Analysts: Cord Cutting Pace Slowed in Third Quarter Despite Continued Sub Declines

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"The pay TV industry has reported its worst 12-month stretch ever," say Craig Moffett and Michael Nathanson.

The cord cutting debate seems likely to continue after publicly traded pay TV companies finished reporting their third-quarter financials Tuesday with the latest earnings report from Dish Network.

"The dust has now settled on third-quarter results, and the pay TV industry has reported its worst 12-month stretch ever," MoffettNathanson founders and analysts Craig Moffett and Michael Nathanson wrote in a report on Tuesday.

The number of pay TV subscribers in the U.S. fell by 113,000, leaving them down 0.2 percent year-over-year and "matching last quarter’s rate of contraction," they said.  Cable companies once again saw the biggest losses – 687,000, including a loss of 306,000 pay TV users at Time Warner Cable amid a carriage dispute with CBS Corp.

However, the analysts pointed out that the pace of cord cutting eased in the latest period amid weaker housing trends. With 366,000 fewer new housing units occupied than in the year-ago period, the MoffettNathanson team said: “What is perhaps more interesting than the fact that pay TV declined is that it didn’t decline more than it did."

While some observers continue to speak of cord cutting gaining momentum, the analysts said: "The reality is almost certainly murkier."

They also highlighted one important mixed business trend for pay TV companies. Revenue in their pay TV business increased 5.1 percent in the third quarter, compared with less than 3 percent for wireless companies, they pointed out.

"Of course, the fact that pay TV revenue is still rising smartly is part of the problem," Moffett and Nathanson concluded. "We have always argued that cord cutting is an economic phenomenon, not a technological one." The added that rising pay TV bills "are squeezing lower-income consumers out of the eco-system."

What does this all mean for entertainment giants? "A slower pace of cord cutting is inarguably good news, and taken with the drubbing that CBS meted out to Time Warner Cable in the quarter, there seems little reason to question the near and medium term expectation of continued rapid growth in affiliate fees," Moffett and Nathanson said.

But they also warned: "Longer term, however, the expectations for steady high single digit inflation in programming costs threatens the balance of the while media eco-system."

Twitter: @georgszalai