As The Walt Disney Co. gets closer to announcing earnings on Wednesday and holding Bob Iger’s first call with analysts since his return to the company, predictions about what will transpire are heating up.

Evercore ISI media analyst Vijay Jayant is expecting Disney to beat consensus expectations with its first-quarter numbers. More importantly, Jayant is predicting Iger will come through on the cost cuts Wall Street and investors are looking for.

“There is an opportunity for Disney to use the current advertising downturn to take cost out of the linear business,” Jayant said. 

He estimates that if Disney cuts costs to the same degree as NBCUniversal has planned for 2023, that could translate into $1.3 billion in savings over the next several years.

“Additionally, there is opportunity for Disney to improve studio results through a combination of rerouting some direct-to-streaming movies to theaters, better execution and potential windowing changes,” Jayant said. “We see an opportunity to improve studio result by about $500 million by returning the studio to 2020/2021 levels of profitability over the next five years.”

A report by Bloomberg suggested that Disney is also considering licensing some of its films and movies to third parties in an effort to generate additional revenues.

Jayant has raised his fiscal first-quarter estimate for Disney revenue to $23.7 billion, which would be up 17.7% from last year. He lowered his estimate for operating income to $2.2 billion.

The numbers might not be the most important thing Wall Street is looking for.

“We expect 1Q fiscal year 2023 results will take a backseat to management’s updated strategic and operational visions following the recent leadership change and ongoing proxy battle with an activist,” RBC Capital Markets analyst Kutgun Maral said. “Given Bob Iger’s return as CEO was less than just three months ago, we assume the full contours of the new plan are still being shaped and could take more time to be fully articulated to investors.”

In broad strokes, Maral also is looking for a path to direct-to-consumer profitability, a company-wide cost transformation initiative, particularly at the linear networks, and upping operating income growth.

Maral is also looking to see how Iger restructures the company’s media and entertainment division. Iger has said his goal was to give creative executives more control. “From the outside, it’s sometimes difficult to appreciate what implications a profound shift like this might have on a company,” Maral said. “What does management expect?”

On another big-picture issue, Maral does not think this is the right time to spin off ESPN. 

Across linear, we think it would be a highly difficult and complicated process to separate ESPN from the rest of the company’s portfolio,” he said. “Perhaps more importantly, we think Disney is still in the early days of tapping into the opportunity with streaming sports and the benefits of being able to drive the broader Disney DTC bundle with Disney Plus and Hulu.”

Maral continues to think Disney will report revenue of $23.3 billion for the quarter — a bit lower than the Wall Street consensus — and operating income of $2.51 billion, 2.8% below consensus.

He predicts net added subscribers to core Disney Plus will come in at 1.5 million, also lower than the consensus of 2.2 million. 

Despite the pessimism about Disney’s first-quarter numbers, he considers himself bullish on the stock. Maral set a target price of $130, up from Friday’s close of $110.71.

Last week, in a letter to shareholders urging them to support the company’s slate of directors and reject a bid by Nelson Peltz for a seat on the board, Disney said the board is currently “overseeing important strategic changes that our CEO Bob Iger is executing, such as putting more decision-making into the creative teams, implementing a cost reduction plan, prioritizing streaming profitability and improving the guest experience in our parks.”

On the other hand, Peltz “has demonstrated that he does not understand Disney’s businesses and he lacks the perspective and experience to contribute to the objective of delivering shareholder value in a rapidly shifting media ecosystem,” the letter said. “We are skeptical of his motives and believe he would be disruptive at a crucial period for Disney.” ■

Global downloads of the Netflix app fell in September, while Disney Plus saw gains and Paramount Plus tallied records, according to a scorecard published by Evercore ISI media analyst Vijay Jayant.

Overall subscription video-on-demand downloads were up 13% from a year ago in September, with Netflix taking a 26% share, topping Disney’s 25% share. Ad-supported VOD downloads were up 30% in September, with Pluto TV having the largest share at 37%. Downloads of virtual multichannel video programming distributors (vMVPDs) were up 42% in the quarter, led by YouTube TV.

Netflix’s global downloads dropped 22% in September compared to a year ago and 6% in the third quarter, Jayant said. The analyst said Netflix faced a tough comparison with a year ago, when people were clamoring to watch Squid Game.

