Pay TV Subscriber Losses Hit Record Amid Pandemic, Virtual Services "Implode"

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"There are now as many non-subscribing households (46 million) as there were pay TV subscribers in 1988," noted MoffettNathanson analysts.

It is official: the rise in unemployment due to the novel coronavirus pandemic has led to a new quarterly record in pay TV subscriber losses.

"In the context of over 30 million unemployment claims and estimates for minus 40 percent gross domestic product, it would be unseemly to resort to hyperbole to describe the carnage in pay TV in the first quarter," MoffettNathanson analysts Craig Moffett and Michael Nathanson wrote in a Friday report entitled "Pay TV Catches COVID." "Better that we simply report the numbers. Traditional pay TV subscriptions fell by a record 1.8 million in the first quarter, the worst quarterly result on record, bringing the annual rate of decline to 7.6 percent, also a record."

They warned: "With sports off the air, and with the pain of the tsunami of unemployment just beginning to hit as the quarter ended, all these numbers will get worse in the second quarter."

The report came out just before the U.S. Department of Labor said that the April unemployment rate rose to a record 14.7 percent, compared with the previous record of 10.8 percent since the data started being tracked in 1948, with payrolls falling by an unprecedented 20.5 million due to the pandemic. 

The MoffettNathanson team highlighted that "things were particularly bad for satellite TV where subscriptions plunged by over 1 million for the third quarter in a row, bringing the annual rate of decline to a worst-ever 14.3 percent (the number would be worse still if we were to include lost bars, restaurants, and hotels temporarily suspended at Dish Network)."

Cable operators’ 600,000 subscriber drop in the quarter, making for a 4 percent annual rate of decline, "looks positively gentle by comparison," the analysts wrote. "But it, too, was the worst on record."

And at 63 percent of occupied U.S. households, traditional pay TV penetration has "reached a level not previously seen since roughly 1995," Moffett and Nathanson highlighted. "There are now as many non-subscribing households (46 million) as there were pay TV subscribers in 1988."

The picture was somewhat mixed this earnings season though. Cable giant Comcast, for example, lost 409,000 pay TV subscribers in the first quarter, compared with 121,000 in the year-ago period, while Charter did better. It lost 70,000, compared with a loss of 145,000 in the year-ago period. But both posted accelerated broadband user gains, with Comcast reporting internet customer net additions of 477,000, its “best quarterly result in 12 years," and Charter adding 582,000, up from 428,000 in the first quarter of 2019.

Altice USA lost fewer pay TV subscribers, 42,000, than its big cable peers, with the MoffettNathanson analysts estimating that others in the cable sector lost 125,000 in the latest quarter.

Dish lost a record 413,000 TV subscribers, including 132,000 net Dish customers and approximately 281,000 net subscribers to its Sling TV streaming service. And AT&T lost 138,000 subscribers at its AT&T TV Now streaming service in the first quarter, more than the loss of 83,000 in the year-ago period. It also recorded a 897,000 loss of premium TV subscribers at DirecTV and U-Verse, compared with a year-ago loss of 544,000.

The virtual pay TV services are looking particularly hard hit, according to analysts. "The virtual [distributors], once viewed as the last line of defense for cable networks, imploded in the first quarter," wrote Moffett and Nathanson, estimating that they collectively lost around 341,000 subscribers in the latest quarter. "Total subscriptions, including both traditional and virtual [services], are now shrinking by 5.3 percent per year. Yes, that, too, is the worst ever."

The analysts said they believe that fuboTV lost subscribers in the first quarter just like Sling and AT&T TV Now, while "Disney’s Hulu Live TV appears to have hit a wall in the wake of multiple price increases, growing by only about 100,000 subscribers in the first quarter, an abrupt deceleration from their recent torrid growth." What about the roughly 500,000 subscribers of Sony’s PlayStation Vue service, which shut down at the end of January.? They appear to have gone … nowhere," the analysts said. "Even YouTube TV, by far the fastest growing of the lot, couldn’t pick up all the slack" with a subscriber gain that the analysts estimated at 300,000 for the first quarter.

The analysts' shared an estimate for the combined first-quarter subscriber gain of YouTube TV, Hulu Live, Vue, fuboTV and Philo: 75,000, down from 590,000 in the first quarter of 2019.

Live sports being put on ice by the pandemic are the key driver of this trend, the analyst duo believes. "Without sports and with economic pressures on families mounting by the end of the quarter, the migration to virtual [pay TV distributors] absolutely tanked," they argued.

The MoffettNathanson teams does see a bright spot of sorts in Hollywood giants' growing or upcoming streaming services. "It is perhaps some comfort that some of the same companies losing distribution for their traditional cable networks — we’re looking at you, Disney and Comcast — have launched direct-to-consumer 'lifeboats' that are rapidly gaining traction with distraction-starved, shut-in consumers," they wrote. "AT&T will join this club in a few weeks with the launch of HBO Max. But it is increasingly clear that as consumers climb into these lifeboats, they are leaving the (sinking) motherships behind."

Warned the analysts: "Notwithstanding the princely valuations being accorded SVOD platforms like Disney+, we doubt the direct-to-consumer lifeboats will ever come close to matching the profitability of the business they are ostensibly designed to replace."