Once something big starts rolling down a hill, it can be awfully hard to slow it down. That's what's happening with cord-cutting -- customers are fleeing their cable and satellite TV providers in ever-increasing numbers.
That trend is unlikely to abate any time soon, because consumers today can drop cable and replace it with an array of streaming services for less money. It's possible to get nearly every channel via streaming, so consumers can theoretically save money and still get what they want. Cable, with its current fixed system of channel bundles, can't really compete.
The rise of new streaming options has made cable less attractive. Image source: Getty Images.
How bad is it?
The major pay-television providers lost a total of 2.87 million net customers in 2018, up from 1.49 million the previous year, according to data from Leichtman Research Group (LRG). Those numbers got even worse in the first half of 2019, when the industry dropped another 2.88 million subscribers. And matters got still bleaker in the third quarter: According to the report LRG released Wednesday, the pay-TV companies lost another 1.74 million customers in Q3, the biggest single-quarter loss the industry has ever posted.
Arguably, those declines are even worse than the headline numbers would suggest because LRG counts 3.83 million streaming cable customers as part of the total. But those are subscribers who opted for cheaper plans, so they are probably significantly less profitable to the cable companies serving them.
This accelerating pace of people dropping cable coincides with a slowdown in the growth of broadband subscriptions -- signing up new internet customers no longer compensates for the earnings lost from cord-cutting pay-TV customers. After adding 2.4 million broadband users in 2018, the industry has added about 1.9 million so far in 2019. That's still strong, but it's well below the approximately 4.5 million net decline in cable customers.
"This marked the fifth consecutive quarter of record pay-TV industry net losses," said LRG President Bruce Leichtman in a press release. "AT&T, the leading pay-TV provider in the U.S., accounted for 79% of the net losses in the quarter compared to 30% of net losses in 3Q 2018. This change is largely the result of AT&T's strategic decision to increasingly focus on retaining and acquiring more profitable subscribers."
Basically, AT&T, which owns the struggling DirecTV brand as well as its homegrown AT&T U-Verse cable and internet service, has decided to throw in the towel. Instead of resorting to bargain deals, skinny bundles, and other tactics in an effort to keep customers from cutting the cord, it's choosing to let them walk away.
It's going to get worse
As the cable universe shrinks, some channels will have trouble surviving. Most channels rely on a mix of advertising revenue and carriage fees paid by cable companies. Each fee may be just a few cents per subscriber, but the pay-TV providers pass them along in our bills. And when those small figures are multiplied by the millions of customers who receive each channel -- whether they watch it or not -- the numbers add up.
As of last quarter, 84 million homes in the U.S. are paying for cable -- that's down by nearly 10 million subscribers from 93.6 million at the end of 2016. This has meant lower revenues for not just the cable companies but also content providers. Some of them may be able to make up for that through streaming, but other niche channels will have to cut their programming budgets or even close down.
Fewer channels and smaller quantities of quality programming will make cable a less enticing value proposition, and in turn lead to more cord-cutting, which will put yet more financial pressure on the small cable channels. That's a death spiral that will be hard, if not impossible, for the industry to pull out of. Cable won't disappear anytime soon, thanks to older customers' preference for sticking with the familiar. Over the long term, however, it's likely that the industry will become a shell of its former self.