But despite the negative download trend, Jayant said he expects that when Netflix reports its third-quarter earnings, net subscriber additions will be up 1 million, in line with the company’s guidance to investors. He also said he expects subscriber growth to accelerate in the fourth quarter because of a strong content slate.

Jayant said he sees strong gains at Disney. Downloads for Disney Plus, minus the Hotstar service in India, were up 97% in September and 39% in the quarter. When adding in Hotstar, Disney set a record for its best month and quarter since losing the rights to Indian Premier League cricket.

For the third quarter, Jayant expects Disney to report 6 million net ads for Disney Plus without Hotstar, including 4 million new international subs and 2 million additional domestic subs. He noted enthusiasm for the content on display on the recent Disney Plus Day.

HBO Max downloads moderated in September after flying high in August thanks to the launch of House of the Dragon, the prequel to HBO’s Game of Thrones. Jayant said he still expects HBO Max to add 2 million subscribers in the quarter. 

Downloads of Warner Bros. Discovery’s other streaming service, Discovery Plus, were down 21% month over month and 41% year over year, hitting their lowest levels since that service launched in January 2021. Marketing spending is down as the company gets ready to launch a service that consolidates Discovery Plus and HBO Max.

Paramount Plus set a record for monthly and quarterly downloads in September and the third quarter. Paramount will have a stronger content offering in the fourth quarter, Jayant added, including NFL football, Tulsa King, Criminal Minds: Evolution and Top Gun: Maverick. ■

Before the start of the first day of trading for Warner Bros. Discovery, Evercore ISI media analyst Vijay Jayant is calling the stock “undervalued” and labeling the company as “the first direct-to-consumer free-cash-flow machine.”

WBD, the company’s stock-ticker symbol, was created after Discovery’s acquisition of WarnerMedia closed Friday.  

In a research note Sunday night, Jayant upgraded WBD to “outperform” from “in line,” where he had Discovery ranked, with a targeted price of $45 per share.

He said that WBD is now the second-largest media company (after The Walt Disney Co.) in terms of revenue. He added that it has the assets “to successfully compete in the global direct-to-consumer video streaming opportunity.”

(Similarly, RBC Capital Markets analyst Kutgun Maral labeled WBD as "Outperform" and set a target price of $50 a share. “Looking beyond the near-term noise, we continue to highlight WBD as the most compelling long-term opportunity across our coverage, and believe it will become a clear leader in the global streaming marketplace, benefit from significant revenue/cost synergies, and has a very credible path to rapid deleveraging,” Maral said.)

In Monday trading, WBD stock rose to a little over $26 a share in early trading before falling back to $24 a share at midday, down 2%. WBD shares closed Monday at $24.78, up  1.27%.

Jayant said WBD’s streaming revenues are expected to increase at a 21% compounded annual growth rate from 2021 to 2026 — a rate similar to Disney. He expects WBD to offer a bundled HBO Max-Discovery Plus product.

“Discovery’s management team has indicated that less than half of domestic Discovery Plus subscribers also subscribe to HBO Max,“ Jayant said. ”Assuming that 40% of Discovery Plus subscribers already subscribe to HBO Max as well, we estimate that consolidating Discovery Plus and HBO Max into a single offering would be roughly neutral to revenue as the lost subscribers would be offset by the higher ARPU [average revenue per user] of HBO Max (~$12/month vs. ~$7/month).” 

With its increased scale, Jayant said, the combined company ought to be able to increase the margins for its traditional TV business. The new size will give it more clout with distributors and added reach show command higher advertising prices, he added.

“Warner Bros. Discovery’s linear networks will be the profit center that the company uses to fund its investments in streaming,” he said.

Discovery has promised Wall Street it will be able to find $3 billion in cost savings when the companies are combined. Jayant expects $1.5 billion in cost cuts to come from the direct-to-consumer business (marketing and tech will be consolidated), $1.2 billion from its linear networks and $300 million from reduced corporate overhead. 

Jayant warned that in the short term, many of the AT&T shareholders who now own WBD might be looking to sell, flooding the market with supply and holding down stock prices. The spinoff and sale left about 71% of WBD shares in the hands of AT&T shareholders, who are used to getting paid substantial dividends. “The lack of a dividend at WBD could result in a substantial flow-back of stock from existing AT&T shareholders,” he said. 

