You could make the assumption the acceleration of cord-cutting seen in 2019 could actually abate somewhat in 2020 with so many Americans homebound for months due to the pandemic.
But despite some encouraging signs in earnings reports from AT&T and Verizon that indicate the first quarter won’t see any kind of dramatic decline in pay-TV subscribers, there’s ample indication Q2 and beyond will be a nightmare.
Last year saw 5.5 million subscribers cut their MVPD service, an increase of 96% versus 2018. These were the heaviest annual losses seen for the combined six publicly traded MVPDs.
So far, only AT&T and Verizon have reported their Q1 figures, and the losses are close to a million. This is almost at the same point as they were last year once all companies had reported, and points to cord-cutting rates being higher than in previous years.
For context, this is how the 76.5m subscribers were distributed among the six MVPDs in Q1 2019. Year-on-year, AT&T is down 3 million subs in 2020, with Verizon down a much smaller 300k.
Even in Q1, there’s growing evidence that the pay-TV channels aren’t seeing the surge in viewership its streaming rivals are seeing (see our commentary).
Smart TV analytics firm Samba TV, providing exclusive data to VIP, found that the decline in cable viewership has continued into Q2. Comparing the first two weeks of April to the first two of March, the last period before the pandemic ramped up across the country, Samba found that total viewing across the whole day has increased across the board. Basic cable was up by 219.9 million hours (10.2%), but cable news was responsible for 65% of this growth.
The pay-TV wheels begin to fall off when assessing how people are spending their time in the evenings. The total time spent watching any linear TV source is down nationwide by 11.4 million hours (a fall of 1.5%) versus the start of March. This suggests that Americans are turning to other sources (i.e. streaming) to entertain them in their leisure time.
Where the anxiety begins to rise for MVPDs is the decline seen for basic cable. 14.8 million fewer hours were spent watching in April than in March, which becomes all the more worse when noting that primetime cable news viewership actually increased by 4.4%, or 3.5 million hours, during that time. Basic cable stations less news saw the steepest decline of all groups, down by 5% (18.3 million fewer hours).
Pay-TV isn’t seeing the same surge because its content has been severely handicapped by the pandemic, in the short-term by the total blackout of professional sports from TV, and in the longer term, the production shutdown currently paralyzing Hollywood will create shortfalls in the quantity of scripted content intended to air later this year.
To date, over a thousand nationally televised or streamed sports games or events have been cancelled or postponed. Unsurprisingly, this has had a severe impact upon the fortunes of cable sports nets, which have seen very high levels of audience decline, per Samba TV’s analysis.
In data shared with VIP from leading market research firm Maru/Matchbox (fielded April 16), the loss of live sports was a reason cited by 14% of those who plan to either downgrade or cancel their pay TV service. This illustrates the importance of sports in retaining some subscribers, and the continued absence of sports may see the erosion of the value of the pay-TV bundle for some, leading to an uptick in cutting.
The weakening of the bundle faces a double whammy in the face of the production shutdown impacting scripted shows. While networks are currently able to fill their schedules with new shows from their summer lineups, production for new content due in the fall has been severely impacted. A very real fear is that, should the pandemic shutdown last into the summer, networks reliant on scripted content will be left scrambling and unable to provide value to subscribers, prompting more cancellations.
But even if sports and scripted somehow miraculously reappeared in abundance on pay TV channels tomorrow, there’s the increasing cost-consciousness of the American public to consider as the pandemic sends the country’s unemployment totals skyrocketing.
With the average monthly cable bill found to be $217.42 in 2018 by Consumer Reports, cable will likely be one of the first things considered for the chop in households looking to quickly save money.
It doesn’t help pay TV either that the timing of an explosion of new streaming options from Disney+ to HBOMax will give consumers more cheaper alternatives. Even if those new market entrants don’t make a dent, incumbents like Netflix alone are stronger than ever. Not only was its eye-popping Q1 subscriber surge evidence enough of Netflix’s continuing power, but the company indicated it’s well-prepared to weather the production shortfalls hampering pay-TV channels.
Considering that 2019 saw the heaviest losses to date for the six publicly traded MVPDs – down by 5.5m, versus 2.8m in 2018 – and that this occurred during an economic boom time, VIP anticipates a significant uptick considering the current shutdown.
If AT&T’s Q1 2020 results are anything to go by, investors could be lulled into thinking cord-cutting is easing off. MVPD subscriptions were down by 4.6% (-897k), which was the same percentage as in Q4 2019 (losses of -945k). Verizon Fios also saw a Q1 decline (-2%) within the range seen in 2019, which ranged between -1% to -2%.
Let’s not forget, mass unemployment due to COVID-19 only began to hit in the two final weeks of March. The true impact that the virus will have on cord cutting will only be apparent within Q2.
Losses will not be felt evenly. MVPDs with high exposure in states impacted more by the virus will be more at risk. The exposed cable and Fios MVPDs can be explored by state in VIP’s interactive table, included below. Note that satellite providers are available nationwide, so DirecTV and Dish’s risk should be considered ever-present across states.
In terms of exposure, no major Pay-TV provider is exposed across all of the severely impacted states. Comcast Xfinity has the highest risk, operating in four of the five states with over a million newly unemployed residents. Charter and AT&T each offer service in three states in the top five impacted, so should also expect rapidly increasing subscriber losses come Q2.
Both Verizon Fios and Altice USA see a substantial proportion of their customer bases across three heavily affected states – Fios in Pennsylvania, New York and New Jersey; and Altice in New York, Texas and New Jersey.
Bear in mind that not all cutters will be unemployed; some will be from subscribers resentful for paying full freight for what they perceive to be months of empty TV schedules.
With the economy shut down, mass unemployment, subscriber discontent growing across summer over empty schedules and the grim specter of a recession looming, VIP estimates that a record 8 million consumers will cancel their service during 2020. With 1 million already cutting in Q1 and Altice, Charter, Comcast and Dish still to report, VIP approximates losses for the quarter to total 1.7 million, leaving 70.4 Pay-TV subs heading into Q2.
The most important question is if this is permanent. Will some cutters come back when unemployment subsides and/or sports and scripted content return? Certainly some will, but we estimate this to be around 50%-60% at best. Others will become accustomed to the new viewing methods they adapt.
We are approaching the inflection point of a major shift in U.S. TV habits, and while it may not be fully apparent in Q1, buckle your seat belts for Q2.