Did cord cutting really accelerate in 2014? Source: Jason Rosenberg/Flickr
For several years now, cable companies have been battling the cord-cutting trend. Some have even outright denied that cord-cutting is a problem, and perhaps they're right. Last year, total pay-TV subscribers remained flat (and maybe even increased) on an aggregate basis.
Let's take a look at the numbers and see if we can make sense of what's going on in the cable industry.
Net subscriber additions
|
Provider |
Q1 |
Q2 |
Q3 |
Q4 |
Total |
Total Subs (in Millions) |
|---|---|---|---|---|---|---|
|
AT&T |
201,000 |
190,000 |
216,000 |
(124,000)* |
483,000 |
5.94 |
|
Cablevision |
(14,000) |
(28,000) |
(56,000) |
(34,000) |
(132,000) |
3.12 |
|
CenturyLink |
24,000 |
16,000 |
14,000 |
12,900 |
66,900 |
0.24 |
|
Charter Communications |
18,000 |
(29,000) |
(9,000) |
3,000 |
(17,000) |
4.17 |
|
Comcast |
24,000 |
(144,000) |
(81,000) |
6,000 |
(195,000) |
22.38 |
|
DISH Network |
40,000 |
(44,000) |
(12,000) |
(47,000) |
(79,000) |
13.98 |
|
DirecTV |
12,000 |
(34,000) |
(28,000) |
149,000 |
99,000 |
20.35 |
|
Frontier Communications |
5,000 |
3,600 |
2,000 |
190,700* |
201,300 |
0.59 |
|
Suddenlink Communications |
10,100 |
(18,700) |
2,200 |
(34,800) |
(41,200) |
1.14 |
|
Time Warner Cable |
(34,000) |
(152,000) |
(184,000) |
(27,800) |
(408,000) |
10.79 |
|
Verizon |
57,000 |
100,000 |
114,000 |
116,000 |
387,000 |
5.65 |
|
Total |
343,100 |
(140,100) |
(21,800) |
199,800 |
381,000 |
88.35 |
Source: Quarterly reports from individual companies. *Includes Connecticut-based wireline properties AT&T sold to Frontier.
This list is missing some notable providers, including Cox Communications. Still, it accounts for around 87% of the total market, so it gives us a pretty good picture of what's going on in the pay-TV industry.
Research firm IHS estimated pay-TV subscriptions to be roughly 100.8 million last year, so for the industry to have lost customers, the rest of the pay-TV providers not on this list would have had to lose more than 3% of their customers. With most of the other 12.5 million or so pay-TV subscribers using cable operators, it's quite possible that's the case.
While the telecom companies and the satellite providers gained customers, the average publicly traded cable operator lost 1.9% of subscribers. However, several cable operators lost more than 3% of subscribers: CableVision lost 4%; SuddenLink lost 3.5%; and Time Warner Cable (NYSE: TWC) lost 3.6%.
So while it's entirely reasonable that subscriber losses at the remaining pay-TV providers offset the subscriber gains of the rest of the industry, the reported droves of cord-cutters are still missing. Where are the millions of Netflix, Hulu, and Amazon.com Prime subscribers?
In the new homes (sort of)
Last year, loads of millennials finally found jobs and moved out of their parents' basements. Last quarter, household formation -- a household being any group of people living together: family, roommates, or seven strangers living in a house together Real World style -- more than quadrupled to 1.7 million per month, from just 356,000 per month in the same period a year ago. Overall, the past three months have seen a sharp uptick in new home formations, making up for the slowdown in the first half of the year.
With pay-TV subscriptions remaining relatively flat while millions of new households come into the fold, it means that there's a growing number of homes that either cut the cord or never plugged it in in the first place. New households help to offset those cord cutters as most households (including new households) subscribe to a pay-TV service. Despite this help, MoffetNathanson analyst Craig Moffett believes the bump in pay-TV's subscriber base doesn't exactly match the rising pace of new households and estimates that, on a trailing 12-month basis, "1.4 million homes have cut (or never had) the proverbial cord."
What does this mean for investors?
For investors, this is both good and bad news. The growth in new households is enough to offset the number of customers ditching pay-TV for now. On the other hand, it's clear that there's a growing population of people who are going without cable, and the options to go without are only going to get better in 2015. It's not clear the industry will be able to maintain its 100 million-plus subscribers for much longer, even with the phenomenal growth in new household formations.
Still, most pay-TV operators have successfully increased their average revenue per customer, which ensures growing revenue from their video operations. Price increases can't last forever, however, especially as the number of streaming options proliferate at lower prices.
Most cable operators and telecom companies also offer high-speed Internet service, which is a very good hedge against cord-cutting. Neither of the satellite providers offers compelling Internet service, however. That makes the merger between DirecTV (DTV.DL) and AT&T (T 1.30%) extremely important for DirecTV investors. DISH Network (DISH), meanwhile, released Sling TV -- a live television streaming service -- as a hedge against cord-cutters.
Overall, the trend isn't great for pay-TV providers, but it's not terrible, either. Most providers have strategic hedges in place, or are at least working on them. If new household formation keeps up the pace in 2015, it could mask the growth in cord cutting. But it seems my prior thesis that cable subscriptions will grow with household formation was simply incorrect.