MoffettNathanson analyst Michael Nathanson was less enthusiastic about the new company. He gave its shares a neutral rating and a $27 target price. 

“We expect the elevated debt load and uncertainty around key strategic questions to be an overhang for shares,” he said.

Nathanson has been among those on Wall Street questioning whether streaming is a good business for media companies. The ad market has been stronger than expected and cord-cutting has remained steady, he noted. Those factors have helped media companies pay for the content they need to compete in streaming.

“We still worry that the primary need to reduce leverage puts WBD at a relative disadvantage to bigger entities that have greater financial flexibility to invest in streaming,“ Nathanson said. “Even if the company doesn’t plan to win the spending war and will re-allocate some of their combined $20-plus billion in content spend towards HBO Max, we question if the other constraints and pressures in the business will be enough to hit WBD’s $14 billion 2023 EBITDA guidance.” ■

Comcast added about 300,000 total broadband customers in the third quarter, less than half the 633,000 additions it had in the same period last year, but slightly ahead of the slowdown that some analysts predicted for the company.

That should be a relief for some investors, who back in September feared the worst after Comcast chief financial officer Mike Cavanagh warned at an industry conference that subscriber growth for high-speed internet service was slowing down a little more than expected in August.

Analysts scrambled to revise their growth models for the sector, with most coming close to what Comcast actually reported on Thursday morning. Wells Fargo analyst Steven Cahall estimated that Comcast would add about 295,000 broadband customers (down from his previous estimate of 395,000 additions), Evercore ISI Group media analyst Vijay Jayant predicted 280,000 residential additions (Comcast added 281,000 residential and 19,000 business customer additions) and MoffettNathanson principal and senior analyst Craig Moffett predicted 302,000 total additions. Overall analysts' consensus estimates were for 296,000 broadband additions.  

Also Read: Peacock Losses Rise in Quarter 

Broadband helped drive strong revenue and cash-flow gains in the cable side of the business for the quarter. Comcast said cable communications revenue was up 7.4% to $16.1 billion and adjusted EBITDA rose 10.3% to $7.1 billion.

Wireless subscribers rose by 285,000 in the period, the best quarterly gain since its launch in 2017. Comcast ended the quarter with 3.7 million wireless lines. 

Overall revenue was up 18.7% to $30.3 billion, and adjusted EBITDA rose 18.1% to $9 billion. Net income rose 34.6% to $4 billion. On the programming side, NBCUniversal revenue was up 57.9%, driven by a 47.5% increase at its Media unit, which benefited from the  Summer Olympic Games. Minus the Olympics, Media revenue would have risen about 9.2% in the period.  

In a press release, Comcast chairman and CEO Brian Roberts said he was pleased with the company’s Q3 performance, especially at its cable unit. 

“At Cable, our customer and financial metrics remained strong, highlighted by 10% growth in adjusted EBITDA, the highest level of customer retention on record for a third quarter, and the most wireless net additions since the launch of Xfinity Mobile in 2017,” Roberts said. “Going forward, I am excited about the opportunity to continue to invest in our global technology platform and other businesses while returning more capital to shareholders.” 

 With the two largest U.S. cable companies — Comcast and Charter Communications — expected to release third-quarter results later this week, investors are bracing for a big slowdown in broadband subscriber growth. But at least one analyst believes the decline won’t be quite as jarring as some may expect.

In an Oct. 20 report, Evercore ISI media analyst Vijay Jayant wrote that while Q3 broadband subscriber increases will be lower than they have been in the past few quarters, it won’t be that dramatic of a decline.

This comes just as cable operators are preparing to release their Q3 results. Comcast is expected first out of the gate, with its Q3 earnings report due on Oct. 28, followed by Charter (Oct. 29), Altice USA (Nov. 4) and Cable One (Nov. 4). 

Also Read: How Slow Will The Broadband Slowdown Be? 

