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Cord-Cutting Continues to Impact Pay-TV Services, OTT a Boon

Zacks Equity Research

Per a recent FierceCable report, traditional pay-TV services, including cable and satellite, lost 976,000 customers in the recently reported second-quarter 2017, due to cord-cutting. Though the figure is below the estimated (by several research firms) loss of 1 million subscribers, it clearly portrays the effects of cord-cutting.

Traditional cable, satellite and telco MVPD (multichannel video programming distributor) services have lost a combined 1.8 million users in 2017, with the number of pay-TV homes in the United States dropping to 96.1 million.

U.S. Pay-TV Industry

Over the last 3-4 years, the internal dynamics of the U.S. pay-TV industry have been gradually shifting from cable TV operators to large telecom operators and low-cost over-the-top service providers. Extensive network of fiber-based video services from telecom operators and the strong presence of online video streaming providers such as Netflix Inc. NFLX, Hulu.com, YouTube etc., have become a severe threat to cable TV operators.

These online video streaming channels provide an extremely cheap source of TV programming unless the customer is eager to view real-time programs like sports events. This business model is gaining momentum, even during economic uncertainties and have proven to be a threat to the pay-tv industry’s business.

The industry has been losing customers to wireless telecom operators and online streaming service providers. Leading cable multi service operator and media giant Comcast Corp.’s CMCSA NBC Universal segment fared well, but its Cable business is suffering from subscriber losses. The company added a net of 175,000 high-speed internet customers but lost 34,000 video customers and 22,000 voice customers in the reported quarter.

Charter Communications Inc.’s CHTR commercial segment also fared well, which is evident from the revenue and subscriber growth in the reported quarter. However, the company lost 90,000 video customers in the residential segment. It is the second cable MSO after Comcast.

The domestic multi-channel video market has also become extremely saturated and intensely competitive. Moreover, the US. pay-TV industry remains affected by the ongoing massive consolidation between telecom and cable TV operators to strengthen their base.

In order to cope up with the loss and remain competitive in the market, pay-TV operators have started offering internet TV services with selected TV channels at cheaper rates.

Telecom and pay-TV behemoth AT&T Inc. T had 38.8 million video subscribers (inclusive of 491,000 DIRECTV NOW) and 15.7 million broadband connections in the reported quarter. However, in the reported quarter, AT&T lost 195,000 U-verse customers and 156,000 satellite TV customers. DIRECTV NOW is the over the top (OTT) online streaming service of AT&T.

DISH Network Corp. DISH, the second largest satellite TV operator in the United States, lost 196,000 pay-TV subscribers in the reported quarter compared with a loss of 281,000 in the year-ago quarter. Moreover, the company lost 46,000 broadband subscribers in the reported quarter compared with a loss of 15,000 in the year-ago quarter.

However, the trajectory of subscriber losses in pay TV continues to point toward an unprecedented annual decline.

All the above-mentioned companies currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Industry Classification & S&P 500 Comparison

As per our Zacks Industry categorization, the Cable Television industry (part of pay-TV industry) falls under the broader Consumer Discretionary sector, which is one of the 16 Zacks sectors.

With such mixed prospects and strategic business ideas, the industry has gained 24.54% outperforming the S&P 500’s increase of 15.88%, over the past year.

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Netflix, Inc. (NFLX) : Free Stock Analysis Report
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