worth considering that we are approaching untested levels of nearly full SVOD penetration,” Cahall wrote. ■

Charter Communications once again bucked the trend of video customer declines in the pandemic era, adding 67,000 video customers in Q3, on top of another strong showing for broadband, which added 537,000 subscribers in the period.  

While the broadband additions were not as strong as the 850,000 additions in Q2, they were well above the previous year’s mark of 380,000 additions. Charter added video customers for the second straight quarter. In Q2, the company added 102,000 residential video customers, while losing 8,000 business video subscribers. In Q3, Charter gained 53,000 residential video subs and 14,000 business video customers. 

The gains helped drive overall revenue up 5.1% to $12 billion and EBITDA up 13.6% to $4.6 billion. 

"Our long-term strategy of growing customer relationships by delivering high-quality products and service remains on track," Charter chairman and CEO Tom Rutledge said in a press release. "We've added two million customer relationships in the past year and remain focused on executing a proven operating and investment strategy that works for customers, employees and the communities we serve, creating shareholder value for the long term.”

Pay TV providers are set to report the worst year in their history in terms of video customer losses, according to a handful of analysts. Yet, despite the losses and the increases in cord-cutting, cord-shaving and cord-nevering, those analysts are probably more optimistic about the future of the industry than they have been in years.

Comcast kicked off the fourth-quarter earnings season Jan. 23, reporting a decline of 149,000 video customers. The rest of the sector is expected to report in the coming weeks, with AT&T going on Jan. 29, Verizon Communications on Jan. 30 , Charter Communications on Jan. 31 and Altice USA on Feb. 12.

Cord-cutting has been on the rise for years: 2019 was worse than 2018, which was worse than 2017 and so on. Evercore ISI media analyst Vijay Jayant estimated cable would lose about 1.96 million video customers in 2019, up from the 1.26 million it lost in the prior year. Satellite-TV providers would see their losses more than double from 1.2 million in 2018 to 3.25 million in 2019, mainly due to heavy losses at DirecTV. Jayant estimated that DirecTV would lose about 800,000 video customers in Q4, down from the 1.1 million it lost in Q3.

Video Losses Aren’t Troubling

“Interestingly, complacency doesn’t seem to be an issue with respect to video,” Craig Moffett, MoffettNathanson principal and senior analyst, said in a note to clients. “There, cable investors seem to be keenly aware of the downside to estimates. It’s just that they (appropriately) don’t seem to care very much.

“The age of worrying about video subscriber losses finally seems to be behind us,” Moffett added. “Good riddance.”

But the fourth quarter, like the quarters behind it, will be characterized by broadband growth. Jayant estimated that cable operators will continue on their path of accounting for more than 100% of overall domestic broadband growth, adding 832,000 customers in Q4 compared to the addition of 612,000 in the same period last year.

“Cable’s clear speed advantage in roughly half the U.S. is driving continued strong share performance,” Jayant wrote. Jayant’s optimism for the sector is shown in his “outperform” ratings on Comcast and Charter (the top-rated stock in his coverage universe). Evercore ISI analyst James Ratcliffe has an “outperform” rating on Altice USA.

The slowdown affecting over-the-top providers also is expected to continue. Jayant predicted that virtual multichannel video programming distributors (vMVPDs) like SlingTV, AT&T TV Now, Hulu with Live TV, fubo TV and Philo would gain about 804,000 customers in 2018, less than half of the 2.3 million additions the sector enjoyed in 2018.

For the full year, Jayant estimates, pay TV subscribers (including OTT, cable, satellite and telco) will have declined by about 5.4 million, more than three times the 1.5 million the sector lost in 2018.

On the flip side, total cable, telco and satellite broadband subscriber additions are expected to reach 2.8 million in 2019, up 12% from the 2.5 million additions in 2018. Cable broadband adds are expected to be 3.1 million in 2019 (up nearly 15% from 2.7 million in 2018) while telcos are expected to lose 402,000 broadband customers, an increase over the 342,000 the sector lost in the prior year.

Mobile Share on the Rise

On the wireless front, Jayant wrote that while telcos Verizon and AT&T still dominate, cable managed to take some share in 2019, driven by higher net additions at Charter and the launch of Altice USA’s aggressive offering late in Q3.

Jayant predicted that the postpaid wireless base, including cable operator customers, increased by about 2.2 million in Q4, a rise of 160,000 subscribers year-over-year and 560,000 sequentially. He believes cable operators (mainly Comcast, Charter and Altice USA) captured about 25% of postpaid net additions in Q4 2019, up from 17% in the prior year.

Wireless, primarily a retention tool for other cable services, is starting to break out of that box as subscribers rise. Charter added a surprising 276,000 wireless customers in Q3 (most analysts had expected a gain of about 230,000) and Jayant sees the momentum continuing into Q4, with 263,000 additions. Overall, he estimates Charter will add about 923,000 wireless lines in 2019 (up from 134,000 in 2018) and 1.04 million in 2020. He sees Altice USA stepping on the wireless accelerator in Q4, adding about 80,000 wireless customers in 2019, rising to 550,000 additions in 2020.

Wireless growth is expected to return to Comcast after a bit of a slowdown. Jayant predicted the largest U.S. cable company will add about 778,000 wireless customers in 2019 (down from 855,000 in 2018), rising to 909,000 additions in 2020.