“Broadband growth may be slowing, but we don’t think it’s dropping off a cliff,” Jayant wrote, adding that cable stock prices have dropped considerably since Comcast said it was seeing high-speed internet subscriber additions off a little bit in August. “We don’t believe that these comments indicate that the broadband market is experiencing a dramatic shift, however, and expect continued healthy subscriber growth, with nearly 900,000 subscriber net adds in 3Q, of which we expect cable to capture [about] 75%.”

While Comcast’s admission that broadband growth was slowing did send the sector down a bit, cable stocks fell hard after Altice USA CEO Dexter Goei told the Goldman Sachs Communacopia conference his company would lose between 15,000 and 20,000 broadband customers in Q3. In the past month (Sept. 22 to Oct. 22), cable distribution stocks are down about 6%, with Altice USA falling the hardest (down 26.2%), followed by Cable One (down 6.7%), Comcast (down 2.8%) and Charter (down 2.7%).

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

Jayant’s optimism is fueled by the relative scarcity of strong new broadband competition — he estimated that only 35% of cable households have a fiber-to-the-home competitive option, and fixed wireless availability is still in the low single-digit percentages. In addition, recent pricing changes for cable wireless offerings (which can only be sold with a broadband connection) should help stabilize high-speed internet subscriber rolls.

Also Read: Broadband Slowdown Forces Analyst to Go Negative on Cable Sector  

On the cable side, Jayant was encouraged by low non-pay and move churn. The analyst wrote that government programs like the Emergency Broadband Benefit Program (EBBP) and child tax credit payouts may have helped keep non-pay churn in check, while move churn, despite the red-hot housing market, may be lower due to renters who have opted to stay put. Jayant noted that as much as 60% of annual move churn is due to renters. 

As a result, Jayant estimates that Comcast will add about 280,000 residential broadband customers in the third quarter, less than half the 617,000 customers it added in the same period last year during the height of the pandemic. He predicted Charter would add about 325,000 broadband customers (compared to 494,000 additions in Q3 2020) and Altice USA would lose 20,000 customers (versus adding 28,000 in Q3 2020). Cable One, which added 28,000 broadband customers in Q3 2020, will see that slow to 15,000 additions in Q3 2021, according to Jayant.

Slow Start to Q3

Overall, the Evercore analyst expects cable broadband growth to slow by about 42% in Q3 2021 to 665,000 additions from 1.36 million in Q3 2020. Those numbers should pick up in the fourth quarter — Jayant estimated that cable would add 710,000 broadband customers in Q4 2021, compared to 859,000 additions in Q4 2020. For the full year, cable broadband customer additions will be down about 33% to 3.1 million from 4.6 million in 2020. 

Video subscriber erosion will continue, according to Jayant, who expects pay TV to lose about 1.7 million customers in Q3 2021, up by 300,000 sequentially. For the full year, Jayant estimates cable operators will shed about 3.2 million video customers, up from a loss of 2.4 million in 2020. While virtual MVPDs will take up some of that slack — Jayant predicted they would add about 1.5 million video customers in 2021 — it won’t be enough to stop the bleeding. Jayant predicted that total pay TV subscriber losses, including cable, vMVPD, satellite and telco operators, will rise 1% to 4.72 million from 4.68 million in the prior year.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Discovery Plus, the new streaming service launched Jan. 4 may have already added 3.5 million subscribers, according to analyst Vijay Jayant of Evercore ISI.

Discovery is expected to disclose subscriber trends for Discovery Plus when it reports earnings Monday.

Also Read: Discovery Plus Offers 50-Plus Original Series

Jayant cited data from SensorTower that the Discovery Plus app has been downloaded about 5.1 million times over the past six weeks. He said that based on the ratio of Disney Plus signups to downloads, Discovery Plus could have 3.5 million customers.

“This number could suggest modest upside to our published estimate,” Jayant said in a research note Sunday.

Also Read: Discovery Sets Upfront Presentation for May

After Discovery’s investor day in December, Jayant estimated that between the new Discovery Plus and existing DPlay subs in Europe, Discovery would have 9 million SVOD subscribers by the end of the first quarter. Having 3.5 million Discovery Plus signups would put Discovery Plus at 8.5 million now, with more than a month to go.

Discovery Plus offers programming from Discovery networks including TLC, ID, OWN, Food Network and HGTV, plus original content and content from other companies including A+E Networks.

