It’s nearly impossible to avoid discussion of the coronavirus and the lockdown measures in place to halt its spread. For Comcast, Charter and other cable operators, the virus could have significant business impacts.
Comcast, Charter and others have already introduced broadband policies like temporary suspension of data caps and service terminations. Both Comcast and Charter have also opened their Wi-Fi hotspots to the public and given families with K-12 and college students 60 days of free internet service.
Whether the moves are purely altruistic or not is up for debate, but they will almost certainly help Americans stay connected during the crisis. They will also affect the cable and broadband business, which could also see cord cutting, programming cost and advertising impacts while the nation deals with coronavirus.
2020 was already going to be a tough year for cable TV subscriber losses. Traditional pay TV operators dropped 6 million subscribers in 2019, and UBS predicted that the U.S. pay TV industry will lose another 6.2 million video subscribers in 2020.
MoffettNathanson said that in the fourth quarter of 2018, Comcast and Charter together lost about 50,000 video subscribers combined. In the fourth quarter of 2019, the companies together lost 250,000 video subscribers, or five times as many. The firm said the faster losses (which Comcast warned about for 2020) are a result of Comcast’s and Charter’s changed views on video subscribers and the end of trying to retain subscribers with “uneconomic save offers.”
With the coronavirus impact factored in, UBS analyst John Hodulik said there could be some good news and bad news for video providers.
“We expect traditional video sub declines to accelerate to 5.7% in 1Q vs. 4.9% in 4Q with a seasonal slowdown for vMVPDs. Going forward, a lack of sports content & recession worries could accelerate cord-cutting but the ‘stay at home’ dynamic and demand for Entertainment/News content could keep losses at bay,” wrote Hodulik in a research note.
It’s unlikely that Comcast, Charter or any other MVPD or virtual MVPD will see much of a coronavirus-related impact on programming costs in the near term. However, Matthew Ball, former head of strategy at Amazon Studios, pointed out a potential scenario where MVPDs call force majeure (or unforeseeable circumstances that prevent someone from fulfilling a contract) on ESPN and withhold payments.
It will not be long until MVPDs force majeure their payments to ESPN and that will be a dam-breaking moment for renegotiating fees even after sports resume their traditional season/operations.— Matthew Ball (@ballmatthew) March 18, 2020
ESPN has been largely devoid of live sports since the NBA, NHL, MLB and many other leagues and sports indefinitely suspended play. Lightshed analyst Rich Greenfield responded to Ball’s tweet by pointing out that contracts dictate that there is a minimum amount of premium sports content that ESPN must deliver. Whatever the threshold is, if it’s not met, then subscriber fees paid to ESPN by MVPDs are automatically reduced.
Not sure I understand this tweet— Rich Greenfield, LightShed (@RichLightShed) March 19, 2020
If ESPN does not air "enough" sports in a given year its contracts automatically reduce the sub fees to ESPN paid by mvpds
The possibility of sports leagues starting back up is still a fluid situation and no concrete dates have been set. If the NBA, MLB and others keep their start dates set at “TBA,” then it could have some potentially huge implications for sports right fees, both for licensors and licensees.
The national directive urging Americans to stay home as much as possible has had some logical impacts on advertising. The travel/tourism and food verticals will clearly cut back as Americans aren’t going anywhere and many restaurants are staying closed. Along with that, the loss of marquee live sports like the NBA and March Madness will take a lot of potential advertising revenue away from programmers like Disney and WarnerMedia along with distributors.
However, the boosts in demand for news and entertainment could help offset some of those losses. With COVID-19 developments, cable news share of TV viewership increased to 18% for the week, up significantly from 11% a year ago, according to UBS, and the news exposure for Comcast, Fox and WarnerMedia could help mitigate the impact from losing sports.