Pay TV Could Face Even Bigger Subscriber Losses Amid Virus Crisis

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As sports leagues go dark and series production halts, some analysts predict cord-cutting will accelerate as the value proposition "starts to fall apart."

With people across the U.S. stuck in their homes amid the spread of the new coronavirus, what will the impact of the pandemic be on cord-cutting?

Bullish Wall Street analysts highlight that news and entertainment provided by pay TV operators are key sources of information and distraction for consumers locked up at home, with Comcast, for example, on March 30 saying that linear TV consumption in its homes has increased by 4 hours to 64 hours per week and video-on-demand usage has hit "record highs." Such increased usage could potentially slow down pay TV subscriber losses, which had in 2019 hit an all-time high of 4.9 million for the largest pay TV providers, according to Leichtman Research Group.

But with economists now expecting a recession in the wake of the virus crisis, and unemployment on the rise, consumers may soon review whether their pay TV bills could be a place to make cuts, potentially focusing monthly telecom subscriptions to broadband and mobile services. The fact that sports leagues and TV show production have been put on hold could also make pay TV seem less of a value compared with alternatives. Comcast said on March 30 that video game downloads are up 50 percent overall and streaming and web video consumption has increased 38 percent.

"In this COVID-19/macro environment, we view the traditional video story as a 'two-sided coin,' though an overall downside to cord-cutting," Cowen analyst Gregory Williams wrote in an April 3 report. "Prior to the COVID-19 crash, traditional video was already facing further deterioration with accelerating year-over-year losses for five consecutive quarters, especially with telco/satellite TV, as the streaming wars begin. As we endure the quarantine phenomenon and potential softer economy (rising unemployment), cord-cutting trends should continue (sports cancellations/delays could impact the value of traditional video), especially as hourly employees look for ways to shed personal expenses and streaming services provide cheaper video solutions. That said, a partial offset is the need for hyperlocal/live news which is increasingly becoming important for consumers to stay up-to-date in the information flow."

Some on Wall Street have increased their pay TV subscriber loss forecasts for 2020 amid the virus crisis.

"There could initially be some benefit from the fact that people have been stuck at home, and that they are glued to cable news, but that won’t last," MoffettNathanson analyst Craig Moffett tells THR. "The financial pressures of the COVID recession will inevitably push consumers to economize, so cord-cutting will accelerate. That will only be exacerbated by the lack of sports programming. Sports are the glue that holds the bundle together. Without sports, the value proposition for pay TV starts to fall apart."

Bernstein analyst Peter Supino in an April 1 report reduced his 2020 financial forecasts for pay TV companies based on similar expectations. "We believe video subscriber losses will accelerate, with the recession and lack of sports focusing consumers' attention on pay TV as a roughly $1,000-per-year savings opportunity," he explained.

Supino said his new "base case" scenario assumes "accelerating video subscriber losses in 2020" amid rising job losses due to the expected recession. As a result, his estimate is for 1.5 million incremental subscriber losses in the second quarter due to the virus crisis compared with his previous forecast.

"If we assume 9 million job losses in the second quarter, which seems reasonable given both market commentary and the recent jobless claims print, 6 million homes will be affected by job losses (1.5 adults per home)," the analyst explained, adding that his estimates also assume that half of these people subscribe to linear TV and half of those cut TV.

Using pay TV firms' video subscriber market share, Supino has increased his Comcast pay TV subscriber loss estimate for 2020 by 390,000, his Charter Communications loss projection by 480,000 and his Altice USA pay TV sub loss estimate by 100,000. He also widened his 2020 AT&T pay TV subscriber loss estimate by 640,000 and his Dish video subscriber loss estimate by 293,000, with Sling gains to be offset by Dish satellite losses.

For all of 2020, Supino now forecasts Comcast to lose 1.67 million pay TV subscribers, compared with 733,000 in 2019, Charter to lose 1.08 million (up from 462,000 last year), Altice to lose 230,000 (versus 107,000), AT&T to lose nearly 2.2 million (compared with more than 4 million, including AT&T Now, in 2019) and Dish to lose 695,000 (up from 336,000) video subscribers.

Bruce Leichtman, president and principal analyst at Leichtman Research Group, tells THR that the amount of pay TV subscriber net losses for the entire industry in 2020 versus 2019 will depend on providers' behavior as well, highlighting that last year "net losses increased significantly, but largely because of companies no longer chasing low-value subscribers," with AT&T responsible for a large majority of these losses. That means that 2020 figures will be compared to a new high point in subscriber losses, and lower losses at AT&T could help the industry-wide comparison with last year. AT&T has in the past predicted improved subscriber trends in 2020, but has not updated this forecast since the start of the virus crisis.

Leichtman also points out that, "one of the big factors in pay TV subscriber churn and disconnects has always been moving, and at this time, there is less moving."

On the other hand, "it will also be harder to have truck rolls to do installs" and start off new pay TV subscribers, he highlights. "And the fact that 6.6 million people filed for unemployment benefits over the past week and 10 million over two weeks puts a lot of economic constraints on many households. Consumers will make decisions on what makes sense to them amid more entertainment options."

Leichtman concludes that cord-cutting trends for 2020 will take some time to become clearer. "A lot of that is going to depend on individual households," he says. "I don’t think that hits in the first month, but over time." 

Jennifer Fritzsche, analyst at Wells Fargo, in a March 30 note to investors also suggested they keep an eye out for signs of accelerated cord-cutting after the virus crisis subsides and people look to cut their monthly expenses amid a recession. "A trend to watch going into the second quarter will be if these video losses get 'less bad' before getting (very) bad once again," she said. "Why? Well many are now watching local news once again and a lot more TV in general. So we may not be thinking of cutting that video cord as much as we were a few months ago. But then three to six months from now — when that belt needs to be tightened — our guess is this line item may move toward the top of the list."

Cable operators' new core business, broadband, is likely to benefit from the coronavirus pandemic though as internet connections are enabling work and entertainment for home-locked people. Usage of Netflix, YouTube and other streaming platforms has jumped amid the pandemic, Nielsen recently said

Fritzsche argues that broadband providers could "see more pricing power at the other side of this crisis," explaining: "We do not see broadband data consumption lessening in a meaningful way post-COVID. On the consumer side, we see further OTT offerings continuing to drive more usage."