Video Subscriber Numbers Continue Slide, Though Some MVPDs Stanch Flow

New Charter on a pro forma basis lost 152,000 video subscribers during the most recent quarter, compared with 170,000 in Q2 2015, the company said, announcing its quarterly results this week (see 1608090034). Comcast's 4,000 video subscribers lost in Q2 was its best second-quarter results in more than a decade, CEO Brian Roberts said, saying the company added 90,000 video customers over the past 12 months, "a remarkable improvement in the face of significant competitive and technological change." In Q2 2015, the company lost 69,000 video customers, and 144,000 in Q2 2014. Verizon had 4.64 million Fios video subscribers in the quarter, up 1.6 percent year over year.

AT&T, even with an additional 342,000 DirecTV satellite subscribers during the quarter, saw its total video subscribers down 42,000 on big drops in U-verse (see 1607210056). And Dish Network's video subscription decline picked up steam, with 281,000 video subscribers lost in Q2 vs. 81,000 year over year (see 1607210040).

Pay TV likely peaked in 2014, given relatively modest housing starts, the growing cost of subscribing, the large number of millennials living with their parents and the growth of pay-TV alternatives, wrote Pivotal Research Group analyst Jeffrey Wlodarczak in a note this week. Overall pay-TV subscriptions were down 660,000 in the quarter, 19 percent greater than the Q2 2015 declines, he said. The growth of skinny bundles and over-the-top alternatives is giving cable distributors "leverage against their content brethren" since it incentivizes content owners to support fat programming bundles and to keep consumer costs "relatively constrained" so as not to drive them to cord shaving, he said.

Smaller operators' subscriber trends are generally consistent with the trends of larger operators, American Cable Association President Matt Polka emailed us. Both smaller and larger cable operators are experimenting with ways to slow subscriber losses, such as through offering set-top boxes like TiVo and Arris Moxi that give subscribers access to OTT services like Netflix and Hulu alongside their linear video services, he said. Arris is ending Moxi hardware and software support and service effective Friday, with the devices losing some functionality, though they continue to work as video navigation devices, it said on its website.

Despite its cable subscriber numbers dropping 15 percent in the past 12 months, CableOne financial results were up because of residential broadband and business service growth, CEO Tom Might told analysts earlier this month. "There is very little cash flow ... left in the linear video business model for most small operators." Might said CableOne started a $5 broadcast TV surcharge on video customers earlier this summer to help cover the cost of growing retransmission fees. WideOpenWest ended the quarter with 524,000 video subscribers, roughly a 10 percent drop from Q2 2015. Mediacom's 842,000 video subscribers were down 11,000, a slight improvement over the 12,000-subscriber loss in Q2 2015.

Mediacom's numbers are a big improvement over three to four years ago, when the declines were far steeper, Mediacom Senior Vice President-Government and Public Relations Tom Larsen told us Thursday. Customer churn has declined due to the TiVo service Mediacom added, he said, saying the cable company also benefited from DBS losing market share. Those market dynamics -- cable slowly losing video customers, DBS doing so more quickly -- is the new norm, he said: "The days of [video customer] gains are long gone. The price is too high."

The traditional MVPD business still has a long tail, Moffett told us. "The reason cord cutting hasn't happened faster speaks to supply rather than demand," he said. "Cord cutting will go mainstream when the content providers decide they want it to, and right now it is not clear why they would want it to." Meanwhile, among MVPDs, cable has arguably the rosiest prospects because of its infrastructure allowing two-way interactivity, unlike DBS, Moffett said.

Other analysts are less bullish on MVPDs. The top 8 MVPDs lost 705,000 subscribers in the past four quarters vs. 59,000 in the period ending June 2015, BTIG's Richard Greenfield wrote Thursday. He blamed the roughly $80-plus per month average revenue per user for the exodus, saying “inflexible packaging and a dizzying number of add-ons and surcharges” are driving consumers to seek less expensive alternatives. Increased cord-cutting and cord-shaving also reinforce BTIG’s belief that antenna households using streaming devices are rising fast, although off a low base, Greenfield said. BTIG doesn’t believe MVPD subscribers will “collapse” in the near term, but “we see no reason why subscriber trends will not continue to worsen” from the current 1 or so percent annual declines, the analyst wrote. The trend could lead to a 3 percent drop in video subscribers by the end of 2017 -- and possibly 4-5 percent at the end of 2018 -- said Greenfield.

The linear pay-TV industry "is a mature, declining business -- it's clearly been a declining business at Dish for a while," Dish CEO Charlie Ergen said in an earnings call last month. Dish has focused on profitability of individual customers, he said: "That was never an issue 10 years ago, but that's an issue, as competition has come online, that wasn't there against DBS. [Over the top] is certainly competition, but the cable industry is much stronger now because broadband now is a necessity for consumers, even in a way beyond where video is." He also said its OTT offerings like Sling are "kind of where the needle is going to move."