MoffettNathanson principal and senior analyst Craig Moffett estimates that about 18 million homes in the United States either have never had pay TV service or have cut the cord, with as many as 3.1 million of those homes added in the last four years. And according to MoffettNathanson’s recent report: The Poverty Problem: Six Years On, the number of homes that will do without a pay TV subscription could grow at an even faster rate in the future.
Moffett has tackled the issue of declining incomes and their impact on the pay TV universe before in his detailed 2008 report, The Poverty Problem, where the analyst warned that a sharp decline in discretionary income – money available to homes after payouts for food, shelter, healthcare and transportation – would lead poorer homes to disconnect their pay TV subscriptions. In revisiting the report six years later, Moffett wrote that he was proven both right and wrong – pay TV growth has been flat since 2009 while broadband penetration rates have climbed even as prices have risen. At the same time, discretionary income has fallen in the past six years to about -$583 per month from $0 for the poorest homes, while pay TV subscriptions have remained relatively steady.
But Moffett warned that a recent uptick in new household formation, coupled with an aging Baby Boomer population and an emerging Millennial demographic that has been raised on online, over-the-top and subscription video on demand services, could bode even worse for pay TV.
“When one offsets the growth in new household formation against observed changes in Pay TV penetration, it suggests that there either was a sharp acceleration in cord cutting in recent month or, perhaps more likely, that the uptake of Pay TV among these new households was extraordinarily low,” Moffett wrote. “Whatever the explanation, there are now as many as 18 million households today who are non-subscribers, either because they have cut the cord or never had it in the first place, 3.1 million of which were added since the end of 2011.”
Moffett points to research that could potentially make the future look even bleaker for pay TV.
According to a 2012 report prepared for the Bipartisan Policy Center, about 12 million new households were expected to be added between 2010 and 2020. But Moffett notes that while that may sound like good news for pay TV – more homes means more subscribers – it masks some dramatic changes in what makes up those households. According to Moffett, that period will include a net loss of 11 million baby boomer-led homes (typically strong subscribers to pay TV) and a net gain of 23 million echo-boomer and millennial-led households (who are less likely to subscribe to pay TV).
“If subscribership in these cohorts remains low, it could portend much steeper attrition rates for Pay TV over the next decade than we, or others, currently forecast,” Moffett wrote.
Just what that impact will be will depend on the availability of alternatives, Moffett added. Newer lower cost products like Dish Network’s Sling TV (which attracted about 100,000 people to its introductory offer in its first month) and others “could accelerate the transition to OTT significantly,” Moffett wrote. “Not because the products are so compelling to younger generation new households, but instead because the pressures on disposable income are so great for lower income cohorts of all age brackets.”