Desperate times call for desperate measures. So many of the moves launched by media and pay-TV firms getting stung by cord-cutting have a whiff of desperation to them.
According to FierceCable, the 10 biggest U.S. pay-TV platforms owned by publicly-traded companies collectively lost another 395,700 subscribers in the third quarter, more than the 230,000 lost a year earlier. Importantly, this figure accounts for the subs that were added by online TV platforms such as Dish Network Corp.'s (DISH) Sling TV and AT&T Inc.'s (T) DirecTV Now.
AT&T, Comcast Corp. (CMCSA) , Verizon Communications Inc. (VZ) , Charter Communications Inc. (CHTR) and Altice USA (formerly Cablevision) all lost subs. If one excludes Puerto Rican subs lost for now due to Hurricane Maria, Dish managed to post a small gain.
The performance follows a second quarter during which pay-TV providers lost 941,000 subs, according to an estimate from research firm MoffettNathanson. DirecTV, Dish and AT&T were the biggest losers. And Moffett thinks 762,000 subs were shed in the first quarter. The first half of the year is typically weaker for pay-TV subscriber adds than the second half.
For reference, there were an estimated 95.7 million total U.S. pay-TV subscriptions at the end of 2016, down from 97.5 million a year earlier. eMarketer estimates the number of U.S. consumers aged 18 and older qualifying as cord-cutters (not the same as households or subscribers) will gradually rise from 16.7 million in 2016 to 40.1 million in 2021. It also forecasts the ranks of "cord-nevers" -- people who have never signed up for pay-TV -- will rise from 32.5 million to 41 million.
And though they're faring a little better overall, major pay-TV network owners are also feeling the heat. The Walt Disney Co. (DIS) saw revenue within its Media Networks division -- easily its most profitable unit -- drop 3% annually to $5.47 billion in calendar Q3.
Cable Networks revenue was roughly flat, with Disney's ESPN cash-cow offsetting lower ratings and (due to cord-cutting) a decline in the number of pay-TV subs it collects affiliate fees on with higher ad rates and per-user affiliate fees. Broadcasting revenue, which fluctuates more, fell 11% -- Disney blames lower ratings, lower political ad spend and the absence of an Emmy show, partly offset by higher ad rates.
During its June quarter, Viacom Inc. (VIA) reported its U.S. Media Networks revenue was roughly flat. The segment's U.S. affiliate revenue rose 4%, as affiliate fee hikes and licensing deals with streaming services offset subscriber declines, but U.S. ad revenue fell 2%, with lower ratings offsetting higher ad prices.
As Disney and Viacom's numbers suggest, TV network owners are trying to offset cord-cutting's impact on affiliate fees and ratings -- ratings, it should be pointed out, are also being hurt by the fact that many of those who haven't cut the cord are watching less TV -- by charging higher affiliate fees and ad prices. The former gives consumers more incentive to cut the cord, assuming the higher affiliate fees are passed onto them by pay-TV providers. And the latter gives advertisers an incentive to move more of their spending to other venues -- say, for example, online and mobile video ads.
Likewise, pay-TV providers are facing pressure to offset subscriber losses by charging more to their remaining subs, as well as by doing thing such as growing ad sales and charging more for broadband services. It also doesn't help these firms that a growing number of low-income consumers are content to rely solely on their smartphones for web access.
All of that provides valuable context for many of the moves announced or explored over the past several months by media and pay-TV firms. Among them:
- Disney reportedly held talks to buy most of Twenty-First Century Fox Inc. (FOXA) . According to CNBC, Disney would avoid buying Fox's broadcast and sports networks in a deal, but would have acquired the rest of the company.
- Disney has unveiled plans to pull its films from Netflix by decade's end and launch a streaming service in 2019 that would become the exclusive home of Disney, Pixar, Marvel and Star Wars films, among other things. And on its Nov. 9 earnings call, the company declared its streaming service would initially be priced "substantially" below Netflix.
- Fox's FX Networks unit added 15 more original shows to its FX+ streaming service, which is only available via pay-TV partners, and said it would no longer exclusively license its content to third-party streaming services. The move comes after many Fox shows were gradually pulled from Netflix.
- After airing the first episode of Star Trek: Discovery on its broadcast networks, CBS Corp. (CBS) has made all subsequent episodes exclusive to its All Access streaming service.
- Charter and Comcast reportedly entered into an "exclusive negotiating window" with struggling Sprint Corp. (S) about a deal through which the companies would take equity stakes in Sprint and offer their own mobile services using Sprint's network. Ultimately, no deal was reached and Sprint -- after also seeing merger talks with T-Mobile falter -- struck a reseller deal with Altice.
There's also AT&T's pending $85 billion deal (DOJ willing) to buy Time Warner and its valuable content assets. Though cord-cutting likely isn't AT&T's only motivation for buying Time Warner -- declining wireline voice revenue and a more competitive wireless environment are also presumably playing roles -- Ma Bell's pay-TV subscriber losses do up the pressure for it to make some kind of big move.
Look for fresh head-turning announcements from pay-TV and media firms in the coming months. 2017 might be remembered as the year that the group truly came to terms with the long-term damage cord-cutting is causing to their core businesses, and began responding with drastic measures.
This column has been updated to clarify Viacom's numbers were for its June quarter.
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