The pay-TV industry ended 2020 with 5.1 million fewer subscribers than it started with, according to data compiled by Leichtman Research Group. Even more people cut the cord last year than in 2019, when 4.8 million said goodbye to the big bundle of networks.
There's good reason to expect 2021 to see even more cord-cutters than 2020. Here are three reasons why.
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Satellite subscriber losses will get even worse
Satellite was the biggest loser across the various types of telecom companies offering pay-TV service. AT&T's (T -0.15%) DirecTV lost a whopping 3 million subscribers last year, according to estimates from Leichtman.
AT&T shifted its focus to its new digital TV service, AT&T TV, in 2020, trying to move as many customers as possible to that service. It even stopped accepting new customers for its virtual MVPD, AT&T TV Now, instead directing them to AT&T TV.
But earlier this month, AT&T agreed to spin off the whole pay-TV business into a new entity and sell a 30% share of the company to private equity firm TPG. That should lead to an even greater focus on profitability for stand-alone TV subscriptions.
Under AT&T, the pay-TV business could effectively break even on subscriptions, as long as it contributed to better customer retention for other AT&T businesses like wireless phone and home internet service. That doesn't work when the only product for the new company is pay-TV service.
In other words, price hikes are likely in the works for the second half of 2021 after the deal closes. And higher prices should lead to more cord-cutters for the group of services that ended the year with 16.5 million subscribers.
When you combine that with improving internet connectivity in rural markets -- where satellite is sometimes the only option for video entertainment -- investors should expect further subscriber losses in 2021.
Charter can't keep bucking the trend
Charter Communications (CHTR -1.76%) added 56,000 subscribers in 2020. That goes completely against the grain of other sizable cable companies like Comcast, which lost 1.4 million subscribers last year.
There were a couple of factors that led Charter to outperform last year, as CEO Tom Rutledge pointed out during the company's fourth-quarter earnings call. First, it aggressively retained internet customers through the Keep America Connected program in the second and third quarters last year. Those customers kept their video bundle. But management expects internet connects and disconnects to go back to normal in 2021 -- they already started looking more like 2019 in the fourth quarter.
Second, Charter had good success with its digital over-the-top offering, which is a skinnier bundle of networks. That's put downward pressure on its average revenue per subscribers, and it's not clear whether adding customers to its OTT plan will ultimately prove profitable, or at least improve home internet customer retention. Regardless, Rutledge says demand for the service is accelerating.
Overall, however, it's reasonable to expect Charter's net adds to look a lot more like the rest of the industry in 2021 without increased home internet customer retention.
vMVPDs are losing momentum
Virtual pay-TV providers, also known as vMVPDs, like Disney's Hulu + Live TV or fuboTV (FUBO -3.15%), have helped prop up the industry. But they started faltering last year, and the outlook for 2021 isn't very strong.
The four publicly reporting vMVPDs in Leichtman's report -- Hulu, fuboTV, Dish's Sling TV, and AT&T TV Now, added just 644,000 subscribers in 2020. That's down from 1.1 million in 2019.
AT&T TV Now will continue to lose subscribers, and it's not adding new ones. 2021 may, in fact, be the year it shuts down following the spinoff.
Meanwhile, Hulu is showing signs of slowing subscriber growth. It actually lost around 100,000 subscribers in the fourth quarter, possibly as a result of its price increase in December. Additionally, fuboTV's outlook calls for fewer net additions in 2021 than in 2020.
The slower subscriber growth for vMVPDs means the subscriber losses for companies like DirecTV and Charter will have a bigger impact on industry totals. Importantly, nobody is safe from cord-cutting, and a year or two of outperformance on subscriber growth is proving unsustainable long term.
2020 was bad for the pay-TV industry, and 2021 will be even worse.
