Pay TV: Cliff, or just the steep part of the S-curve?
Things are terrible for traditional pay TV/video subscriptions in the US (cable, satellite and telco pay TV bundles, plus the online versions of those known as vMVPDs), and look like they are about to get much, much worse for a while...But there may be a bottom in sight, thanks to sports and news viewers.
Earlier this month, analyst Michael Nathanson (of MoffettNathanson Research) presented at the Code Media conference in Hollywood. The slide above was literally his first slide. For a while (2013 to 2015) cord cutting was a small but stable thing, with the number of people cancelling cable (or equivalent) subscriptions running at under 0.5% compared to the year before. In 2015 it worsened a little, but still not terrifyingly: until the end of 2018, annual declines averaged -0.6% in each quarter, with some valleys of 1.1% declines.
As a result of a a mix of factors (including price increases in the vMVPD category) the three quarters of 2019 have set new lows: declines of -1.8%, -2.8%, and -3.4%. That looks like a tipping point to me. This reminds me of print newspaper subscriptions or DVD rentals from 10 and 20 years ago.
According to the chart below, there are just under 94 million homes subscribing to traditional pay TV in the US as of the most recent quarter, down from a peak of 101 million in 2011. So a 3.4% decline is about 3.2 million households. If the rate keeps accelerating (let's say to 5% year over year?) we will be at 90 million subs by the end of 2020, 85.5 million at the end of 2021 and 81 million by the end of 2022, or 13 million fewer than now.
That is an interesting number, as you can see from slide 13, above. Will 13 be a lucky or unlucky number for the traditional pay TV industry?
From Peter Novak's article on the MoffettNathanson presentation:
If watching sports (and to a lesser extent, news) on TV is important to you, you’re going to probably keep paying for a bundle of TV channels...Big, expensive licensing deals for sports like football remain locked up with traditional TV networks, and those networks aren’t leaving the bundle anytime soon.
Of the 94 million homes that subscribe today, 81 million are regular viewers of sports, news or both. 13 million are not. If I were CEO of a cable company, I would think of those 13 million as definitely at risk: Not all of them are going to cut the cord (Jeopardy! is not available online, so fans/former contestants have to keep paying for cable) but many/most/almost all will.
Prediction #1: we're going to see the number of US pay TV subscribers fall by 3-5 million per year until 2022, to somewhere around 80 million.
Prediction #2: as long as the traditional networks continue to cling onto top-tier sports and news, we will see that rate of decline moderate after 2022. Sports and news are the anchor tenants in the mall that is traditional TV, and look like they will provide a floor to the declines.
Prediction #3: assuming that the pay TV companies can hold price at around $100 monthly (it was $107 per month in the US last year...that is just for TV content and does not include high speed internet charges) the industry will still be generating about $96 billion in revenues in 2023. That's a pretty big number: Just for context, one analyst says that Netflix global revenues in that same year will be $29 billion.
Putting that all together, it looks like the pay TV business in the US is about to go through three years of pain...but once through that, things may become less bad, thanks to news (a bit) and sports (a lot.)
Bonus section on TV sports demographics
From the same presentation, Nathanson had a nice slide on the demographics of US TV sports viewers. I attach below for those who are interested. The results are almost identical to a prediction on TV sports I wrote last year. Key takeaways: TV sports skews male (duh!), is pretty consistent across age groups (unlike other forms of TV, which tend to skew older), and skews high income.
Not every 18-34 year old American is a regular TV sports viewer...but well over half are, and they may have more money. These are good things for companies that sell advertising, as well as monthly subscriptions.
