Cord Cutting in Q2 2017

Losses are accelerating, with no end in sight

I do a regular roundup of cord cutting numbers after the public pay TV companies finish reporting their results for the quarter – you can see previous examples from this blog here, here, and here, and you’ll find a couple of my columns for Variety on this topic here and here. I also do a much deeper dive in slide deck form for subscribers to my $10/month Jackdaw Research Quarterly Decks Service, which you can read more about here.

A quick note on how to do this right

I say this nearly every time I cover this topic, but the keys to doing this right are:

• Including the broadest possible set of companies, including smaller ones
• Including companies in all three major pay TV sectors: cable, satellite, and telco
• Looking at trends year on year rather than quarter on quarter, because the market is highly cyclical.

Cord cutting is accelerating by 1 million subs per year

With that in mind, here’s my overall picture of the trend up to and including Q2 2017, which shows year on year declines in the number of reported pay TV subscribers for seventeen brands owned by roughly a dozen companies:

It doesn’t take a genius to see the trend here: these companies collectively lost nearly 2.5 million traditional pay TV subscribers in the past year, up from about 1.5 million a year earlier, and from just over half a million a year before that. In other words, the rate of cord cutting in traditional pay TV services is accelerating at a rate of roughly 1 million additional lost subscribers per year.

Digging a little deeper

You might be a bit surprised to see that, because as usual the press that covers this stuff has focused on quarterly numbers for particular companies (which is about all you can do unless you compile all the industry data), and there have been some signs of turnaround there. The reality is that beneath this overall trendline there’s a real mix of trends going in different directions for different companies and categories of companies.

First, let’s look at the picture by company type, where trends have been all over the place over the last few years:

There are some quick footnotes on this chart at the end of this article for those who are intersted in some of the minutiae.

Taking the trends here by provider type, starting from the top left of the chart:

• Telecoms operators’ subscribers saw the strongest growth in the early running, driven entirely by aggressive marketing from AT&T in Verizon against the cable operators. However, AT&T’s decision to acquire DirecTV and Verizon’s decision to stop meaningfully expanding its Fios footprint saw that growth collapse starting in 2015, with only a very slight uptick in the most recent quarters
• Satellite growth, meanwhile, bumped around about flat until that AT&T acquisition of DirecTV, and then took off for around a year and a half as AT&T put all its TV marketing eggs in that basket, only to see growth there taper off as the appeal of wireless-TV bundles began to find its natural limits over the last couple of quarters
• Lastly, the cable sector saw a marked improvement from 2014 to 2016 as telcos took their foot off the gas as described above, which led many cable observers to declare a softening in cord cutting, whereas in fact the decline just moved from one sector to another.

Notably, both cable and satellite have seen worsening trends in the last few quarters, while the telcos collectively remain well under water despite their slight uptick.

But what about online pay TV?

Another recent counterpoint in the media to all this talk of cord cutting has been the rapid rise of online pay TV streaming services like Sling TV, DirecTV Now, PlayStation Vue, Hulu with Live TV, and YouTube TV. Some have suggested that these platforms have been offsetting declines in traditional pay TV. Well, the answer is both that they haven’t, and that these services often come with far fewer channels, such that the combined impact of cord cutting and cord shaving on cable networks has been even more dramatic.

First, let’s look at those online pay TV streaming services. Collectively, they’re said to have around 3 million subscribers in the US at this point, though I think that number may actually be a little high and the true number is probably closer to 2 million. At any rate, if we take the 3 million new online pay TV subscribers as gospel, it’s still 1 million fewer gains than the legacy industry has seen losses since 2014, at 4 million. At 2 million online subs, it’s only made up half the difference in the lost legacy subs.

But more to the point, if we look at the change in subscribers for the major cable networks during that period, the decline has been far more dramatic. Nielsen data, which now at least partially includes the online pay TV services, shows subscriber declines of between 3.8m and 5.4m between February 2015 and August 2017 for the top 15 cable networks. That clearly can’t be accounted for solely by cord cutting given the rise of the online services. In fact, it reflects the combined effects of cord cutting and cord shaving, and it’s only likely to get worse.

Footnotes on the second chart: The first thing to note is that there are two distinct “totals” shown in the chart above – one that includes and one that excludes Cox and Bright House, whose numbers were not publicly reported for most of the period shown because they were private companies. One total is just for the publicly traded companies, while the other includes estimates for these two (and actual numbers for Bright House since it became part of the new Charter). The second thing to note is that neither of the totals shown matches the total shown in the earlier chart – that’s because in that earlier chart I stripped out estimated Sling TV streaming subscribers DISH reports in its pay TV totals, whereas in this chart all numbers are as reported.