Pay-TV Exodus to Hit 7% in 2021, After Pandemic Slowed Declines: S&P
After moderating declines in pay-TV subscriptions due to COVID-19 stay-at-home trends, the rate of losses will tick up to 6.6% this year from 4.9% in 2020, S&P Global predicted. Losses will be primarily from larger cable operators as consumers continue to abandon pay TV’s “steadily increasing prices for less expensive streaming video options.”
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The increased pace will continue due to the cable industry’s increasing indifference to “whether unprofitable customers get their video service from cable companies or a third-party service,” said Friday's report. Though cord cutting’s impact and fewer pay-TV cable bundles are “negative for the U.S. television sector’s credit quality,” the effect on ratings in the cable sector will be "muted” due to the strength of providers’ broadband service, S&P said.
Satellite pay-TV subscribers will drop by double digits, said the report. Though Dish’s focus on key rural subscribers slowed its losses, the sustainability of that trend is “uncertain,” said the report. Dish may “struggle to continue passing along rate increases as life normalizes and demand for in-home entertainment subsides,” it said. Churn could increase in 2021 as COVID-19 vaccination rates increase and consumers become more comfortable letting technicians into their homes to switch providers or move, it said. The report also cited bipartisan government support to increase broadband availability, which would “shrink the addressable market significantly” over the next several years.
S&P sees DirecTV’s subscriber retention “woes” continuing this year. It had expected the rate of subscriber losses to moderate last year as the company cycled through circa-2017 subscribers on deeply discounted plans. That didn’t occur: The pace of subscriber defections remained at about 15%, it said. DirecTV's subscribers skew to urban and suburban markets, where they have access to broadband and streaming alternatives.
Telcos, outside of those with fiber-to-the-home services, will be “generally content to let their video customers churn over the next few years,” S&P said. Some have been successful offering cloud-based TV services, but S&P expects subscription losses to accelerate to above 20% this year and “remain elevated until non-FTTH video subscribers completely depart.”
Virtual MVPD services aren’t a long-term solution for the decline of the pay-TV ecosystem, said the report. These services now resemble a traditional full-size pay-TV bundle, and the “rapid price escalation (eliminating much of the price difference) has quickly reduced the competitive advantage of these alternatives,” it said. But vMVPD services should have a double-digit growth rate for the next few years “as the price delta will take time to contract.” These services “are likely to be less financially stable” than legacy pay-TV services, it said. With no contract and no equipment fees, vMVPD services have much higher monthly churn, with more volatile revenue streams than traditional pay-TV services.
Subscriber churn for vMVPDs will depend largely on consumers' interest in major league sports, said S&P. And cord cutting could be worse than expected if key sports programming becomes available on streaming platforms, which, long term, could eliminate one of the few competitive advantages of the pay-TV bundle, S&P said. Sports offerings are a “crucial element holding together the pay-TV bundle,” it said. Key sports programming, such as NFL, MLB and NBA playoffs, have generally not been available on streaming platforms, except for ViacomCBS’ CBS All Access. That changed with new NFL contracts (see 2103190043) that gave streaming rights to Comcast’s Peacock, ViacomCBS’ Paramount+ and Disney’s ESPN+. S&P expects other sports leagues to follow.