The popular narrative is that Q1 2017 pay TV losses were due to an increase in cord-cutting by consumers. Bruce Leichtman says its pay TV marketing, not cord-cutting, that’s to blame.
Chapter 1: Leichtman Q1 2017 pay TV results (1:30)
Bruce runs down his Q1 pay TV results and how he calculates them. He says the top pay TV providers lost 410,000 subs, even when you include Internet vMVPD subscribers in the total. This is the first time the industry has ever lost subscribers in the first quarter.
He says this loss is because the operators didn’t put as big a focus on signing up new customers, as they have in past. There is always a certain number of people that leave pay TV. Since that number didn’t change, but the number of new subscribers did, the industry upended the normal gain.
Chapter 2: Are operators happy to see the low value customers go? (5:45)
I wondered if the operators were making the strategic decision to let the low value, high churn customers leave. Bruce says that satellite providers must pay subscriber acquisition costs (SAC) of $850-$900. Since Dish and AT&T now have vMVPDs, where SAC is very low, he speculates that perhaps it makes more sense for them to go after the low margin churning satellite subscribers with DirecTV Now and Sling TV.
Chapter 3: How much of the loss was due to less marketing by operators? (7:40)
Will asked Bruce to give more details on his thinking behind the marketing tactics of pay TV operators. Bruce confirmed that the number of people that left pay TV in Q1 really hasn’t changed much from year past. In other words, less aggressive marketing by the operators is more likely the cause of the decline, not cord cutting. Someone that does not subscribe to pay TV isn’t necessarily a cord-cutter.
However, when people leave pay TV today, they have a much better selection of services to fill the void than they did in the past. In other words, they are less likely to want to come back.
Chapter 4: Why is Comcast bucking the trend? (11:00)
Bruce says the cable industry had a better year in 2016 than any year since 2006. Bruce views X1 as a retention device, which is a good idea when the overall industry is in decline.
Chapter 5: Broadband grew strongly again (14:00)
Top providers now have 93.9M broadband subs, which is more than the number of pay TV subscribers. Providers added 1M broadband subscriber in Q1. Bruce says some companies, like Cable One, are focused on broadband over pay TV because it is a higher margin business. Many of the others remain focused on the triple play.
Chapter 6: Connected TV growth (16:30)
69% of households now have at least one connected TV. The broadband pipe changes the dynamics of the usage of devices. In households that have 3 TV, 90% have pay TV. For homes with one TV, two-thirds have pay TV. Bruce thinks that single person households are more likely to cut-the-cord. He thinks this because there is less chance that someone in the household will miss one of the channels only available through pay television.
Chapter 7: Thoughts on the rest of 2017 (20:00)
Bruce thinks we are in a new normal. Q2 is usually pay TV’s worst quarter, but other market changes might change the usual behaviors of consumers and the pay TV operators