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The Truth About Cord-Cutting

By Daniel B. Kline – Updated Aug 7, 2018 at 4:31PM

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It's bad and getting worse, but maybe not as bad as some reports suggest.

Cord-cutting is accelerating, there's no doubt about it: The industry first experienced an annual drop in customers in 2013, and the number of defectors has grown each year.

It's easy, though, to use selective data to make the issue seem worse than it is. eMarketer, a credible digital publication, claimed that cord-cutters would hit an astounding number by the end of the year:

According to eMarketer's latest figures, the number of cord-cutters -- adults who have ever cancelled pay TV service and continue without it -- will climb 32.8% this year to 33 million. That's higher than the 22% growth rate (27.1 million) projected in July 2017.

The problem is that even though that number was widely reported, it's not an accurate reflection of cord-cutting. It's possible that the number includes cord-cutters (those who had traditional cable and dropped it) and cord-nevers (the pool of people who never had standard cable or satellite connections to begin with), but it overstates the scope of cord-cutting to date.

A man takes a scissors to a cable cord.

Cord cutting has increased. Images source: Getty Images.

What's actually happening?

Cable and satellite began losing customers on a full-year basis in 2013. The number of cord-cutters increased slightly in 2014, then tripled in 2015 and doubled in both 2016 and 2017. Taken all together, these numbers are troubling for the industry, but they don't come close to 33 million people cutting the cord.

"The number of pay-TV subscribers for the top providers peaked six years ago. Since 1Q 2012, top providers have lost about 3.4 million total pay-TV subscribers," said Leichtman Research Group President Bruce Leichtman in a press release.

Those numbers reflect the larger providers, covering 95% of the cable/satellite market through the first-quarter of 2018. Basically, in 2013 there were just-over 95 million homes with traditional cable or satellite connections, and that number is now a little under 92 million -- a big drop, but again, not 33 million cord cutters.

Year Pay TV gains/losses Internet gains
2012 170,000 2,000,000
2013 -105,000 2,600,000
2014 -125,000 3,000,000
2015 -385,000 3,100,000
2016 -795,000 2,700,000
2017 -1,495,000 2,100,000

Data source: Leichtman Research Group.

It's actually a little worse

You can inflate the cord-cutting number a bit if you include customers who opt for streaming live-television services, including DirectTV's (NASDAQ: DTV) DirecTV Now and Dish Network's (DISH -0.99%) Sling TV. Those products offer live-streaming cable-like packages delivered over the internet, generally at a lower price point than traditional cable.

"Since the industry's peak, traditional services have lost about 7.2 million subscribers, while the top publicly reporting Internet-delivered services gained about 3.8 million subscribers," Leichtman added.

Where is the bottom?

Cable-industry losses actually dropped year-over-year, from 505,000 in 2017 to 350,000 this year. Those numbers benefited from Sling and DirecTV Now, which added a combined 405,000 in Q1 2018, more than the 265,000 customers in the year-ago period. Traditional providers actually saw their losses decrease from 780,000 in Q1 207 to 710,000 in Q1 2018.

Cord-nevers may eventually become a bigger piece of the puzzle for the pay-television industry, but even that is unclear. Young people who never had cable may start their households without it, but once they get married and have children they might find the traditional cable package more appealing.

Cord-cutting will continue, but it's possible that losses this year could actually be smaller than last year if you count streaming cable subscribers in the total "cable" universe. There may be a point where traditional pay television loses audience in the way that record stores and print newspaper have; but that day is not here yet.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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