It looks like cord-cutters may not have the cable sector to kick around much longer.
While overall pay TV subscriber numbers were down in the fourth quarter — typically a seasonally strong period — customer declines came from losses on the telco TV side. Cable operators, long the target of consumer consternation over high prices and poor service, reported video customer gains for the period.
Not all of the news was good. Overall pay TV subscriber numbers were down for the first time in the fourth quarter, indicating that customers are still cutting the cord. It also was the fourth consecutive quarter of overall losses in the pay TV sector.
On the bright side, though, cable outperformed the overall pay TV sector for the first time since 1994.
SECTOR DOWN OVERALL
MoffettNathanson principal and senior analyst Craig Moffett, estimated pay TV, excluding subscriber results from Dish Network’s over-the-top service Sling TV (which Dish counts within its overall satellite-TV results), lost about 49,000 video subscribers in the fourth quarter. With the Sling TV results factored in, the pay TV business is pushed into the black with a gain of 80,000 video customers, although that growth is still down from previous years.
Other analysts had slightly different numbers. Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak estimated that pay TV added about 105,000 video customers in the period, but he also included the Sling TV results. Evercore ISI Group media analysts Vijay Jayant and David Joyce estimated a pay TV loss of about 123,000 in the period, not taking the Sling TV results into account.
Cable, long pay TV’s laggard, actually ended the quarter on a positive note. MSOs added about 102,000 video customers in the period, according to Moffett, fueled by gains at Comcast (89,000), Time Warner Cable (54,000) and Charter Communications (33,000).
In contrast, the telco-TV sector, punished by heavy losses for AT&T’s U-verse TV (down 240,000), lost about 224,000 video customers. Satellite-TV providers gained about 73,000 net new subscribers.
In a note to clients, Moffett said the cable growth came in a period of sluggish new household formation. While that shows that cable’s growth is likely coming from its competitors, it also shows a dramatic change of fortunes among the players in the pay TV business in a very short period of time.
It wasn’t long ago that cable operators were considered to be a dinosaur business heading for extinction.
Overall full-year 2015 cable losses slowed to 1% from 2.6% in 2014, while satellite subscriber losses accelerated sharply to -1.3% in Q4, compared to a 0.1% gain in the prior year, according to Moffett.
The sharpest dropoff, though, came in the telco sector. According to Moffett, telco TV reported a 1.3% video customer deficit in Q4, compared to a 9.9% gain in the previous year.
“The improvement in cable is dramatic,” Moffett wrote. “And the deterioration in telco is breathtaking.”
While a big part of that telco TV decline is probably due to AT&T’s plan to migrate its U-verse TV subscribers to satellite provider DirecTV (which AT&T purchased in July), Moffett said that isn’t the whole story. Growth in the satellite sector slowed in the fourth quarter to 73,000 subscribers, compared to 86,000 in the same period in 2014, despite DirecTV having AT&T’s marketing engine behind it.
While broadband was a big reason for cable’s Q4 gain, Moffett noted that the sector has been steadily reducing its losses since 2010. According to Moffett’s research, cable has reduced quarterly subscriber losses from a peak of 3.5% in Q2 2011 to a 1.1% decline in Q4 2015.
DATA STILL A STRENGTH
In a note to clients, Wlodarczak wrote that cable again dominated the broadband market in Q4, despite price increases implemented in some systems.
According to Wlodarczak, net new data subscribers (including dialup) increased 19% in the quarter to 850,000. Cable again had its best share result ever, taking all net new data additions (about 980,000 additions, a 31% increase), while telcos saw a negative data result for the third straight quarter, losing about 40,000 customers.
“The cable investment thesis is all about data; cable successfully managed the entrance of the RBOCs into video and they should successfully manage through changes to the pay TV model,” Wlodarczak wrote, adding that cable’s broadband dominance “provides the ultimate hedge for cable against the effects of potentially accelerated pay TV losses and slimmed-down pay TV bundles.”
CHART: Pay As You Go
Pay TV subscriber losses have increased over the past four quarters, while cable TV ended the year on a high note.
Q1 2015 Q2 2015 Q3 2015 Q4 2015
Total Cable Adds (Losses) . . . . . . (105) . . . . . .(337). . . . . . . (200) . . . . . . 102
Total Satellite Adds (Losses) . . . . .(74). . . . . . .(284) . . . . . . .(173) . . . . . . .73
Total Telco Adds (Losses). . . . . . . . 136. . . . . . . .(3). . . . . . . . . (53). . . . . . (224)
Total Pay TV Adds (Losses) . . . . . .(44). . . . . . .(624) . . . . . . (426) . . . . . . (49)
SOURCE: Company reports, MoffettNathanson estimates. Numbers in thousands.