ANALYST PERSPECTIVE: Why “Cord-Cutting” Doesn’t Fully Describe What’s Really Happening with Consumers
Conventional wisdom suggests that millions of viewers are “cutting the cord” with cable, telco and satellite services and instead turning to online and over-the-air viewing for their favorite shows. But the story is a bit more complicated, according to media analyst Bruce Leichtman, president and principal analyst of Leichtman Research Group (LRG), Inc. THE STANDARD asked him to explain:
LRG reports that the pay-TV industry peaked in 2012, and traditional subscription services have fallen by some 10 million subscribers since then. Why is “cord-cutting” not the most accurate term for what’s happening today with viewers who are making new choices?
“The term shouldn’t really be called cord-cutting. Instead, the correct term is net subscriber losses (or gains.) It seems that every reporter uses the term cord-cutting, but when you have a subscription service you really do need to count both how many leave and how many join the service. That’s the way it works for newspapers and magazines and even Netflix. It should be thought of that way for pay-TV services, too,” says Leichtman.
At the end of 2018, the top video service providers still accounted for more than 89 million subscribers, split with cable serving 47 million and satellite TV serving 29 million subscribers. Telephone companies have about 9 million video subscribers, and publicly reporting “virtual” (Internet-delivered) multichannel video providers like Sling and DIRECTV NOW count some 4 million subscribers.
“The reality is that net losses include those who are both leaving and joining as subscribers,” Leichtman says.
But it seems like the number of pay-TV subscribers is dropping fast. Isn’t that true?
“The major pay-TV providers did lose more than 2.8 million subscribers last year – much of that from net losses for the satellite services. The pace of change is accelerating, since the industry lost just over 1.5 million subscribers in 2017. But this is not because of some mass exodus. In fact, the ‘exit rate’ is fairly similar to past years. What’s different is that acquisitions aren’t keeping pace, as they have before. And, some of those reductions are by choice from the providers,” Leichtman explains.
“Look at DISH – their churn rate for satellite service has been nearly identical for the past four years. What has changed is that DISH says they are no longer chasing bad subscribers who are not financially profitable for the company. In the old days, they would just get more of the same type of subscribers that they were losing.”
These are long-term trends, aren’t they? There are 89 million people paying for TV service.
“Well, 2018 was the harshest year ever – because, frankly, the video service providers aren’t as interested in the business as they used to be. The two satellite providers – DIRECTV and DISH – have virtual flanker brands with DIRECTV NOW and Sling. And they are very concerned about their subscriber acquisition costs. Don’t get it wrong: the industry IS losing subscribers, but it’s not solely because of a surge in disconnects.
“And the exit rate of pay-TV is no different than the exit rate from Hulu or Netflix,” Leichtman adds. “Yes, more people are watching TV online. But they’re doing so with connected TV’s and not just with mobile devices. Or if they are watching on a mobile device, they’re usually doing so at home. The majority of video viewing is in the home and on the TV.”
What opportunities are there for over-the-air TV broadcasters in these numbers, particularly as they move to platforms like ATSC 3.0 that combine OTT with OTA?
“I think what we see happening is that consumers are cobbling together a package that works for them. And what we see is that many people who are not pay-TV subscribers are using over-the-air services. Looking at the virtual services like Sling and DIRECTV NOW, about one-third of those subscribers have an antenna. The number of viewers using an antenna grows in households that have a Subscription Video on Demand service like Netflix, but not a pay-TV service. About half of Subscription Video-on-Demand households have an antenna for local channels,” Leichtman concludes.
Read more about Leichtman Research Group on their website.