Media analyst firm MoffettNathanson sees a second wave of cord cutting rising and warns that it could be even more damaging than the first.
In a research note, the firm said the rising cost of live sports is largely to blame for the current cycle of pay TV subscriber losses. The return of live sports after the pandemic-related shutdowns could help alleviate those losses for the time being. But a second wave is forming as programmers like Disney, NBCUniversal and WarnerMedia increasing divert their best content from the traditional pay TV ecosystems to their direct-to-consumer platforms.
“This redirection not only makes the substitutes better and better, it simultaneously starves the traditional ecosystem of fresh content, making the traditional ecosystem less and less appealing…forcing even more people to defect from the bundle. And so it goes,” wrote Craig Moffett.
MoffettNathanson estimates that the traditional pay TV ecosystem is declining at a rate between 7.7% and 8.3% per year. At that rate, the entire pay TV business would disappear in 12 years.
In all, the firm said that traditional TV distributors – including cable, satellite and telecom providers – lost approximately 1.9 million video subscribers during the second quarter. That brings total residential pay TV penetration down to about 61% of occupied households, which MoffettNathanson said is a level not seen since 1994.
Virtual MVPDs like YouTube TV and Hulu + Live TV are not doing enough to offset the erosion of the traditional pay TV ecosystem. MoffettNathanson estimated that the vMVPD industry added just fewer than 400,000 subscribers in the second quarter and that the trailing 12-month conversion rate for former traditional pay TV subscribers has dropped to between 22% and 24%.
“There is simply no way to pretend that vMVPDs will be the salvation for the industry that so many had hoped just a few years ago,” wrote Moffett.