In the early 2010s, Verizon's (NYSE:VZ) Verizon FiOS TV service was one of pay TV's biggest success stories. At a time when legacy pay TV products like cable and satellite subscriptions were suffering from the cord-cutting trend, Verizon's IPTV service seemed somehow immune. FiOS TV (which exists alongside Verizon's fiber-optic internet service, also branded as FiOS) was pay TV's fastest-growing service in 2010.

But no more. Verizon's first-quarter 2020 results include some serious losses for Verizon's IPTV service. This should trouble Verizon, especially given the fact that the COVID-19 pandemic has been pushing TV viewing hours up for the streaming competition. It should also trouble AT&T (NYSE:T), which only just recently unveiled an IPTV service of its own.

Scissors cutting a cable cord

Image source: Getty Images.

Bad news for Verizon

For Verizon, the news is as simple as it is bad: There are a whole lot fewer paying Verizon FiOS TV customers than there were at the end of fourth quarter 2020. This past quarter, Verizon lost 84,000 FiOS TV customers. That's the worst quarter ever for Verizon's IPTV service, which now has fewer than 4.2 million users.

Quarter Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
FiOS TV subs lost (55,000) (52,000) (67,000) (51,000) (84,000)

Data source: SEC filings. 

Verizon's FiOS losses were limited to the TV side. The company actually added 59,000 FiOS internet customers in Q1. Verizon pointed to the cord-cutting trend to explain the dichotomy.

The timing is damning. The COVID-19 pandemic has caused some very serious economic fallout, but not all industries have suffered equally. Around the time things got serious in the United States, Nielsen predicted that social isolation and quarantine measures would lead to a surge in TV viewing hours. The surge applied to TV viewing hours overall, not just to streaming services.

The surge seems to have arrived, but not for everyone. Netflix is enjoying a relatively successful run at an uncertain economic time. Other streaming services, including Alphabet's YouTube and Amazon's video game-focused video streaming platform Twitch, have shown signs of surging viewer hours as well. This makes it an even bigger problem that Verizon's pay TV service is headed in the other direction, and fast.

We can't say with any certainty why the tech industry and its streaming services are doing so much better than Verizon seems to be. Price is one possibility, since the streaming services are by and large much cheaper than traditional pay TV bundles. That would mesh with unprecedented unemployment trends and a volatile market that could contribute to subscription cuts. The lack of live sports is likely a problem, too -- legacy pay TV services rely heavily on sports, and there are virtually no live sporting events on TV right now.

But this is speculation -- all we know for sure is that Verizon's IPTV service got hammered by cord cutters this quarter. The cord-cutting trend is not making any exceptions for IPTV services, however cutting-edge and high-tech they may seem.

A bad sign for AT&T

For telecom giant AT&T, the TV trends of the COVID-19 era are a decidedly mixed bag. On the one hand, AT&T is an internet service provider and the owner of several streaming services, including the forthcoming HBO Max, which is expected to launch on time in the midst of this crisis. But AT&T is also in the legacy pay TV business.

What's more, AT&T just made a major change to its pay TV lineup. The company recently launched a new pay TV service called AT&T TV. AT&T TV is being marketed as a modern streaming version of cable or satellite, but it's not all that new of an idea: Like Verizon's FiOS TV, AT&T TV is an IPTV service (AT&T does also have a true "over the top" streaming live TV service, which is called AT&T TV Now; it also has a mobile-focused OTT live TV offering called AT&T WatchTV).

AT&T TV is in many ways indistinguishable from a legacy pay TV service. It has the introductory prices and long-term contracts customers expect from cable or satellite. But AT&T TV arrives via the internet, which saves AT&T on technician visits and installation costs.

A lack of in-person installation might help AT&T TV in the midst of this crisis (FiOS requires an in-person installation). But the fact that Verizon's IPTV service had a brutal quarter in the middle of a TV viewing surge is a big warning sign for AT&T and its peers. Trying to recreate the legacy pay TV model with IPTV doesn't seem to move customers. "Cord cutting" and "streaming services" don't appear to be such literal terms for consumers. A "cordless" version of a legacy pay TV service is still traditional in some very important ways, and it's easy to imagine that such services will suffer in a crisis that is tightening budgets and elevating the subscription video on demand (SVOD) competition.

Limiting losses and little more

Clearly, IPTV services are not exempt from the cord-cutting trend. And while AT&T's new IPTV offering will save it on overhead relative to its DirecTV satellite service, Verizon's stumble suggests that limiting expenses is just about the most that AT&T can hope for by swapping satellite for IPTV.