By Lillian Rizzo and Drew FitzGerald
The pace at which people are abandoning traditional pay-TV
packages accelerated by more than 70% last year, as prices
continued to rise and consumers gravitated to more affordable
streaming options.
Large cable and satellite companies lost about 5.5 million
traditional pay-TV customers last year, a roughly 8% decline,
according to public filings. The numbers -- which exclude smaller
providers that have yet to report results for the entirety of 2019
-- are much larger than the loss of 3.2 million subscribers in
2018.
Traditional pay-TV customers are expensive for cable companies
to keep, between installation and equipment costs and the
ever-rising price of programming, which has led cable and satellite
providers to raise their rates. Analysts predict more American
households will cut the cord this year.
"Cable companies have made peace with the idea of customers
leaving if they want to," said Craig Moffett, an analyst at
MoffettNathanson. "The companies will accept programming price
increases and pass it onto consumers, accelerating the downward
spiral of pay-TV."
Leading cable-TV providers Comcast Corp., Charter Communications
Inc. and Altice USA Inc. together lost roughly 1 million pay-TV
customers in 2019, according to public filings.
Satellite providers shed even more accounts, led by AT&T's
DirecTV. The telecom giant ended 2019 with 3.4 million fewer
satellite and fiber-optic TV connections in the U.S. Rival Dish
Network Corp. lost more than 500,000 satellite subscribers over the
same time frame.
TV package rates have increased steadily over the years, due in
large part to rising yearly programming expenses. Much of those
cost increases stem from live news and sports channels, two
segments that have kept customers stuck to the traditional pay-TV
experience.
"It's hard to fully satisfy a sports fan with the offerings
available," on virtual TV-streaming services, Mr. Moffett said.
Smaller cable companies are contending with the same challenges,
said Dave Shull, chief executive of set-top box provider TiVo
Inc.
"These cable companies are seeing very little margin, which is
very frustrating to them," Mr. Shull said. "The bundle is breaking
down as a result of these massive price increases."
Pay-TV providers are also competing for subscribers with more
streaming services. Existing platforms including Netflix Inc., Hulu
and Amazon.com Inc.'s Prime Video were joined by Walt Disney Co. 's
Disney+ and Apple Inc.'s Apple TV+ late last year. Later this year,
Comcast Corp. 's Peacock and AT&T Inc.'s HBO Max will make
their debut.
Cable giant Comcast said its average cable bill would increase
3.6% in 2020, compared with a 3.3% rise in 2019. Meanwhile, Altice,
which operates under the Optimum and Suddenlink brands, said
cable-TV prices increased 4% to 5% recently, higher than its
historical average of between 3% and 3.5%.
Comcast, which lost 733,000 cable customers in 2019, said during
a recent earnings call that it expects more pay-TV losses in 2020
on the back of rate increases, and the consumer shift to streaming
platforms.
"This is just the new normal," said Jennifer Fritzsche, a
telecom analyst at Wells Fargo Co. "People don't need 500 channels,
so the skinnier bundle is winning out."
But so-called skinny bundles haven't picked up all of the slack
as they struggle with the same input costs. Dish's Sling TV gained
some customers over the past year but shed accounts for the first
time last quarter. AT&T's streaming TV bundle also lost
customers. PlayStation Vue, a TV bundle from Sony Corp., closed
down in late 2019 because of high costs.
Most internet-based cable alternatives also raised prices. Sling
TV's basic monthly rate has climbed to $30 today from $20 in late
2015. Online TV from AT&T started at $35 a month when it
launched in 2016. Its equivalent now costs $65 a month.
Hulu illustrated the widening gulf between traditional channels
and newer streaming options by twice raising the price of its live
TV service last year. The cost of Hulu + Live TV is now $54.99, $15
higher than its rate at the start of 2019.
One silver lining for cable companies: They are signing up more
broadband subscribers, who have a stronger positive impact on
financial margins.
Charter Communications Inc., which operates the Spectrum brand,
referred to its cable-TV business as a complement for broadband
customers. The company has said cable-TV customer losses aren't
material to driving its business model.
Despite the losses, pay-TV monthly average revenue per customer,
on a quarterly basis, has remained steady across the providers --
often with small increases.
In some cases, cutting the cord is leading to higher average
revenue per user in broadband. Recently, Altice said that when a
customer ditches its cable-TV subscription, or switches to a
lower-priced TV offering, the money being saved often goes toward a
more expensive, higher-speed tier of broadband.
Comcast in particular has pivoted away from chasing unprofitable
cable-TV customers, and instead is focusing on its broadband
customers and higher-end traditional TV customers. The company
recently began providing Flex, its streaming device, free for its
broadband-only customers.
Comcast's strategy apart from cable-TV also includes launching
its own streaming platform. The company's NBCUniversal unit will
release Peacock to Comcast and Cox Communications Inc. customers in
April, and will be available to all U.S. consumers in July.
Write to Lillian Rizzo at Lillian.Rizzo@wsj.com and Drew
FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
February 19, 2020 17:08 ET (22:08 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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