Growth in New Digital Pay-TV Services Slows Cord Cutting

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NEW YORK – The rate of growth for cord cutting from traditional pay-TV services remained at 3.4 percent in 2018’s first quarter, the same rate in 2017’s fourth quarter, reports MoffettNathanson Research.

However, when taking into account new subscriptions for virtual multichannel video programming distributors (vMVPDs), overall pay-TV cord cutting growth declined to just 0.5 percent – the lowest rate of decline since fourth-quarter 2015. 

Analysts say AT&T illustrates the dynamic at play with a first-quarter gain of 312,000 subscribers to DirecTV Now more than offsetting losses sustained by DirecTV and U-verse. 

Both AT&T and Dish Network used their first quarter earnings calls to tell investors that new features, such as cloud DVR, as well as improvements in advanced advertising, will provide new revenue streams for vMVPDs.

In the company’s earnings call last month, AT&T CFO John Stephens said the company actually had more subscribers today than it did two years ago because of the success of DirecTV Now.

Craig Moffett, senior research analyst at MoffettNathanson, says operators of media networks are now getting paid more (a higher per-subscriber affiliate fee). 

“That’s not to say a skinny bundle is a perfect replacement for a fat one – remember, not every network is in every vMVPD bundle – but it’s a whole lot easier to face a future where 70 percent or 80 percent of all cord cutters are still paying for a streaming video bundle, even if it’s a skinny one, than to face a future where, say, more than half of all cord cutters are lost entirely to the ecosystem,” Moffett says.

MoffettNathanson also found that new U.S. household formations in the first quarter declined by more than 200,000. “The stronger the growth in new households, the higher the expected number of pay-TV subscriptions,” Moffett says.

Estimates are vMVPD subscriptions grew by 562,000 in the first quarter – now totaling 5.15 million. This follows a 772,000-sub rise in fourth-quarter 2017 and a 956,000 gain in 3Q 2017.

Total traditional pay-TV subscribers now total 92.17 million. When including vMVPDs subs, the total rises to 97.32 million.

Moffett says TV networks may be gaining due to new digital network bundles.

“Given that vMVPDs generally pay higher prices (per subscriber) than their larger linear peers, cord-cutting may actually be even better than relatively painless. At least for the most widely-carried network groups, it may actually be a net plus,” he says.