The last of the major pay TV, broadband, and phone companies has now reported, so we have a pretty good sense of how the industry fared in Q2. As I do every quarter, I’ve put together a series of charts on the industry for subscribers to the Jackdaw Research Quarterly Decks service. As usual, there’s been tons of press about cord-cutting lately, but so often numbers that are bandied about only tell part of the story, so I wanted to provide an update with as much transparency as possible about where these numbers come from and what they represent.
A lot depends on what you measure
The reality is that this was a down quarter for the pay TV market, almost no matter how you look at it. Some of the numbers people report only provide a partial view, whereas I look at three discrete groups of companies in my reporting:
- Major Public Players: The largest publicly-traded cable, satellite, and telecoms providers, a group that includes AT&T, Cablevision, Charter, Comcast, DirecTV, DISH, Time Warner Cable, and Verizon. These companies account for a large majority of overall pay TV subscribers in the US, but by no means all of them.
- Public Players: A longer list of publicly-traded companies in those categories, which adds Cable ONE, Consolidated Communications, Frontier, Mediacom, Suddenlink, Windstream, and WideOpenWest to that list. This list gets even closer to covering the whole market, but is still not comprehensive. However, it doesn’t rely on estimates, and so is the most robust of the sets of numbers in its mix of comprehensiveness and foundation in actuals.
- Public Players plus Cox and Bright House: That list plus estimates for two other companies: Bright House and Cox, the two largest privately-held cable companies, which don’t report their subscriber numbers publicly. I’ve used a combination of my own estimates and those provided by companies like the Leichtman Research Group to fill in these gaps. This longest list still isn’t utterly comprehensive, but accounts for the vast majority of US TV subscribers, though it relies on some estimates.
In the charts below, you’ll see these groups denoted as “big players”, “all players”, and “incl. Cox/Bright House” respectively.
A down quarter, no matter how you look at it
However, no matter which of these three groups you look at, it’s clear that the industry had a poor quarter, and arguably its second in a row. What’s important to note about this industry, however, is that it’s extremely cyclical, and the second quarter is usually the worst quarter of the year. As a result, I tend to look at year on year comparisons because that eliminates the cyclicality somewhat. The three charts below show net year-on-year changes in pay TV subscribers for the three groups described above:If we look first at the “big players”, the trend is already obvious: year on year growth is well down on all the quarters in the past two years, albeit still marginally positive. But of course these numbers don’t include the smaller players, which often lose subscribers to the big ones. When we wrap those numbers in, we see the following:As you can see, now we’re suddenly talking about a real decline year on year, and not just slowing growth. Those smaller players between them lost quite a few subscribers, and when they’re factored in we see a more complete picture. However, we’re still missing the two privately-traded companies, but based on past numbers and extrapolation we can add a reasonable estimate for them, too:And now we see that this is not the first, but the second, quarter of negative growth for the industry. And you can also see that the trend started a year ago, as year on year net adds began declining then and have fallen every quarter since. Behind all this, though, is a series of interacting dynamics between the various groups of players in the market – cable companies, satellite providers, and telecoms operators. The results for these different groups are shown below:What you can see here is that the cable companies have actually been doing better over the past year or two, reducing their total net losses from 1.5 million to 1 million in that period, while the telecoms operators’ growth has slowed much more significantly, falling from 1.5m year on year to just over five hundred thousand. As the two major satellite providers have also seen a combined slowing of growth, the net result is that the industry has contracted for the last two quarters. There’s a little short-term stuff in here – last quarter AT&T focused on profitability in its TV base and actually saw a slight loss in subscribers, while Verizon’s marketing was constrained by its legal scuffle with content providers over its Custom TV bundles. So it’s possible we’ll see some recovery next quarter for the telecoms side of this business. But it’s increasingly clear that this is a zero (or negative) sum game, and that if telecoms gains do grow, they’ll likely come at the expense of the cable companies.
Household context worsens the picture
However, things can get even worse. The US population isn’t static, of course – the number of households is actually growing fairly rapidly, so that even static TV subscribership would mean falling penetration. Even the change from 2013 to 2014, when subscribers grew, represented a slight reduction – around half a percentage point – in penetration. And the last six months, with real year on year shrinkage, just accelerates that trend. We’re somewhere around 79% penetration at the moment, but it’s likely that this number is likely to fall by around 1% or so per year over the next few quarters. Cord cutting really is happening at this point, and it will only accelerate as more and more alternatives to the traditional pay TV bundle become available. That’s not to say it’s going to go to zero – there are still lots of barriers to adoption of alternatives, not least sports programming – but for many users, the alternatives are becoming good enough, especially as cable mainstays like HBO become available outside the bundle.