The rate of decline for “traditional” pay TV subscribers accelerated in Q3 2017 amid a rise in the number of consumers who are now taking service from a new of OTT-delivered virtual MVPDs, according to a new report from MoffettNathanson’s Craig Moffett.
“We’re long past any pretense that this is a temporary phenomenon, or that the OTT genie might somehow be put back in the bottle,” Moffett wrote.
He estimated that that rate of decline in that traditional pay TV sector reached 3.1%, up from 2.7% last quarter. The silver lining there is that the rate of decline wasn’t as bad as the 3.4% that was expected.
He said traditional pay TV distributors lost about 827,000 subs in Q3, versus a loss of 559,000 a year ago. U.S. cable lost 322,000 video subs in the period, with a rate of decline that rose to 1.4%, versus 1.1% last quarter, but wasn’t hurt as badly as the rest of the pay TV sector.
Satellite TV lost 349,000 subs in Q3, versus a small gain of 3,000 last year, and rate of decline of 3.3%. Telco TV losses “moderated” – 201,000 in Q3 versus 366,000 last year, but that’s mostly because the sub base of telco TV “has gotten so much smaller,” Moffett surmised.
Moffett said virtual MVPDs, many of which are owned by traditional pay TV providers, added 962,000 subs in Q3, while also acknowledging that data for that part of the pay TV sector remains “very sketchy.” He estimated that Dish’s Sling TV added 239,000, AT&T’s DirecTV Now tacked on 323,000 (excluding free trials), with 400,000 subs coming way of providers such as PlayStation Vue, Hulu’s live TV service, and YouTube TV.
Moffett believes that virtual MVPDs will end 2017 with 4 million subs. He also suggested that DirecTV Now is contributing to the issue. If 60% of those subs are new to the company, as AT&T says, that also suggests that 40% are not, the analyst pointed out.
Programmers generally benefitted from this trend for OTT-delivered alternatives, as they combined to add 90,000 subs in Q3, improving on a loss of 275,000 a year ago. But not all programmers are benefitting equally in these slimmed-down OTT bundles. The “haves” in that group include CBS, Disney, Fox and NBCU because they are included in most virtual MVPD packages, Moffett pointed out.
The inclusion of vMVPDs as an imperative “ensures that these trends will not decelerate” for distributors, Moffett noted.
But he does anticipate that the rate of decline for distributors will stabilize “at around 3% per year losses, but held that they could grow to as high as 6%.
This uncharted territory only sparks more questions.
“And will the recapture rate for vMVPDs hover around 50%, or will it be higher? Or lower?,” Moffett asked. “There is, unfortunately, no roadmap.”