Analysts predict that high unemployment rates, as well as sports league and TV show production postponements and cancellations will dim the value of pay-TV compared to alternatives and cause an increase in cable-cutting.
With the postponement and cancelation of most sports league events and productions amid the coronavirus pandemic dimming the value of pay-TV, analysts including Wall Street predict that cord-cutting numbers will continue to increase and the value proposition will continue to crumble. With increasing unemployment rates also playing a factor, several Wall Street analysts have increased their pay-TV subscriber loss forecasts for 2020. "In this COVID-19/macro environment, we view the traditional video story as a 'two-sided coin,' though an overall downside to cord-cutting," Cowen Analyst Gregory Williams wrote in an April 3 report. "Prior to the COVID-19 crash, the traditional video was already facing further deterioration with accelerating year-over-year losses for five consecutive quarters, especially with telco/satellite TV, as the streaming wars begin. As we endure the quarantine phenomenon and potential softer economy (rising unemployment), cord-cutting trends should continue (sports cancellations/delays could impact the value of traditional video), especially as hourly employees look for ways to shed personal expenses and streaming services provide cheaper video solutions. That said, a partial offset is a need for hyperlocal/live news which is increasingly becoming important for consumers to stay up-to-date in the information flow."
In March, Comcast stated that 30 video game downloads are up 50% percent overall and streaming and web video consumption has increased 38%. In a report released on 1 April, Bernstein Analyst Peter Supino reported a reduction in his 2020 financial forecasts for pay-TV companies, which reflected similar expectations. His estimate is now for 1.5 million subscriber losses in the second quarter due to the virus crisis compared to his previous forecast. "We believe video subscriber losses will accelerate, with the recession and lack of sports focusing consumers' attention on pay-TV as a roughly $1,000-per-year savings opportunity," he explained. "If we assume 9 million job losses in the second quarter, which seems reasonable given both market commentary and the recent jobless claims print, 6 million homes will be affected by job losses (1.5 adults per home)." The analyst also predicted that half of the people would subscribe to linear TV and half of those would cut TV. Using pay-TV firms'video subscriber market share, he has increased his Comcast pay-TV subscriber loss estimate for 2020 by 390,000, his Charter Communications loss projection by 480,000 and his Altice USA pay-TV sub loss estimate by 100,000. He also widened his 2020 AT&T pay-TV subscriber loss estimate by 640,000 and his Dish video subscriber loss estimate by 293,000, with Sling gains to be offset by Dish satellite losses. Supino now forecasts Comcast to lose $1.67 million pay-TV subscribers, compared with 733,000 in 2019. Charter to lose 1.08 million (up from 462,000 last year), Altice to lose 230,000 (versus 107,000), AT&T to lose nearly 2.2 million (compared with more than 4 million, including AT&T Now, in 2019) and Dish to lose 695,000 (up from 336,000) video subscribers.
President and Analyst at Leichtman Research Group stated the amount of pay-TV net losses for the entire industry in 2020 versus 2019 will also depend on provider behaviors. His net losses increased significantly, but largely because of companies no longer chasing low-value subscribers, with AT&T responsible for a large majority of these losses," he said. "A lot of that is going to depend on individual households, I don’t think that hits in the first month, but over time."
Wells Fargo Analyst Jennifer Fritzsche suggested the emergence of a trend in which people look to cut spendings amid a recession, including TV cable. Cable operators' new core business, broadband, is likely to benefit from the coronavirus pandemic though as internet connections are enabling work and entertainment for home-locked people. Usage of Netflix, YouTube, and other streaming platforms has jumped amid the pandemic, Nielsen recently said. Fritzsche argues that broadband providers could "see more pricing power at the other side of this crisis. "We do not see broadband data consumption lessening in a meaningful way post-COVID," she said "On the consumer side, we see further OTT offerings continuing to drive more usage."
We believe video subscriber losses will accelerate, with the recession and lack of sports focusing consumers' attention on pay-TV as a roughly $1,000-per-year savings opportunity. If we assume 9 million job losses in the second quarter, which seems reasonable given both market commentary and the recent jobless claims print, 6 million homes will be affected by job losses (1.5 adults per home).” Gregory Williams Cowen Analyst