Analyst: The Cord-Cutting Future Has Arrived

With most results now in, the U.S. pay TV industry lost about 762,000 video subs in the first quarter of 2017, a worst-ever result for the period, according to a new report from MoffettNathanson.

“For the better part of fifteen years, pundits have predicted that cord-cutting was the future. Well, the future has arrived,” MoffetNathanson’s Craig Moffett declared in his Q1 2017 Cord-Cutting Monitor.

He noted that video losses from Q1 was more than five times as large as last year’s loss of 141,000.

“It leaves the Pay TV subscriber universe shrinking at its worst ever annual rate of decline (-2.4%). And it was the worst ever accelerate in the rate of decline (60 bps),” Moffett explained, adding later that the incremental number of cord-cutter and cord-never homes has grown to more than 6.5 million since 2013.

Moffett issued his report prior to Q1 results from Altice, WideOpenWest, Cable ONE and CenturyLink, and Mediacom Communications, a group that represents about 6% of the pay TV universe. Mediacom reported today that it lost 3,000 video subs in Q1.

Those numbers, which estimate numbers for Cox and other private MSOs that account for about 8% of the U.S. pay TV universe, also did not include subs from virtual MVPD services like DirecTV Now and Sling TV. With those OTT options factored in, Moffett estimated that sub growth slipped to -1.3%.

“In short, while our numbers are necessarily imperfect, the margin of error just isn’t wide enough to explain away the accelerating deterioration in video subscriber growth,” he wrote, adding that the big takeaway is that video sub growth got meaningfully worse even with the emergence of virtual MVPDs.

By combining the acceleration of cord-cutting and a widening group of cord-nevers, Moffett said nearly 1 million homes either cut the cord or chose not to take one in the first place in Q1

Moffett said the picture worsens when one considers that Census Bureau data shows that there were 157,000 new households formed in Q1, and the sub losses are coming despite a “tailwind” of about 500,000 households compared to last year.

Under normal circumstances, about 80% of those would sign up for pay TV, causing Moffett to beg the question: “Where are they?”  

He said the root of cord-cutting acceleration is not demand, but supply, as would-be cord-cutters now have many options at hand. And he doesn’t buy excuses from Charter Communications and Dish Network that less aggressive retention offers are causing churn rates to rise. 

“After all, cutting the cord isn’t just a matter of whether the Pay TV operators are or aren’t offering promotions. Those subscribers have to have somewhere to go.”

He also suggested that a decline in both the distributor and cable network universe (programmers, he said, lost about 459,000 subs in Q1) can be attributed to password sharing and piracy.

“Whatever the cause, it seems naïve to suggest that we have seen the worst of the trend. Instead, this is almost certainly just the beginning,” Moffett wrote.