Also Read: Everything You Need to Know About Discovery Plus

The service is available for $4.99 a month with ads and $6.99 ad free. 

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.

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 TVwould 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 (May), 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).

Cable operators are expected to show better subscriber trends in the upcoming quarters, but forecasts suggest broadband additions will continue to soften, weighing on the stocks.

Broadband growth has been slowing for about four years. But it has become more pronounced in the past 12 months, as cable operators saw their high-speed data additions slow to 2.7 million in 2017, down from the 3.3 million they added in 2016, according to Leichtman Research Group. Broadband still commands the biggest piece of the subscriber pie for the top two cable operators: Comcast had 22.4 million video and 25.9 million broadband subscribers at the end of 2017, while Charter Communications had 16.95 million video and 23.9 million broadband customers in the same period.

Comcast, Charter and Altice USA are all expected to release quarterly results in the next few weeks, with Comcast first out of the gate on April 25, followed by Charter on April 27.

Projections show Charter will improve its video losses in the first quarter, shedding about 19,500 video customers in the period, compared to a loss of 89,000 in the prior period, according to Morgan Stanley media analyst Ben Swinburne. While cable flirted briefly with video subscriber gains — Comcast was the first cable operator in a decade to finish the year (2016) with positive video customer growth (161,000) — that isn’t expected to continue. Charter, however, is set to reap the benefits of the winding down of its integration with Time Warner Cable, even though, as Evercore ISI media analyst Vijay Jayant put it, “video and phone markets continue to shrink, while competitive intensity is increasing somewhat in broadband.”

Times Look Up for Charter

Charter is expected to continue the migration of its customers to the Spectrum brand this year, including new pricing and packaging and the rollout of all-digital service in former TWC markets.

“We believe Charter is finally realizing the benefits of Spectrum pricing and integration in the legacy assets and that the substantial subscriber bleed we saw post acquisition of [Time Warner Cable/Bright House Networks] is beginning to taper,” Jayant wrote.

Morgan Stanley’s Swinburne was equally enthusiastic, adding that as of early 2018, more than 50% of TWC/Bright House customers were on Spectrum pricing and packaging. “That should materially ramp through 2018 and accelerating growth,” he wrote.

At Comcast, the string of video losses that started in Q2 2017 will continue, and broadband growth is projected to slow significantly. That, coupled with Comcast’s Feb. 27 play for U.K. satellite firm Sky — which few believe will actually come to fruition — spooked investors and help drive its down stock even further.

Comcast shares fell 15.5% this year — 14.5% since the Sky bid — and are likely to drop further as the Sky situation plays out. In a note to clients, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said he expects Comcast will lose out on the Sky asset and won’t make a play for the Fox properties being sold to Disney.

“The bottom line is that while it may take a while to play out, we expect Comcast will not win out for Sky and Fox, alternative deals are likely to be smaller, cheaper and make more sense to investors, and in the end Comcast is simply too cheap for an entity that controls the dominant way consumers will access the internet for the foreseeable future,” Wlodarczak wrote.

Altice Ups and Downs

Altice USA has also been on a roller coaster ride for the past year — its stock has dipped 12%, mainly on concerns that it could someday be on the hook for the heavy debt load carried by parent company, European telecom company Altice N.V. Altice USA made moves to alleviate those fears — it will separate fully from Altice N.V. in June and can then focus all of its energies on its so-far-successful European approach to U.S. cable.

Altice USA has managed to significantly cut costs at the former Cablevision Systems and Suddenlink properties it purchased over the past two years, squeezing out the highest cash-flow growth rates in the industry. That is expected to continue in the first quarter: Analysts are estimating EBITDA growth will be 15.8%, slightly higher than the 15.4% growth in the prior year. In contrast, Comcast and Charter are expected to have cash-flow shifts of 4.1% and 4.5% in the quarter, respectively.

Altice USA also has managed to squeeze out cash-flow margins well above the industry norm of 38% to 41% over the past several quarters, mainly through aggressive cost cuts and greater efficiencies. While significantly higher programming costs in the U.S. could hinder the company’s plan to eventually achieve European- style growth at Altice USA, Evercore ISI analyst James Ratcliffe noted that Altice’s continued slashing of non-programming costs could eventually help pare down programming expenses as well.

