Hulu With Live TV has edged out Dish Network’s Sling TV to take the crown as the biggest virtual pay-television service in the U.S., according to new analyst estimates. They were among the only winners amid the cord-cutting carnage that slashed through the sector in the third quarter.

As of the end of the third quarter of 2019, Hulu With Live TV notched 2.7 million paying subscribers, after adding about 400,000 in the period, according to a report from Wall Street research firm MoffettNathanson this week. That put the Disney-controlled streamer just a touch ahead of Sling TV, heretofore the perennial leader in the sector with 2.69 million for its relatively low-cost packages (netting 214,000 subs in Q3).

Google’s YouTube TV also gained in the quarter, with 1.6 million customers (adding about 200,000 in Q3), the analysts estimate.

But those three were really the only gainers in the American pay-TV market — which was walloped with losses in Q3 at an unprecedented rate. Traditional cable and satellite TV services dropped a record 1.8 million subs in Q3, a 6.2% year-over-year decline, per MoffettNathanson estimates. The losses were led by AT&T’s DirecTV, which shed an eye-popping 1.12 million customers in the period. Dish’s satellite TV business lost 66,000, while overall cable TV customers dropped 2.8%.

“The live TV model for entertainment programming is being displaced by SVOD [subscription video-on-demand] and AVOD [ad-supported video-on-demand] much more rapidly than the cord-cutting numbers alone would suggest,” the MoffettNathanson analysts said in the report.

The industry once presumed lower-cost “skinny” internet-TV bundles like Sling and YouTube TV would provide a lifeboat to offset for secular declines among traditional pay-TV operators. But for some “virtual” multichannel video programming distributors, the economics simply have been unsustainable, leading to price hikes that have driven customers away.

“Unfortunately, customers are not leaving linear TV for vMVPDs. They are simply leaving live TV
altogether,” the MoffettNathanson analyst team, led by Craig Moffett, wrote in the research note.

The poster child here is AT&T TV Now (formerly called DirecTV) which stood at 1.13 million subs as of September 2019 — losing 199,000 in Q3 — down from a peak of 1.8 million a year prior. The telco originally launched DirecTV Now with special pricing as low as $35 per month; it has since implemented three price hikes and packaging changes, with the latest increase bringing the entry-level tier to $65 per month.

Meanwhile, last month, Sony announced that PlayStation Vue, its virtual pay-TV service launched nearly five years ago, will shut down in January — with the company citing “expensive content and network deals” and the slow pace of change in the pay-TV ecosystem for the decision.

“[T]he wheels are already falling off the vMVPD model,” the MoffettNathanson analysts said in the report. The firm estimates that the conversion rate of traditional pay-TV losses to vMVPDs dropped to about 40% over the last 12 months.

While Hulu, Sling TV and YouTube TV have each implemented price increases, they have maintained relatively low pricing. Hulu With Live TV starts at $45 per month for over 60 channels (and that includes access to Hulu’s entire SVOD library); YouTube TV is $50 monthly for 70-plus channels; Sling’s tiers cost $25 for 30 channels and $40 for 50.

With “The signal this sends – what, you thought by switching to a virtual MVPD you would avoid those infuriating annual rate increases? – is arguably just as important as the absolute increase in prices,” the MoffettNathanson analysts noted.