Cord-Cutting Q2 Preview: Here Comes the Cliff

Cord Cutting Chronicles
Cheyne Gateley/VIP

The first quarter of 2020 was ugly for MVPD subscriber losses. There’s no question the second quarter will be even worse; it’s just a question of how bad it’s going to be. 

A record subscriber decline of 1.7 million hit, and the scary thing is that job losses from COVID-19 only impacted the final two weeks of that quarter.

This time around, with the period from April 1-June 30 seeing record unemployment in the United States, VIP is estimating a decline of 2.4 million across the six MVPDs traded on the market: Altice USA, AT&T, Charter Spectrum, Comcast Xfinity, Dish, and Verizon Fios. 

A decline of this magnitude would represent not only the greatest quarterly MVPD decline in subscribers ever, but suggest that Pay TV cancellations are exponentially increasing; a dramatic acceleration of a long-term trend that’s proceeded pretty glacially for years.

VIP is also sticking with our prediction from Q1 for the entirety of 2020: 8 million fewer subs by the time the ball drops on Times Square on December 31st.

The shrinking customer base brings another set of problems for TV networks. Hub Entertainment Research found that the main factors for cancelling a Pay TV subscription centering around the inherent value, or lack thereof, in the package, and the general expense of it.

Not only are these factors that would be expected to increase during mass unemployment, but they also stand steadfast against what the TV networks themselves hold to be self-evident truths: that dwindling viewers will be evermore happy to pay increasing fees for fewer shows.

Consider the three charts below. The first shows that, over the course of two years, the number of reported subscribers to MVPD service fell by 9.9 million. The second chart shows that, in contrast to the declining number of viewers, the total amount of revenue that TV networks across broadcast and cable generated from MVPD subscriptions in the first quarter increased by roughly a billion dollars between 2019 and 2020. The third shows that this increase in revenue was not even due to more shows being aired; in fact, each year since 2014 has seen fewer shows with new episodes airing on TV.

Thus appears the conundrum at the heart of Pay TV in the United States. TV networks, fearful of answering to Wall Street, have turned to short-termist, rent-extractive economic behavior, consistently driving up fees for short-term paydays while offering an ever-worsening value to consumers.

This brings us to the crossroads that TV companies are facing. Do they seek to maintain the maximum number of subscribers for the longest possible extent? Or do they hasten the exodus with ever-increasing carriage fees in an effort to paper over the cracks in order to please investors?

Short-termism has been creeping into the deals networks sign with VMVPDs too. Once seen as a safety net for keeping MVPD-cutters within the live TV ecosystem, recent price hikes resulting from adding networks mean most services are close to costing the same as basic MVPD packages. This will impact the interest in VMVPDs; expect to see demand continue to tail off.

If there’s any desire to stem the cutting tide, now would be the time to act. By persisting with a model that provides less and less and yet charges more and more, TV networks are playing into the hands of streaming rivals and expediting their demise into obscurity.