Ratcliffe wrote that once it can demonstrate that its non-programming cuts are sustainable, Altice can turn to programming expenses, particularly for regional sports networks. He added that programming costs in its New York-area Optimum markets are 40% higher than its Suddenlink areas in the Midwest, largely due to RSNs.

“We believe that Altice might look to those RSNs in the future as a potential source of programming cost savings,” Ratcliffe wrote.

As cable’s earnings season kicks off this week with Comcast reporting first-quarter results on Wednesday (April 27), analysts think tallies for the typically strong period will see big broadband and video subscriber gains for operators.

Cable operators have turned the corner on basic- video subscriber losses in the past several quarters, with Charter Communications and Time Warner Cable reporting their first basic-video customer gains in nearly a decade last year. In this year’s first quarter — typically a strong season for multichannel-TV subscriptions — the Big Three are expected to show video growth, while all four publicly traded cable operators (including Cablevision Systems) are expected to show gains in broadband customers.

Morgan Stanley media analyst Ben Swinburne said overall pay TV net additions should be down 50%, but that’s mainly due to satellite-TV subscriber losses and declining growth at the telcos. Cable operators, he said in a research note, should see gains via the likes of Comcast, Charter Communications and Time Warner Cable.

‘BIG 3’ GAINS IN SIGHT

Evercore ISI Group media analysts Vijay Jayant and David Joyce also predicted that Comcast, Charter and TWC would post video-subscriber gains, but said the overall pay TV video losses would be more moderate: about 80,000 in the period, compared to a loss of 60,000 in 2015.

Jayant and Joyce in a note said Q1 2015 was the first time pay TV showed a loss of video subscribers in the first quarter, which is typically strong despite being prime rate-increase time. The trend toward overall losses is expected to continue, the analysts said, while cable companies for the most part are expected to show gains.

Swinburne expects Comcast to gain 35,000 video customers while Charter and TWC should add 1,000 and 29,000 respectively.

Cablevision, which has struggled with aggressive discounting by Verizon Communications in its footprint, is expected to shed 23,000 video customers, according to Swinburne.

Jayant and Joyce believe Cablevision will shed about 15,000 video customers in the quarter, followed by gains at Comcast (40,000), Charter (15,000) and TWC (20,000). The analysts see most of the video losses being weathered by smaller operators, with Cable One expected to lose 22,000 video customers in the period, Suddenlink Communications — purchased by Altice in December — down about 10,000 video customers and “other” operators losing a collective 100,000 video customers.

Jayant and Joyce believe Charter will get more aggressive after its $78.7 billion deal to acquire Time Warner Cable is approved, after which he predicts the company will unleash “an arsenal of marketing campaigns.”

Already during Q1, Charter has continued its strategy of targeting satellite-TV subscribers and was giving away a free DVR to new tripleplay subscribers, the analysts said in their report.

On the broadband side, growth is expected to slow because of sluggish telco additions, but cable should continue to exert its dominance in the space.

Overall, Swinburne predicts 775,000 broadband additions, down slightly from last year as AT&T’s U-verse Internet loses 5,000 subscribers and Verizon’s Fios Internet gains 6,000, down from 41,000 in Q1 2015.

Swinburne predicted cable would grab 95% of total broadband additions in the period. Leading the charge will be Comcast (373,000), Charter (123,000), and TWC (227,000).

On the telco side, broadband additions are should continue to slide, with AT&T shedding 5,000 customers, compared to an addition of 94,000 in 2015.

Verizon, which released first-quarter results last Thursday morning, surprised many analysts on the broadband front, reporting 98,000 Fios Internet additions in the period, below the 133,000 additions of last year but still above the 6,000 that Swinburne predicted. Fios TV adds were about even with last year at 36,000, compared to 35,000 in 2015.

On the satellite side, AT&T’s DirecTV unit is expected to report 170,000 net new video subscribers in the quarter, fueled by its parent’s efforts to migrate U-verse TV customers over to the satellite platform. Earlier this month, AT&T debuted a satellite, broadband and wireline phone triple play for $90 per month that could drive additional growth.

