Cord-Cutting in Surprising Q3 Slowdown: Analyst

Cord cutting
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With third-quarter earnings nearly in the books, it looks like cord-cutting was surprisingly slow, according to a report from Wells Fargo analyst Steven Cahall

By his calculations, total pay TV subs declined by just 105,000 in the third quarter compared to the second quarter, Cahall said. 

At the same time,  the U.S. subscription video-on-demand (SVOD) market is only a few hundred basis points off of saturation and from here, subscriber growth will be predicated on the expansion of services utilized per household, he said. 

Cahall said the cord-cutting slowdown was helped by gains at the virtual multichannel video programming distributors (MVPDs). Linear subscribers were down 7% while total subs were down just 5%.

On earnings calls, broadcasters said they were seeing declines of less than 5% while on the cable side, programmers report that their fully distributed networks were down  about 3%.

At this point, Cahall expects that pay TV subs will be down 4.8% for 2021 to $85.6 million subscribers, 10 basis points better than last year’s decline.

As pay TV subs are declining, streaming subs are increasing, but not as fast as they had been, or as fast as Wall Street expected.

"Netflix exhibiting minimal sub growth in the United State and Canada is suggestive of this trend,” he said. 

Disney stock dropped on Thursday after the company reported slower growth for its direct to consumer services on Wednesday.

For 2021, Wells Fargo estimates there will be around 317 million direct-to-consumer subs across the U.S., up from 250 million in 2020, Cahall said. That puts penetration at 85% versus 81% last  year.

“Our net/net takeaway is that there‘s less headroom for streaming services to grow than the potential decline in universe pay TV subs,” he said. “Over the next four years we think SVOD households will grow by 8 million while pay TV sub losses will be 18 million.”

That’s not great for the industry from a financial point of view. 

“Since we think that streaming tends to be lower ARPU, the linear to streaming transition still likely means flat/down earnings for the medium-term,” Cahall said.

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.