nScreenMedia OTT multiscreen media analysis

vMVPDs deliver subs not profit for Dish/AT&T

US pay tv homes Q1 2012-2018

Over the last year, the number of homes with cable, satellite, and telco TV fell 3.7 million while the number of homes without grew 4.9 million. At AT&T and Dish Network, vMVPDs made up for most of the subscriber losses, but at a lower profit margin.

Cable, satellite and telco TV all declined

The total number of traditional pay TV homes in the US fell from 96.2 million in Q1 2017 to 92.5 million in Q1 2018. The decline of 3.7 million is the biggest decline ever in the industry. Most of the burden fell on satellite and telco TV. Both sectors lost 6% of their subscribers over the last year. Satellite closed Q1 2018 with 31.1 million (down 2 million year-over-year) and telco ended with 9.2 million (down 600,000.) Cable TV held up considerably better, losing 820,000 subscribers, a decline of 1.7%.

Recently, cable has been weathering the storm of cord-cutting much better than either satellite or telco TV. In Q1 2015, cable’s share of pay TV homes stood at 51.7% but improved to 54.2% in Q1 2018. Meanwhile, telco TV has given up 2% of its share of pay TV subscriptions, while satellite has fallen a modest 0.7%.

Household penetration sinking fast

The number of occupied homes in the US has grown strongly since Q1 2016. Over the last two years, the country has added almost 2.5 million new occupied homes, and the number has swelled 5.3 million since 2014. The strong growth in new households means pay TV penetration has fallen faster than the number of subscribed homes would suggest.

Between Q1 2017 and Q1 2018 cable, satellite, and telco TV penetration of US households tumbled 4%, to reach 77%. In 2014, pay TV penetration was 10% higher.

Virtual MVPDs picking up many of the cord cutters

pay TV vMVPD gains losses Q1 2017 2018AT&T and Dish Network are relying on their vMVPD offerings to pick up their pay TV subscribers as they leave. To some extent, this strategy is working. For example, Dish satellite service lost 1.33 million subscribers between Q1 2017 and Q1 2018. Sling TV gained 0.95 million. AT&T did slightly better. DirecTV satellite and U-Verse TV lost 1.13 million subscribers over the last year, while DirecTV Now gained 1.09 million.

Overall, the vMVPD industry is not doing as well as AT&T and Dish. There were zero vMVPD subscribers in Q1 2014 (Dish launched Sling TV in January 2015.) Through Q1 2018, traditional pay TV operators lost 8 million subscribers while the vMVPD industry has grown to approximately 5 million.

It is also not clear that swapping a pay TV subscriber for a vMVPD customer is a good deal for a pay TV operator. nScreenMedia calculations suggest some vMVPDs may barely be making a profit, especially if the operator is providing broadcast channels in their bundles. For large traditional operators, like Dish Network and DirecTV, though satellite profitability has eroded considerably due to escalating programmer license fees, the businesses remain solidly in the black.

Why it matters

Cable, satellite, and telco TV lost 3.7 million subscribers between Q1 2017 and Q1 2018.

Household penetration fell to 77.1%, down from 81% one year ago.

vMVPD has been effective at picking up many of the defecting subscribers.

Profitability of vMVPD services is liable to be much lower for AT&T and Dish than their traditional business.

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