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Analyst: 3Q Pay TV ‘Worse Than Freaking Ugly’

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

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

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

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That puts cord cutting on a 5.2% run rate.

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

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

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

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

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

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

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