Cord-Cutting Q3 Review: Slower Decline but Still Bleak Prognosis

Cord Cutting Chronicles
Cheyne Gateley/VIP

Q3 2020 saw the number of MVPD cord-cutters come in below 1 million for the first time since Q4 2018, blowing out VIP’s prediction that this quarter would be one of the worst on record given the ongoing pandemic blues across the country.

This was led by Charter posting a second consecutive quarterly gain in MVPD subscriptions, with the impact of their COVID-19 strategy to keep subscribers active, even if they fall behind on their bills.

The total reported MVPD subscriber base shrank by -970,800 (-1.4%) vs. Q2, led by declines among AT&T and Comcast. But Charter’s modest gain, of 53,000 (+0.3%) versus last quarter, was not enough to stop the industry posting the depressingly consistent tale of a record new low subscriber total, with 67.95 million now with traditional pay TV.

Total revenues from the five reporting providers topped $19.2 billion for their combined MVPD and VMVPD operations, down by $1.2 billion (-5.8%) from Q3 2019’s total revenue of $20.4 billion.

The virtual MVPD market is a little more difficult to assess, as not all services report a subscription count each quarter, although Q3 saw all save for Philo announcing their latest figures. All, save for AT&T TV Now, reported increased subscriptions, meaning that an estimated record 11 million consumers currently pay for VMVPD service.

YouTube TV reported its first subscriber numbers since Q4 2019, with a million subscribers added since that time. Given there are two missing quarters in between, VIP has analyzed the changes in subscription for all VMVPDs reporting subscriber counts for both Q4 2019 and Q3 2020, with YouTube TV leading in gains (+50 %), and AT&T TV Now declining most (-243k subs, -26.2%).

VIP will now briefly analyze the performance of the four largest pay-TV providers, beginning with Charter.

Charter

As noted at the top of this article, Charter’s COVIDnomics continued in Q3, posting a gain of 53,000 residential video subscribers versus Q2. Contextually, this still represents a year-over-year decline of 20,000 (-0.1%), but the markets didn’t care, with Charter’s stock increasing by 4.8% ($27.82) to $603.82 following the Q3 results.

Charter execs were questioned during the earnings call as to what they thought was behind this second-straight quarter of video growth, when the general market is experiencing the opposite. The answer was that Charter has higher and faster connectivity (internet) growth than the market, and that they are pulling through video with that growth.

Based on analysis, VIP believes that these new video subscribers are heavily discounted given the subscriber video revenue for Q3 came in at $309 million less (-6.8%) than Q2. This is clear when looking at VIP’s estimated monthly revenue per subscriber, which is down by $6.88 in Q3. In other words, Charter is taking on less profitable subscribers in order to grow, and will likely lose a large proportion of these in the future when discounted rates expire, a phenomenon that rival MVPD AT&T knows all too well.

AT&T

AT&T saw continued subscriber declines across their MVPD and VMVPD businesses, pouring fuel on the fire that the conglomerate wants to cut its losses on the pay-TV business entirely. Year-over-year, MVPD subscribers were down by 3.3 million subscribers (-16.3%), as cord-cutting continues to be mainly down to satellite-cutting. The AT&T TV Now VMVPD business saw 462,000 fewer subscribers than in Q3 2019, down by –40%, as the strategy to remove all discounted or loss-making subscriptions has seen the base dwindle.

Comcast

Comcast’s video subscribers fell by 1.2 million (-5.9%) versus Q3 last year, which is better than AT&T but still represents a sizeable decline. Better news will be the fact that the quarterly loss was “only” -253k, better than Q2’s -427k and Q1’s -388k losses. Comcast is now also the nation’s largest MVPD provider, following AT&T’s precipitous decline. In Q1 2018, Comcast had 2.6m fewer MVPD subs than AT&T; now it has 2.1m more.

Dish

On an annual basis, Dish’s total pay-TV subscribers fell by 757,000 between Q3 2019 and Q3 2020, a decline of –6.2%. The greater rate of decline, -8.5%, was among Sling TV subscribers, which in real terms fell by 228k. Dish’s satellite subscriber base shrank by –5.6% (529k). Better news comes when comparing against the prior quarter, with total subs up by 151k (1.3%) from Q2. This was led by an increase of 9% in Sling TV subs (up by 203k), with only –52k (-0.6%) in satellite losses, which overall have hovered around the 9 million mark for the last 3 quarters.

Summary

The relentless decline of pay-TV subs continues. Even when factoring in that there are approximately 11 million VMVPD subscribers, this means there are around 79 million total pay-TV subscribers, down from the 85.9 million that had pay-TV in Q3 2016. Adding VMVPDs softens the blow, and shows that the majority of adults continue to see some value in what pay-TV offers.

The concern is the growing number of true cord-cutters who don’t switch to a VMVPD but solely rely on streaming services. There are, by VIP’s count, 6.7 million of these who’ve totally cut the cord since 2016. With VIP’s recent Viewniverse report highlighting how younger viewers are increasingly valuing streaming services ahead of traditional cable and broadcast networks, time is running out for pay-TV operators to establish a value proposition that appeals to the next wave of consumers.