TV Stocks Tumble After AT&T Cord-Cutting Disclosure
The research firm eMarketer says that by the end of last year 16.7 million U.S. adults had already cut the cord and that by the end of this year it will be 22 million.
A day after DirecTV parent AT&T said it would lose subscribers because people are ditching their satellite and cable television services — a phenomenon known as cord-cutting — shares of companies heavily invested in the TV industry tumbled.
Shares of AT&T, the culprit in Thursday's sell-off, dropped 6 percent, dragging shares of its presumed merger partner, Time Warner, down 2 percent in the process.
AT&T said in a regulatory filing that in the recently ended quarter it would report gaining 300,000 subscribers to its over-the-top digital service while losing 390,000 traditional TV subscribers, for a net loss of 90,000 subs.
While it cited several causes — including hurricanes and changing its credit standards for new customers — it was this line in the filing that Wall Street keyed on: "The video net losses were driven by heightened competition in traditional pay TV markets and OTT services ..."
Thursday's carnage included shares of AMC Networks falling 7 percent; Dish Network off 5 percent; Discovery Communications, Sinclair Broadcast Group and E.W. Scripps Co. each off 4 percent; and Charter Communications down 3 percent.
Walter Piecyk, an analyst with BTIG, said in a note to clients on Thursday that he was modeling a decline of 350,000 traditional TV subs for AT&T in the quarter, so the company will exceed that by 40,000. "No, we aren't bullish on pay TV," he wrote.
Cord-cutting is not a new concept for those who invest in TV companies, but some may be taken aback by the speed at which it is happening. The research firm eMarketer says that by the end of last year 16.7 million U.S. adults had already cut the cord and that by the end of this year it will be 22 million.
On Thursday, even the larger, more diversified media-entertainment companies saw their shares fall: Comcast fell 4 percent; Viacom dropped 3 percent; Walt Disney was off 2 percent; and Sony and CBS were each off 1 percent. Only one of the large conglomerates, 21st Century Fox, managed a gain, albeit just one-tenth of 1 percent.
"It should be clear that DirecTV, like all of its cable peers, is suffering from the ravages of cord-cutting," Craig Moffett of MoffettNathanson said after AT&T's Wednesday evening disclosure. "It is reasonable to expect a weak quarter for the whole pay TV industry."
Netflix, presumably one of the beneficiaries of cord-cutting because former cable and satellite TV customers instead flock to its service, saw its shares rise less than 1 percent to $195.86, giving it a market cap of $84.6 billion, more than the combined value of Viacom, CBS and 21st Century Fox.