Cord-cutting is not going away—a recent eMarketer survey suggested 6 million more TV viewers will ditch their traditional provider this year—but following a wave of second-quarter earnings results it appears there could be a sliver of light for traditional pay TV distributors, as the rate of video subscriber declines actually slowed, according to MoffettNathanson.
Overall, in Q2 the rate of traditional pay TV subscriber declines improved modestly, to 3.3 percent year over year from 3.4 percent in Q1, the firm found.
In a research note Monday, principal and senior analyst Craig Moffett acknowledged that the slight (one-tenth of 1 percent) improvement doesn’t prove a lasting turnaround for pay TV or that the cord-cutting trend is ending, but noted it does mark the second quarter in a row that the industry posted fewer subscriber losses than in the year ago period and the first consecutive improvement in four years.
“A consensus had emerged that things could only get worse. Fast,” Moffett wrote. “That view now appears to have been too bearish. Too bearish for Cable. Too bearish for Media.”
Altice USA is an operator that managed to improve video losses in the second quarter, on Thursday reporting a loss of about 24,000 video customers compared to 37,000 a year prior. Charter too stemmed losses, shedding 73,000 pay TV customers in Q2, compared to 91,000 in 2017.
When the firm’s subscriber estimates for virtual MVPDs like Hulu Live, YouTube TV, Sling TV and DirecTV Now are included, it found that the total number of live pay TV subscriptions actually grew year over year, for the first time since 2012, to 0.1 percent. Though the figures could have been boosted by an increase in the number of occupied U.S. households, which increased by 500,000 during the quarter, up from essentially zero a year ago, according to Moffett.
Traditional pay TV distributors lost 849,000 subscribers during the period, compared to 973,000 in the second quarter of 2017.
MoffettNathanson estimates the major virtual MVPDs collectively added 691,000 subscribers in the quarter, though a number of the services do not report customer tallies.
AT&T reported adding 342,000 DirecTV Now subscribers in the second quarter for a total of 1.8 million, while Dish’s Sling TV only added about 41,000, ending the period with 2.34 million OTT customers.
The firm also indicated that the conversion rate – or the rate that subscribers swap out traditional pay TV for a vMVPD subscription—is important to watch, particularly for programmers, and remains at a healthy high level of about 85 percent. But it is still to be seen if those rates are sustainable, Moffett wrote, as one argument indicates cord-cutting started long before vMVPDs existed and current subscriptions could signal pent-up demand, meaning a drop in conversion rates later.
On the other hand, the high conversion rate could simply be because more customers are eschewing their traditional pay TV service for lower-priced vMVPDs, and if so the rates will be maintained, according to Moffett.
“It will take some time before we can say with any certainty which of these two arguments is closer to the mark,” Moffett wrote.
He noted the figures are for period that ended right before a number of vMVPDs raised prices, including Sony’s PlayStation Vue and DirecTV Now, by $5 or 14 percent on average, so it’s still in question whether rising prices will impact customers’ decision to jump ship.
