Cord cutting has operators backpedaling; time to turn around and sprint to the wall

By Jim O'Neill on May 14 2015 at 10:45 AM
Cord cutting has operators backpedaling; time to turn around and sprint to the wall

Baseball outfielders know that when a ball is hit hard and looks like it’s going over their heads that they should turn their back to the plate, run like hell to where they think the ball is going to be, turn, acquire it in the air, and make a play.

Simple, right?

It’s a concept that seems to have escaped pay-TV operators.

The ball, in this case, is OTT, and it’s been ripped, and is on a line-drive trajectory for the centerfield fence.

Operators, despite a few underwhelming reactions, are just back peddling; they need to sprint to the wall if they hope to make a play.

Today, yet another report made it clear pay-TV operators are looking at another tough year in terms of subscriber retention.

Leichtman Research Group says operators gained just 10,000 subs in the first quarter, compared to the 250,000 subs the industry added in Q1 2014, a 96% decline year-over-year.

LRG said the 13 largest pay-TV providers in the U.S. had the weakest first quarter for pay-TV net adds since LRG began tracking the industry over a decade ago.

Leading the losses: Cable operators, which dropped 60,000 video customers compared to losses of 50,000 a year ago.

Satellite operators, meanwhile, saw their worst first quarter ever. Last year, Dish and DirecTV added 52,000 subs; this year they dropped 74,000.

Telcos had their worst quarter for video sub adds since, well, pretty much forever. First quarter adds were the lowest since Q4 2006, when the industry was just rolling out IPTV technology. And, they were down from a year ago, too, adding 140,000 subs in Q1 compared to 251,000 subscribers in Q1 2014.

Over the past dozen quarters or so, telcos and satellite additions have generally made up for losses cable suffered; some analysts saw it simply as a shift in market share, or they blamed the economy, uniformly pooh-poohing the idea that SVOD services like Netflix were having an impact, or that cord cutting was even happening.

Now, however, they’ve changed their tune, increasingly pointing to new SVOD services and cloud TV offerings as being more appealing to consumers, especially younger consumers.

Welcome to reality

Yes, there still are more than 95 million Americans who subscribe to pay-TV. But losses are deepening (and margins on video are getting smaller).

In the past 12 months pay-TV subscriber erosion has continued to worsen with providers losing about 370,000 subscribers – compared to a loss of about 65,000 subscribers over the prior year.

Earlier this week, MoffettNathanson, which in general has been bullish on subscriber numbers, said about cord cutting: “It’s not too soon to be genuinely worried.”

No kidding. The pay-TV industry is facing a full-on subscriber crisis that they haven’t been willing to acknowledge and are getting a late jump on a ball that has been developing for at least four or five years.

But, calmed by analysts who relied on historical data, rather than factoring in the changes that were occurring both in technology and in consumer demand, they’ve been patiently waiting for those trends to reverse themselves.

Good luck with that, because it’s a fantasy.

For service providers, it’s time to turn their backs on that ball and sprint to the wall… there’s still a chance to make a catch. Maybe.

Stay tuned.

Follow me on Twitter @JimONeillMedia and on LinkedIn

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