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Jayant: Cord-Cutting to Ease in 2020

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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 TV would 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 (March), 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).