Moody’s Cuts Cable Outlook to ‘Stable’

Says cash flow growth should slow to 4% by 2020
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Moody’s Investors Service slashed its outlook on the cable television industry from “positive” to “stable,” adding that cash flow growth should slow as video losses begin to accelerate over the next few years.

Moody’s estimated that cash flow will rise an average of 5% for cable companies this year -- down from 5.9% in 2018 -- and further slowing to 4% growth in 2020. Moody’s noted that the rate at which broadband is replacing video subscriber losses is the lowest it has been in five years but should hold above 1.25 times, a level the credit ratings agency says will still support revenue and cash flow growth. Moody’s also expects profit margins in the sector to dip below 39% in the future.

Moody's outlook assumes broadband subscriber growth of 4%-6%, and video losses of -2% and -4%, driving video penetration down to about 31% and voice to under 19% by the end of 2020.

"The absence of material merger synergies and the rise in costs at certain companies to build mobile wireless services are weighing on the sector," said Moody’s SVP Jason Cuomo in a press release.

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With the number of OTT competitors increasing -- The Walt Disney Co. and Apple are set to launch their long-awaited Disney+ and Apple TV Plus offerings in November and AT&T and NBC are slated to launch HBO Max and Peacock, respectively early next year -- traditional pay TV distributors are under constant pressure. While Moody’s said the success of competitive offerings is uncertain, an early indication of the impact is the acceleration in cable’s video subscriber losses, which the agency said rose to -2.8% at the end of Q2. While broadband has usually taken up the slack, it too could face additional pressure from 5G wireless offerings, Moody’s said.

On the plus side, Moody’s said it expects mobile wireless services to add incremental subscribers, possibly holding the total number of revenue generating units (a combination of voice, video, data and wireless customers) steady. 

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