Pay-TV Losses Could Accelerate to More Than 5 Million U.S. Households per Year, Survey Indicates
Pay-TV Losses Could Accelerate to More Than 5 Million U.S.
Households per Year, Survey Indicates
By Todd Spangler SEPTEMBER 21, 2017 | 10:54AM PT
There’s more evidence of a growing subscriber exodus
threatening to hit the traditional pay-TV ecosystem.
In 2016, the industry dropped about a net 2 million
subscribers — and an acceleration of pay-TV losses to more than 5 million
annually “does not seem impossible,” RBC Capital Markets analyst Steven Cahall
wrote in a report Thursday.
That estimate is based on a results of an RBC survey of
1,200 U.S. consumers, which found that around 55% of total respondents
indicated they will continue to subscribe to traditional pay TV. That suggests
68 million U.S. homes “as the floor that ultimately keep the linear bundle,”
according to Cahall, given that there are currently about 124 million
households in the country. Currently, there are 86 million U.S. pay-TV households,
per SNL Kagan.
The data “implies subscriber declines still have lots of
potential downside,” Cahall wrote.
The RBC survey found that 21% of current cable, satellite
or telco TV customers were considering switching to a lower-cost virtual pay-TV
service (like Hulu with live TV, Sling TV or DirecTV Now).
While “virtual multichannel video programming
distributors” like Hulu, YouTube TV and Sling TV are poised to grow, they’ll
significantly cannibalize the existing base of traditional pay-TV customers,
according to RBC’s analysis. About 15% of the addressable market for “vMVPDs”
will come from legacy cable and satellite subs, with 10% from “cord-never”
broadband-only households.
“We conclude that a ratio [of virtual pay-TV subscriber
adds] that favors cannibalistic over incremental [growth] is modestly negative
for media,” Cahall wrote. That’s because most of the broadband-delivered
subscription TV packages are “skinny” bundles that strip out many channels.
The RBC study comes after research firm eMarketer this
month significantly upped its estimates for cord-cutting in 2017, projecting a
33% increase in U.S. adults cancelling traditional pay TV to reach a total of
22.2 million by the end of the year. (Note that eMarketer’s figures represent
individuals, not households.)
The biggest problem for traditional pay television
remains consumer perception that cable and satellite TV is too pricey — and a
bad value overall. Of existing pay-TV subs looking to switch to an internet-TV
skinny bundle, 78% cited cost as the biggest factor.
The irony is that moving to a virtual pay-TV service may
not actually save consumers money — so the rate of people dropping legacy cable
or satellite may not be as high as the RBC survey suggests, once consumers
calculate what they would actually pay month-to-month.
The total cost of a vMVPDs and internet service is around
$100-$140 per month (assuming a price of $40 per month for an internet TV
service plus standalone broadband in the $65-$100 range per month). In other
words, Cahall noted, that’s similar to the cost of a cable TV and broadband
bundle. Of the respondents on RBC’s survey who are current traditional pay-TV
subscribers but are considering a vMVPD, 79% are paying more than $100 per
month for internet and pay TV.
Still, traditional pay-TV and telecom providers suffer
from a history of negative customer sentiment — subscription television and
broadband are the lowest-rated categories on the American Customer Satisfaction
Index. The flexibility promised by virtual MVPDs makes them more attractive
than legacy cable and satellite operators, Cahall wrote.
“While they don’t necessarily save consumers much money,
[internet pay-TV services] do provide more flexibility on cost due to the
month-to-month arrangement, have lower switching costs between similar services
and avoid much-hated ‘hidden fees’ like set-top box rental and [regional sports
networks,],” the RBC analyst noted.
Cahall added: “We broadly conclude that customers feel
like they ‘get what they pay for’ on [virtual pay-TV services] vs. a perceived
mistrust about the true cost of cable.”
Other findings from RBC’s survey:
Sports: 48% of respondents said access to sports wasn’t
important. The 52% who said sports was “very important” or “somewhat important”
was titled toward men (59%) versus women (46%).
Broadcast TV: 23% said broadcast networks were the most
important content or platform to them, the No. 1 response (followed by “OTT” at
17% and “news” at 11%).
Subscription VOD: 72% of respondents subscribe to (or
use) an SVOD or over-the-top service. Netflix was the most popular, with 61% of
respondents saying they’re subscribers, followed by Amazon Prime Video (41%),
Hulu (18%), HBO Now (13%), Showtime (4%) and CBS All Access (3%).
TVs per Household: Of the respondents, 29% had two TVs in
their house, 22% had three, 21% had one, 16% had four, 9% had five or more —
and 2% said they didn’t have any TVs. (Numbers don’t add to 100% because of
rounding.)
RBC surveyed about 1,200 U.S. adults 18 and older, which
skewed older — 17% of the survey’s respondents were 18-29 vs. 22% of the U.S.
population, while 29% were 30-44 vs. 25% of the U.S. population.
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