The U.S. pay TV industry hasn’t yet reached the point where it completely gives up on video. But analyst Craig Moffett says that if Altice, Charter and others did so, it might not be so bad for them.
In a new research report, Moffett was clear in stating that large cable companies like Altice USA, Cox, Comcast and Charter are not at the point of abandoning video. At this point, the annual subscriber losses cable companies endure are somewhat tame compared with the accelerated losses for satellite providers.
But Moffett points out that smaller cable companies are seeing their video subscriber bases evaporate much faster than their larger peers, and that is by choice. While Comcast and Charter’s video subscriber losses are tracking at 1.7% and 1.4% respectively, Cable One’s annual declines are at 10.3% and Mediacom’s are at 5.5%.
Cable One management told MoffettNathanson that it loses money on every individual subscriber. At this point, when one of the company’s video subscribers calls to cancel service, Cable One’s customer representatives point them toward the best options for streaming TV. Moffett said that pay TV’s future could depend on whether larger pay TV companies start looking at video in the same way.
“If Verizon Fios and Cox—we suspect they would likely be the first two—and then later Altice and Charter, decide to stop even trying to stem the bleeding, well … then the bleeding will get worse,” wrote Moffett. “We suspect Comcast, by virtue of its ownership of NBCU, would try to preserve the status quo the longest.”
Moffett said the fallout from that potential scenario would look something like what’s currently happening to Dish Network, where programming is being dropped, prices are being raised and Sling TV is being pitched as an alternative to satellite TV. Since 2015, the firm has tracked Dish Network’s annual subscriber loss rate as it’s ballooned from 1.8% to as high as 10.8%.
But, somewhat surprisingly, ditching video might not be such a bad thing for cable companies. Moffett acknowledged that revenue would decline, but not by much, since video prices would likely increase and broadband prices would increase to as fewer subscribers would be bundling it with video. He said margins would also expand and capital intensity would decline since video is more expensive to operate than broadband.
Despite MoffettNathanson’s insistence that video service abandonment has yet to set in for the U.S. pay TV industry, recent comments from giants like Comcast suggest that views toward video are certainly changing.
During an investor conference this week, Comcast Cable CEO Dave Watson said that his company’s strategy is centered on broadband and packaging in video only where it makes sense.
“We’re simply not going to chase unprofitable video segments,” Watson said.
Charter has taken a similar approach toward focusing on broadband services instead of video.