After second-quarter video subscriber losses were better than feared, UBS has adjusted its cord-cutting estimate for 2020. But the analyst firm warned that higher churn is likely on the way.
Video subscriber declines held steady at around 6% during the second quarter, better than the 7% rate of decline predicted by UBS before earnings began.
“With lockdowns in full effect, we believe consumers were potentially more hesitant to cut the cord or eliminate sources of entertainment throughout the quarter. If anything, consumer likely subscribed to more home entertainment services during this period, evidenced by fewer pay TV losses and strong direct-to-consumer (DTC) growth,” wrote UBS analyst John Hodulik in a research note. He added that Keep American Connected pledges for broadband subscribers likely had some positive pull-through effects on video subscribers.
UBS now expects the U.S. pay TV industry to lose 6.3 million subscribers in 2020 or a 6.7% rate of decline, which is lower than the more than 8% rate the firm projected prior to earnings. Still, it’s well ahead of the 4.8 million losses from 2019.
“While we now expect better video subscriber losses for the full year, we do believe it’s a matter of time before softer economic trends, potential sports cancellations, higher pricing and networks shifting resources from linear channels to DTC contribute to higher churn,” wrote Hodulik.
UBS’s calculations show that traditional video distributors (cable, satellite, telco) lost about 1.73 million video subscribers and virtual MVPDs, led by YouTube TV, added 376,000 subscribers, resulting a combined loss of approximately 1.35 million video subscribers during the second quarter.
While the Keep America Connected pledge may have helped with video subscriber trends in the second quarter, UBS expects the reverse impact to reported net losses in third and fourth quarters as some of the accounts inevitably fail to keep their accounts current. The firm said that there are more than 750,000 subscribers on KAC still included in reported subscribers across the major distributors.
“If you assume all take video as well, this would represent ~1% of industry subs in a worst case scenario,” wrote Hodulik.