How does the old saying go? When it rains, it pours? That's likely how some shareholders of cable TV giants Charter Communications (NASDAQ:CHTR) and Comcast (NASDAQ:CMCSA) feel right about now, after a double dose of bad news earlier this month. Cord cutting in the U.S. is expected to reach record-breaking levels this year, and the streaming movement that's driving it isn't expected to abate anytime soon.
That's the word from digital market research outfit eMarketer and television market research company Digital TV Research, anyway. The former forecasts that the total number of U.S. households without conventional cable will grow from 2019's tally of 24.6 million to 46.6 million by 2024, with this year's projected 6.6 million cord-cutters being the biggest annual exodus to date. The latter estimates the total number of streaming subscriptions enjoyed by U.S. consumers will swell from last year's 203 million to 317 million by 2025. That's about one for every person living in the U.S., or an average of 2.7 on-demand streaming services per household.
There's no getting around it -- it's an ugly outlook. Yet, given what we already know, there's little reason to doubt the projections.
Crunching numbers on cable and streaming subscriptions
DIRECTV parent AT&T (NYSE:T) has already seen its pay-TV headcount steadily pared back from 25.4 million customers two years ago to 18.4 million as of the end of this year's second quarter. Comcast has seen similar attrition, with total video customers of 22.1 million as of mid-2018 slipping to 20.4 million as of the middle of 2020. Despite Charter's surprise net addition of video customers last quarter, it's still serving about half a million fewer cable customers than it was two years ago. That's a roughly 3% decline, in line with competitors' customer attrition. For eMarketer's outlook to come to fruition, the industry's subscriber losses only need to stay on their current trajectory.
This year's COVID-driven surge in cord-cutting, however, arguably marks the point of no return.
There is something of a bright spot buried in the outlooks. A handful of the cable media players on the receiving end of the cord-cutting movement are also on the other side of it. Digital TV Research expects AT&T's new streaming platform HBO Max to secure more new subscribers than SVOD leader Netflix (NASDAQ:NFLX) does for the period in question. Ditto for Comcast's Peacock.
Even so, the streaming competition doesn't offer established cable players any of their historical advantages. That's geography, namely. It's possible to penetrate a market where Charter or Comcast are entrenched, but it isn't easy. The streaming market is also much more competitive just because it's grown significantly since late last year, with the unveiling of the aforementioned HBO Max and Peacock as well as Disney+ from Disney. More streaming services are on the way in 2021.
Moreover, premium streaming services like Netflix and HBO Max, and the ad-free version of Peacock, are only commanding monthly fees of around $5 to $15, depending on the package. Comcast's cable plans start at $70 per month and are quickly move higher. AT&T's plans, whether through streaming cable option AT&T TV Now or DIRECTV, start at $55 or $65 per month, respectively, and also get very expensive very fast.
Revenue isn't profit, of course; Comcast, Charter, and AT&T all must pay carriage fees to the creators of the content that fills out their cable packages. Those fees have grown largely in step with cable bills. Even to the extent margins are better on internally populated streaming packages, though, there's not going to be a lot of revenue left to work with. Comcast's executives suggested months ago that the advertising value of Peacock subscribers was expected to be on the order of $6 to $7 per month.
No matter how you slice it, streaming can't fully replace cable's revenue for cable TV operators.
In the meantime, Charter doesn't have a streaming play at all, outside of a slimmed-down version of its conventional cable content.
The Foolish takeaway on cord-cutting
Even without the numbers, most investors sensed this was the shape of things to come. Digital TV Research and eMarketer simply supplied the specifics to help put things in their proper grim perspective. The projected loss of 22 million paying cable customers between now and 2024 will reduce the industry's headcount from around 86.5 million to 64.5 million. That's anything but a modest setback. Meanwhile, each domestic household should add about one -- but only one -- new streaming service to their current subscription lineup, and there are a lot more SVOD options to choose from now than there were just a year ago.
Bottom line? There's no way the cable industry comes out of this unscathed. Each of its respective broadband businesses will have to carry more than their fair share of the load, and soon. With 5G wireless connectivity speeds now able to replace wired connections, not even those broadband businesses are guaranteed to be bulletproof.