Cord-Cutting Continues: Don’t Believe the Early Q4 Hype

Cable operator gains mask a severe telecom downturn

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Daniel Hertzberg for Variety

Early in this quarter’s earnings season, some industry watchers questioned the cord-cutting narrative. But despite signs of a turnaround due to better-than-expected numbers from Comcast and Time Warner Cable, it’s clear that the trend continues unabated now that the last of the big pay-TV providers reported their subscriber numbers this week.

The biggest single driver of the better numbers from the cable companies is that the telecom side of the industry has taken its foot off the gas pedal in a dramatic way over the last few quarters when it comes to driving TV subscriber growth. With AT&T’s acquisition of DirecTV, its incentive to sell its phone-line-based U-verse service has evaporated, and it’s now putting almost all its effort into winning new satellite subs. Verizon has also ramped down marketing of its TV services, in part because of its ongoing lawsuit with the Walt Disney Company over its ESPN-free bundles, and has seen subscriber growth slow significantly as a result.

The dramatic improvement in the cable numbers over recent quarters – from a loss of a million subs in Q1 to a loss of under 500,000 in Q4 – is almost entirely due to the slowdown in telco net adds, from a gain of one million in Q1 to a loss of 345,000 in Q4. Those numbers include many of the smaller cable and telecoms providers that are often excluded from analysis of cord-cutting, which rather skews the picture since these companies are leaking hundreds of thousands of subscribers per year to their larger competitors. The chart below shows these net adds by provider category, including the satellite providers.

One interesting wrinkle with recent reporting of pay TV subscriber numbers is that Dish has been including its Sling TV subscribers in its overall numbers. Whether these numbers should in turn be included in overall pay TV numbers is a matter of debate – on the one hand, these are people paying for television; but, on the other, they’re typically paying far less than the traditional pay TV subscriber. The simplest way to approach the problem is to provide a comprehensive picture, which provides a combined view, as the chart below does. This chart shows both the overall year-on-year change in pay TV subscribers as reported, and also the impact of excluding Dish’s Sling subscribers:

As you can see, even excluding an adjustment for Sling, the trend is steadily progressing, with a greater number of losses in each of the last two quarters, and declining growth for six straight quarters. Subtracting Sling subscribers, though, makes the trend even more dramatic.

The financial impact means a loss of revenue not just for the pay TV providers but for major cable networks for whom cord-cutting translates directly into a loss of subscribers. Disney is likely to be able to weather this better than most, at least in the short term, because its contracts provide minimum guarantees and because its ad revenues are holding up well. But other cable networks that rely more heavily on casual viewing as part of the basic cable package, including the Viacom networks, are likely to struggle far more as the combined effect of lost subscribers and lower viewing bites hard.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm which covers the consumer technology market.