The U.S.'s major cable television players have all served up their first-quarter numbers. In simplest terms, they're ugly. While last quarter's attrition isn't as ugly as the kind of cord-cutting seen during Q1 of 2020 -- when the pandemic was first inciting panic -- it's clearly accelerating again despite fresh glimmers of economic growth. Blame the continued rise of streaming-based alternatives.
This isn't news to any investor with a stake in a cable company, of course. The U.S. cable TV industry peaked at 100.5 million paying households in 2013, according to market research outfit eMarketer, and that headcount has been steadily shrinking ever since. But last quarter's surge in cord-cutting suggests cable television companies have even less time to respond than anyone might suspect.
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Another round of sweeping customer losses
All told, the nation's biggest cable television brands lost 1.54 million customers during the first quarter. These companies collectively account for about 95% of the United States' cable industry.
AT&T (T 1.31%) led the way. Although the company no longer reports detailed cable statistics, it still shares some, reporting the loss of 650,000 of its 16.5 million cable customers. Most of these were likely DirecTV subscribers who are now customers of a newly created entity that technically removed the operation from AT&T's books.
Other big names in the business didn't fare any better. Comcast's (CMCSA 0.08%) Xfinity gave up 490,000 subscribers and now totals 19.36 million, while Charter Communications (CHTR 1.08%) shed 156,000 residential customers for a reduced total of 15.48 million. DISH Network's (DISH +0.00%) headcount tumbled by 130,000, to a new total of just under 8.7 million. But DISH's streaming cable alternative Sling TV lost 100,000 of its 2.47 million users last quarter, marking the biggest relative loss of subscribers (down 4.1%) among the big brands in the business. The graphic below puts things in perspective.
Data source: Investor reports or public presentations. Chart by author.
For more perspective that's not readily evident just from the chart, last quarter's loss of 1.54 million paying cable customers is within sight of the 1.86 million people who cut the cord early last year, when consumers feared the worst about the economy's future. It's the third-highest attrition rate since the latter half of 2018.
The pivot to digital a la carte is here
It's naive to pretend streaming services like Netflix (NFLX +0.34%) and AT&T's HBO Max aren't driving this trend. The former now serves nearly 208 million worldwide members, up 25 million from its headcount as of the end of 2020's first quarter, when the pandemic was first getting going.
AT&T says the HBO brand is now enjoyed by 44 million domestic consumers, and though not all of them are necessarily tuning in to HBO Max, several million are. The streaming HBO product was only launched less than a year ago. Walt Disney's (DIS +7.60%) Hulu is now serving 35 million subscribers, while Disney+ is serving over 100 million customers, just a year and a half since its debut.
The streaming platforms chipping away at linear cable aren't necessarily paying a monthly fee for access to their programming either. Fox Corp. (FOX +0.55%) (FOXA 0.03%) says 33 million viewers are coming to its ad-supported service every month. That's up from 25 million as of the end of 2019. Ad-supported streaming brand Pluto TV, operated by ViacomCBS (VIAC +0.00%) (VIAC.A +0.00%), is now enjoyed by 43 million worldwide watchers. That's up from 26.5 million in the middle of last year, which is up from 16 million monthly users in the middle of 2019 (before CBS and Viacom merged).
Television market research outfit Hub fleshes out this transition with some eye-opening data from its recent "2021 Best Bundle" report. Namely, Hub reports that the number of domestic consumers who pay for traditional cable fell from 67% in 2020 to 60% now, while the number of consumers who subscribe to at least one streaming service has ramped up from 77% a year ago to 79%.
The bulk of that growth is being driven by the ad-supported video-on-demand (or AVOD) services like Comcast's Peacock, Pluto TV, and soon, HBO Max. The number of consumers now using at least one of these ad-supported services stands at 48% of those polled, up from 40% at this point in 2020.
It doesn't take much reading between the lines to figure out the direction things are headed.
Cable names have to get more aggressive
To their credit, some cable players are responding by becoming the very streaming services that are disrupting the linear cable business. Comcast owns NBCUniversal, which owns Peacock. AT&T distanced itself from DirecTV with a partial sale, and is making great strides with HBO Max.
Not every cable giant is in a position to take such bold actions, though. Verizon (VZ +0.08%) and Charter, for example, have no media business to lean on or streaming product to offer. Fortunately Charter is gaining ground on the high-speed internet front, adding nearly 400,000 residential broadband customers even as it lost roughly 150,000 video customers last quarter. There's a limit to how much high-speed internet is required by U.S. consumers, however, and growth on the internet front can't offset shrinkage on the video front forever.
It's still not clear what the ideal replacement for traditional cable will look like. It is clear, however, that whatever these cable communications companies have in mind needs to happen faster. The ones where it doesn't may make for troubled investments.
