Magazine article Variety

Can Pay TV Save Itself from Extinction?

Magazine article Variety

Can Pay TV Save Itself from Extinction?

Article excerpt

THE SLOW-MOTION CRUMBLING of pay TV has suddenly started to look like a looming avalanche. The unprecedented surge in cord-cutting during the first three months of 2017 has heightened Wall Street fears that the industry's enormously profitable big bundle of channels is coming apart at the seams - for real this time.

Add to that the debut last week of Hulu's internet TV service - priced at a low $40 per month for some 50 channels - which excludes cable programming groups like Viacom, AMC Networks and Discovery Communications. The cheap bundle, along with similar offerings like DirecTV Now, Sling TV and YouTube TV will roil the sector more massively if consumers decide that they can live without 300-plus channels.

The first quarter's estimated net decline of 762,000 traditional U.S. cable, satellite and telco TV customers was the worst to date, analyst firm MoffettNathanson noted. Since the first quarter of 2014, distributors have lost a cumulative 6.55 million customers. Even factoring in the growth from virtual skinny internet bundles, the sector has declined at an annual rate of 1.3%.

The numbers are too big to dismiss, and media stocks were punished last week as investors concluded that pay TV's best days are probably behind it. Less diversified programmers like Viacom, AMC Networks, Discovery Communications and Scripps Networks Interactive are considered the most at risk.

"This was supposed to be the quarter that media bounced back," noted analyst Craig Moffett. Now that the long-held expectation that pay TV subscriber losses would turn into a serious problem has finally come to pass in the first quarter, he opined, "the industry can't resist change anymore. The future has arrived."

The dramatic acceleration of subscriber losses in the quarter exacerbated existing concerns over worsening TV ratings declines this year, UBS analyst Doug Mitchelson wrote in a research note. He theorized that price hikes by traditional providers at the start of 2017 - a nearly annual rite for cable and satellite operators due to escalating programming costs - might have had a significant effect on cancellations.

The internet, of course, is responsible for this overdue disruption of the cable and satellite TV biz. Netflix says that it streams 250 million hours of video daily, and YouTube users consume some 1 billion hours per day. That already siphons off loads of -> - time normally spent watching the traditional tube, reducing the overall value of cable and satellite TV And with several networks - HBO, Showtime and CBS among them - already offering their own Netflix-style over-the-top services, millions have realized they don't need to pay for a big bundle.

Programmers had hypothesized they could make the leap to the internet TV era through existing OTT providers, enabling them to reach the portion of the populace that has never paid for television or had cut the cord.

But that's not really how it's playing out: The new skinny bundles have mainly been luring customers away from older distributors. "My belief is that OTT [services] will take share away from pay TV," Dish chairman and CEO Charlie Ergen told analysts last week. "So satellite and cable will be smaller five years from now than they are today."

Ergen also pointed out that the strategy of skinny-bundle providers has been to undercut the retail pricing of the incumbents, taking far lower margins - or a loss - to gain traction. …

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