CABLE’S BROADBAND HEFT

At Evercore ISI Group, Jayant and Joyce estimated that broadband additions will grow by 1.1 million customers in the first quarter, with cable accounting for more than 1 million of those adds. Telcos, the two analysts estimate, will account for about 50,000 broadband additions.

At Dish Network, which reported its results April 20, net new subscriber losses were 23,000 in the period, but that includes subscriber gains from its Sling TV over-the-top product. Moffett-Nathanson media analyst Craig Moffett estimated that Dish lost about 158,000 legacy satellite TV customers in the period, its worst first quarter ever.

Sling TV, Dish’s over-the-top service, grew by about 135,000 subscribers, though. Sling TV, by Moffett’s reckoning, has about 658,000 video subscribers, in line with estimates. Swinburne estimated legacy satellite losses could be in the 110,000 to 160,000 range.

It looks like cord-cutters may not have the cable sector to kick around much longer.

While overall pay TV subscriber numbers were down in the fourth quarter — typically a seasonally strong period — customer declines came from losses on the telco TV side. Cable operators, long the target of consumer consternation over high prices and poor service, reported video customer gains for the period.

Not all of the news was good. Overall pay TV subscriber numbers were down for the first time in the fourth quarter, indicating that customers are still cutting the cord. It also was the fourth consecutive quarter of overall losses in the pay TV sector.

On the bright side, though, cable outperformed the overall pay TV sector for the first time since 1994.

SECTOR DOWN OVERALL

MoffettNathanson principal and senior analyst Craig Moffett, estimated pay TV, excluding subscriber results from Dish Network’s over-the-top service Sling TV (which Dish counts within its overall satellite-TV results), lost about 49,000 video subscribers in the fourth quarter. With the Sling TV results factored in, the pay TV business is pushed into the black with a gain of 80,000 video customers, although that growth is still down from previous years.

Other analysts had slightly different numbers. Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak estimated that pay TV added about 105,000 video customers in the period, but he also included the Sling TV results. Evercore ISI Group media analysts Vijay Jayant and David Joyce estimated a pay TV loss of about 123,000 in the period, not taking the Sling TV results into account.

Cable, long pay TV’s laggard, actually ended the quarter on a positive note. MSOs added about 102,000 video customers in the period, according to Moffett, fueled by gains at Comcast (89,000), Time Warner Cable (54,000) and Charter Communications (33,000).

In contrast, the telco-TV sector, punished by heavy losses for AT&T’s U-verse TV (down 240,000), lost about 224,000 video customers. Satellite-TV providers gained about 73,000 net new subscribers.

In a note to clients, Moffett said the cable growth came in a period of sluggish new household formation. While that shows that cable’s growth is likely coming from its competitors, it also shows a dramatic change of fortunes among the players in the pay TV business in a very short period of time.

It wasn’t long ago that cable operators were considered to be a dinosaur business heading for extinction.

Overall full-year 2015 cable losses slowed to 1% from 2.6% in 2014, while satellite subscriber losses accelerated sharply to -1.3% in Q4, compared to a 0.1% gain in the prior year, according to Moffett.

The sharpest dropoff, though, came in the telco sector. According to Moffett, telco TV reported a 1.3% video customer deficit in Q4, compared to a 9.9% gain in the previous year.

“The improvement in cable is dramatic,” Moffett wrote. “And the deterioration in telco is breathtaking.”

While a big part of that telco TV decline is probably due to AT&T’s plan to migrate its U-verse TV subscribers to satellite provider DirecTV (which AT&T purchased in July), Moffett said that isn’t the whole story. Growth in the satellite sector slowed in the fourth quarter to 73,000 subscribers, compared to 86,000 in the same period in 2014, despite DirecTV having AT&T’s marketing engine behind it.

While broadband was a big reason for cable’s Q4 gain, Moffett noted that the sector has been steadily reducing its losses since 2010. According to Moffett’s research, cable has reduced quarterly subscriber losses from a peak of 3.5% in Q2 2011 to a 1.1% decline in Q4 2015.

DATA STILL A STRENGTH

In a note to clients, Wlodarczak wrote that cable again dominated the broadband market in Q4, despite price increases implemented in some systems.

