“Cord cutting” has been a kind of ghost story for cable providers for much of the past decade—a tale that, while foreboding, didn’t seem entirely real. But consumers are abandoning traditional cable for streaming services faster than ever, turning what had been an ominous prediction into a clear and present danger.
Three major pay-TV providers last week reported dramatic declines in subscribers to traditional cable and satellite television packages. Some of the losses were more than double what Wall Street analysts expected, and stocks in major TV providers have fallen off a cliff. Those dismal results followed reports of huge subscriber growth at streaming services like Netflix, leaving would-be defenders of legacy TV with nowhere to stand.
The numbers tell the story in no uncertain terms. Charter Communications, which offers cable service under the Spectrum brand, announced on Friday that it lost 122,000 TV customers in the first quarter of 2018. That massively exceeded Wall Street projections, which the Wall Street Journal said averaged about 40,000 lost subscribers ahead of the earnings report. Charter’s stock dropped as much as 15% Friday.
That collapse followed similarly grim reports from other legacy providers. Comcast announced Wednesday that it had lost 96,000 customers for the quarter, its fourth straight quarter of subscriber losses, and slightly worse than analyst projections. AT&T’s DirecTV satellite service lost 188,000 customers in the same period, driving down video revenue by $660 million despite growth of its own online streaming service. AT&T stock tanked as much as 7% the day after its report. Comcast notched healthy earnings from its increasingly diverse business, but even it couldn’t fight the headwinds, with its stock draining more than 7% by the end of the week.
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The reports continue a strong trend away from traditional cable services—total cable subscriber numbers declined 3.4% over the course of 2017, a faster decline than in 2015 and 2016. The fact that the latest numbers so dramatically underperformed even grim Wall Street expectations suggests the dropoff is continuing to accelerate.
At the same time, streaming services, also known as “over the top” or OTT services, are showing gains that are even more dramatic. Netflix, the 800-pound gorilla in the sector, reported earlier this month that it had added a net 1.96 million subscribers in the first quarter. Perhaps even more worrisome for cable providers are services like HBO Now, which deliver what had been exclusive cable content directly to subscribers, and whose growth is also accelerating.
There are a lot of factors driving the dramatic transition. Arguments about the appeal of “unbundling,” or the ability to pay only for the content a subscriber specifically wants, are widespread. In terms of user experience, the sheer convenience of browsing shows without being bound to a broadcast schedule—or worrying about programming a DVR—makes traditional cable feel downright prehistoric. Cable services have also spent years digging their own graves with bad service and opaque billing—both Comcast and Charter have regularly been among American companies most hated by their own customers.
For years, it was thought that live sports would keep many subscribers from ditching cable, but that dam has cracked in half. Both broadcast networks and ESPN are available through services including Sling and Hulu. And a standalone ESPN streaming service, ESPN+, launched this month, at a stunningly low $4.99 a month rate that seems likely to deepen cable’s losses further.
The impacts of the switch to streaming packages are still unclear, but they’ll be complex. Done right, the transition could channel more revenue directly to creative powerhouses like Disney, which is planning to launch its own OTT service, packed with Star Wars and Marvel IP in addition to animated films. But the decline of cable could be tough for smaller players, such as niche channels which currently get a share of cable fees but might not be able to attract subscribers on their own.
It’s more than likely that cable providers will find some role in this reshaped future. But it’s clearer than ever that their glory days—when they had the leverage to do things like tack on steadily rising fees—are over.
