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25 February 2021

“Worst is over” for pay TV claims are laughable

By claiming that cable and satellite pay TV operators are out of the woods, as many outlets have done so this week on the back of slowed Q4 2020 subscriber losses, sets a dangerous precedent for complacency. Make no bones about it, the worst is far from over, despite what this week’s headlines might read.

It is only natural in this industry for the rate of decline to slow as a business or market erodes beyond recognition – while many have misconstrued pandemic-related tailwinds as a sign of organic recovery. As our separate story this week covering Dish Network’s fourth quarter results has highlighted, hedging your bets on hiking prices across a dwindling subscriber base, just to keep the pay TV business above water, is no sustainable way to go about running a company, and will accelerate churn in the long-term.

The fact that Digital TV Research projects North American pay TV operators to shed an additional 16 million subscribers over the next six years, while simultaneously saying the “worst is over,” is a gross contradiction of the realities and a distortion of the truth.

Cable, satellite, and IPTV services across the US and Canada are set to shrink from 89 million in 2020 to 73.5 million in 2026, according to the research. A striking observation is that of the nearly 16 million cord cutters during this six-year period, some 4.2 million – around 25% – are expected to occur in 2021 alone.

While we cannot see the workings of this forecast, we can scribble our own napkin figures to make sense of the conflicting conclusions. Looking back, the data shows 27 million pay TV subscribers cutting the cord between 2010 and 2020. For argument’s sake, let’s settle on an average annual churn rate of 2.7 million a year through that ten-year period, although we recognize this won’t be accurate. Then, if we take the remaining 13.8 million cord cutters projected between 2022 and 2026, after the 2021 exodus is out of the way, that also works out at an average annual churn rate of 2.7 million a year. Slowdown? What slowdown?

Satellite will fair worst between then and now, losing over 7.5 million subscribers to shrink to 16.1 million in total, while cable will wither to 49.3 million, losing more than 5.1 million subscribers. Providers of IPTV services in North America are set for a comparatively less bumpy landing, coming down to almost 8 million subscribers by 2026, from 11.5 million at the end of last year.

The total pay TV footprint across the US and Canada will slump to 74 million in 2026, while pay TV penetration will constrict tightly to just 53.6%, compared to the glory days of 2010 when penetration sat at 90.5%. The peak for pay TV revenues across North America came a few years later, in 2015, reaching $111 billion, according to Digital TV Research, while 2026 pay TV revenues are projected to plummet to a low point of $62 million.

Does hemorrhaging $49 billion over a decade – almost a 50% retraction in revenues – sound like the worst being over to you?

There will be peaks and troughs along the way, and analysts can dress this up any way they want, but these figures do not signal a passport to freedom akin to the global Covid-19 vaccination program.

The research from Digital TV Research also contradicts a consensus from Swiss investment bank UBS published this week, which tallied total US pay TV losses at 1.3 million in Q4 2020 – marking a 5.1% rate of annual decline from Q4 2019. This compares to a 4.6% decline in Q3 2020 and a 4.8% fall in Q2 2020, showing that churn dipped slightly in the mid-point of last year before ramping up again.

UBS numbers show satellite TV losing 822,000 subscribers in the fourth quarter – with DirectTV and Dish Network dealing most of the damage – while cable TV providers shed 563,000 – with Comcast leading the way.

UBS also shines a light on the US vMVPD market, which added 189,000 subscribers in Q4 2020 – a real fall from grace after gaining 1.2 million subscribers in Q3. YouTube TV picked up 100,000 subscribers in Q4, while Hulu+ Live TV went in the exact opposite direction by losing 100,000 paid viewers as last year closed out.