Please ensure Javascript is enabled for purposes of website accessibility

Forget Cord-Cutting: This Is a Bigger Problem for Big TV

By Jamal Carnette, CFA - Apr 2, 2016 at 10:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

For investors, it's important to focus on a better metric.

Without SlingTV, Dish Network would have lost subscribers last year, according to data from SNL Kagan. Image source: DirecTV.

Depending on whom you ask, cord-cutting is quickly disrupting the traditional subscription pay-TV industry or it's an overhyped phenomenon. In order to cut through the rhetoric, it's important to research the underlying subscription numbers. Recently, third-party media research company SNL Kagan released its estimates for the U.S. subscription pay-TV industry.

SNL Kagan's data doesn't provide a definitive answer, but it does point to the fact that cord-cutting is happening on some level. SNL Kagan estimates the pay-TV industry lost more than 1 million U.S. subscribers in 2015 -- more than four times the annual decline in 2014 -- and notes that this is the third consecutive annual drop for the industry.

On the other hand, SNL Kagan's data hints at stabilization. Overall, the industry only lost 15,000 subscribers in the fourth quarter, essentially matching the number of cord-cutters in the previous year's corresponding quarter. However, cord-cutting may not be the biggest issue in SNL Kagan's data.

What's Dish serving up? Cannibalization
Sifting through SNL Kagan's data, it appears a shift to lower-cost options, otherwise known as cord-shaving, is underfoot. The aforementioned survey did not include Dish Network's (DISH 11.60%) streaming-based SlingTV in the aforementioned 1 million subscriber-loss figure, but SNL Kagan estimated Dish added 538,000 SlingTV subscribers that year. Dish reported it lost 81,000 total subscribers last year, inclusive of SlingTV figures. Backing out SNL Kagan's estimates of 538,000 SlingTV subscriber adds, the company lost an estimated 619,000 subscribers in traditional, large-footprint pay-TV.

As fellow Fool Adam Levy points out, DISH CEO Charlie Ergen mentioned he is aware SlingTV would cannibalize its core large-package product. With all else the same, a consumer shift from higher-cost packages to SlingTV's $20 monthly service is a risk to the stock. While it's possible Dish Network is bringing new subscribers into the fold with its new SlingTV product, it seems unlikely. Of SNL Kagan's 1-million subscriber loss total, the firm estimates direct-broadcast satellite (Dish and DirecTV) accounted for 478,000 of that figure. The big takeaway is it appears Dish lost subscribers while DirecTV gained subs (more on this later). Will SlingTV bring new a large contingent of new subscribers into the fold? Perhaps eventually, but now it seems the service is mostly helping former full-package users downgrade to cheaper packages.  

A shift to lower-cost services helps AT&T realize "synergies"
AT&T
(T 1.84%) appears to be a beneficiary of a shift to low-cost options. After buying Dish's main satellite competitor, DirecTV, for nearly $50 billion, SNL Kagan reported a subscriber shift away from AT&T's pre-existing U-verse TV platform to DirecTV. This appears to be planned: Ad Age reports AT&T has stopped building U-verse boxes and is actively pushing consumers to DirecTV.

Regardless of whether a consumer-chosen or company-promoted shift to DirecTV is underfoot, cannibalization is also occurring at AT&T. DirecTV is a lower-cost platform, according to SNL Kagan. AT&T appears comfortable selling lower-cost packages, however, as pushing users to DirecTV will allow the company to reduce redundant U-verse operations and cut costs to increase its bottom line.

For investors, it's becoming increasingly important to look beyond headline subscriber numbers and focus on revenue per subscriber. Falling revenue per subscriber metrics could indicate poor financial performance for multichannel video programming distributors and for networks -- even if cord-cutting does not accelerate.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$20.99 (1.84%) $0.38
DISH Network Corporation Stock Quote
DISH Network Corporation
DISH
$18.85 (11.60%) $1.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.