The last of the numbers are finally in hand. All in all, last quarter was another miserable one for the country's biggest cable television names.
Led by the likes of Comcast (NASDAQ:CMCSA) and AT&T's (NYSE:T) DirecTV, more than 1.5 million U.S. consumers cut the cord in the first quarter. Throw in the number of streaming cable users that also discontinued their service during the first quarter, and Leichtman Research Group pegs the figure closer to 2 million. eMarketer suggests the number of cable-subscribing households in the United States is less than three-fourths of what it was at 2013's peak, and still shrinking.
These people, however, aren't simply turning off their television sets. Quite the opposite, actually. They're just tuning in a different way. During the same quarter, 2 million Americans pulled the plug on conventional cable, 46.4 million new streaming subscriptions were purchased.
That's a worldwide total, mind you, and not just within the U.S. market that cable's most recognizable names serve. It's also not clear how much of that on-demand streaming growth explicitly came from recent cord-cutters.
Most of that streaming growth did come from the United States, though, and like recent-but-previous quarters, there's a clear correlation between cable cancellations and new streaming signups.
Here's the scary part: Despite its slow, ongoing demise, traditional cable TV still accounts for around two-thirds of the U.S. video entertainment industry's total annual take, and still collects the lion's share of the business's advertising revenue. Streamers of all sorts are well-positioned to steal a big piece of that as they continue expanding their reach.
At the tipping point
Streaming services ranging from completely free ad-supported options like Fox's (NASDAQ:FOX) (NASDAQ:FOXA) Tubi to hybrid platforms like Walt Disney's (NYSE:DIS) Hulu to ad-free premium services like Netflix (NASDAQ:NFLX) to cable-like alternatives such as ViacomCBS' (NASDAQ:VIAC) (NASDAQ:VIAC.A) Pluto TV added 46.4 million users during the three-month stretch ending in March, bringing their collective number of subscriptions to over 550 million; 150 million of them got on board just since the middle of last year.
|Subscribers as of ...|
|Streaming Service||June 30, 2020||Sept. 30, 2020||Dec. 31, 2020||March 31, 2021|
As was noted, it's not a perfect apples-to-apples comparison. At least part of this growth came from overseas. Inasmuch as most of these services are aimed at U.S. users, though -- or simply not available in foreign markets -- it's not a stretch to say this is a trend that mostly works against domestic cable names. Consumers are finding they can "rebuild" a canceled cable package with a mix of a la carte options.
And it would be short-sighted of cable companies and their shareholders to ignore the trend, for a couple of key reasons.
First, as much progress as the streaming industry has made in just a few quarters, traditional (or linear) cable television is still drawing the majority of the TV market's advertising dollars. eMarketer estimates linear cable will do $67.5 billion worth of ad business this year, versus an estimate of just over $11 billion for ad-supported on-demand services such as the aforementioned Tubi or Comcast's Peacock.
This disparity is changing quickly, however, perhaps more quickly than investors fully appreciate. In its 2021 advertising market outlook, IAB notes that advertisers are, on average, shifting 21% of their ad budgets from linear cable to connected television streaming platforms. This year may mark a proverbial tipping point for the advertising side of the TV business.
Second, as much as consumers clearly love their streaming services, most video-entertainment dollars are won by traditional cable companies. nScreenMedia calculates that nearly three-fourths of U.S. consumers' budgets for movies and television are passed to cable providers.
In most regards this makes sense, as we still collectively watch far more live TV than streaming programming; Nielsen estimates the average person is still watching about three times as much live/linear content as on-demand content.
Again, though, remember the trends. The number of cable customers continues to fall, while the number of active paid and free streaming subscriptions continues to rise. This represents a potential rerouting of at least $60 billion worth of cable subscription revenue in addition to the ongoing redirection of a comparable amount of advertising revenue.
Take the obvious hint
None of this shift comes as a surprise, of course. Investors have known of the cord-cutting movement for a while, just as they've known of the soaring popularity of streaming alternatives.
What's so noteworthy to shareholders of cable outfits like Comcast and Charter (NASDAQ:CHTR) is the acceleration of this shift just within the past few quarters, which have seen the introduction of Disney+, AT&T's HBO Max, and Comcast's Peacock. Again, IAB says 21% of the money that had previously been earmarked to pay traditional cable TV time is now being aimed at streaming television. The thing is, these advertisers are merely just following the crowd.