Moody’s forecast shows no end to pay TV’s problems

cord cutting
On the video front, the temporary respite that the pandemic provided for TV services will soon end. (Alyssa & Colin/Flickr)

The end of the novel-coronavirus pandemic will offer no cure to pay-TV pricing pressures that are squeezing profit out of the business even as the resulting rise in rates pushes cable and satellite subscribers to the exits.

Moody’s Investors Service delivered that pessimistic forecast in its 2021 outlook for the pay-TV and telecommunications sectors, released Monday. It’s not all bad news; cable operators in particular stand to benefit from a boom in broadband that won’t go away after the pandemic.

That trend left Moody’s optimistic overall for the cable business, predicting a growth in earnings before interest, taxes, depreciation and amortization of “at least 5% over the next 12-18 months, driven by broadband demand.”

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But on the video front, the temporary respite that the pandemic (and the presidential election) provided for TV services will soon end as cord cutting rates will once again accelerate from the 4.4% decrease recorded in the third quarter of 2020.

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“The pace of loss temporarily moderated during the last several quarters with high interest in news related to the virus and the U.S. presidential election, and a search for entertainment programming given cinema closures and limitations on travel and other leisure activities,” the report states. “Step up in loss rate is likely to return to pre-pandemic levels or worse as the economy recovers in 2021 with the unrelenting secular decline in the business.”

With TV providers already having seen subscriber totals drop from 50.9 million subscribers in the first quarter of 2015 to 44.5 million in the third quarter of 2020, Moody’s projects a further 5% to 7% loss over the next year to 18 months as the options to traditional pay TV continue to expand, including both paid and free-with-ads options.

That, in turn, will only compound the cost problem for cable operators that have fewer and fewer TV subscribers to absorb escalating programming costs. The Moody’s report notes that most of them are barely breaking even on video (it does not mention those that have already dropped TV or put it into maintenance mode), leading them to end many rate promotions and marketing efforts to focus on customers with the best chance of long-term profitability.

It ticks off several steps that cable operators are taking in that area — better on-screen interfaces with integrated streaming and smarter search, offering their own cheaper and skinnier bundles, selling more targeted ads and threatening programmers against signing up with streaming services — but offers little reason to think that they will slow the transition of these companies from TV providers to broadband providers.