According to Wlodarczak, net new data subscribers (including dialup) increased 19% in the quarter to 850,000. Cable again had its best share result ever, taking all net new data additions (about 980,000 additions, a 31% increase), while telcos saw a negative data result for the third straight quarter, losing about 40,000 customers.

“The cable investment thesis is all about data; cable successfully managed the entrance of the RBOCs into video and they should successfully manage through changes to the pay TV model,” Wlodarczak wrote, adding that cable’s broadband dominance “provides the ultimate hedge for cable against the effects of potentially accelerated pay TV losses and slimmed-down pay TV bundles.”

CHART: Pay As You Go

Pay TV subscriber losses have increased over the past four quarters, while cable TV ended the year on a high note.

                                                     Q1 2015      Q2 2015        Q3 2015         Q4 2015

Total Cable Adds (Losses) . . . . . . (105) . . . . . .(337). . . . . . . (200) . . . . . . 102

Total Satellite Adds (Losses) . . . . .(74). . . . . . .(284) . . . . . . .(173) . . . . . . .73

Total Telco Adds (Losses). . . . . . . . 136. . . . . . . .(3). . . . . . . . . (53). . . . . . (224)

Total Pay TV Adds (Losses) . . . . . .(44). . . . . . .(624) . . . . . . (426) . . . . . . (49)

SOURCE: Company reports, MoffettNathanson estimates. Numbers in thousands.

Cable operators made the case for the bundle in the third quarter.

In reporting their best basic-video subscriber performance in nearly a decade, U.S. MSOs cast some serious doubt on the actual impact of cord-cutters — young consumers who’ve dropped their pay TV subscription for a broadband connection — and of online content.

Comcast started things off, reporting a Q3 loss of 48,000 video customers, nearly half of what it shed in the same period last year and its best Q3 performance in nine years. Up next was Time Warner Cable, which reported a loss of 7,000 basic-video customers in the period (its best Q3 since 2006); and Charter Communications, which tallied a gain of 12,000 basic-video customers for its first positive growth since Q4 2014.

Not all cable operators have reported their third-quarter numbers yet — Cablevision Systems is scheduled to release results Nov. 3, with other smaller operators following suit in the coming weeks. But Comcast, TWC and Charter represent about 70% of all U.S. cable-TV homes.

So far, the numbers are in sharp contrast to the second quarter, when sector-wide declines sent stocks into a tailspin over fears that cord-cutters were taking a bigger bite out of pay TV companies than originally expected. While there are still some question marks left, cable has more than held its own.

Collectively, the three largest cable operators shed 43,000 basic-video customers in the third quarter, about one-third of the 121,000 they lost in the second quarter.

“Clearly, 2Q ’15 was not a negative inflection point for the industry,” Evercore ISI Group media analysts Vijay Jayant and David Joyce wrote in a research note.

MoffettNathanson principal and senior analyst Craig Moffett went further out on a limb: “It’s time to change the narrative about cord-cutting.”

It’s not that analysts believe cord-cutting has gone away, just that it is taking customers from sources other than cable. And Moffett said he believes cable’s video resurgence is due to a combination of its better content offerings and its longstanding broadband dominance — high-speed Internet additions at the three top cable operators were all ahead of the prior year, while AT&T lost 100,000 U-verse Internet customers, and Verizon Communications’s FiOS Internet additions were down.

“Cable’s two-way architecture and Comcast’s best-in-class user interface and VOD libraries are emerging as genuine sources of competitive advantage,” Moffett wrote in a research note.

Charter CEO Tom Rutledge had a simpler answer. “Our competitors continue to aggressively promote products at low price points,” he said on Charter’s Q3 earnings call. “We think, fundamentally, we have better products than they do.”

So far, cable has resisted playing the price-cutting game. And though promotions like the $90 triple play have brought in customers, operators are careful to lessen the shock once those promotions expire.

On TWC’s earnings call, chief operating officer Dinni Jain said the company made a concerted effort not to repeat past mistakes. Promotional customers are now told up front that prices will rise after the 12-month promo period expires, and those increases are now about $20 per month, compared to the muchstiffer hikes of the past.

“I think a combination of that transparency on the front end coupled with really working hard to nail the customer experience through the life of that first 12 months will give us a much better churn profile,” Jain said.