Pay-TV Users Are Bailing Faster Than Ever, Clouding Media Stocks
Cable, satellite providers lose half a million subscribers
(Bloomberg) -- U.S. cable and satellite-TV providers suffered their worst first quarter of subscriber losses in history, raising fresh concerns that cord-cutting will accelerate and drag down media stocks.
Charter Communications Inc., Dish Network Corp., AT&T Inc.’s DirecTV and Verizon Communications Inc. combined to lose almost half a million video subscribers in the period, as more consumers spurned the cost and clutter of traditional pay-TV packages for cheaper online alternatives. Only Comcast Corp. added customers.
The results indicate that consumers may be growing more aware of on-demand streaming services like Netflix and Amazon and the increased depth their content offerings -- and that may be spurring more cord-cutting in 2017. Major pay-TV operators lost 1.4 million subscribers last year, according to Bloomberg Intelligence.
“If this is in fact the case, then media stocks, up 7 percent year-to-date, on average, could be due for a derating as further information is digested,” Steven Cahall, an analyst at RBC Capital Markets, wrote in a note Tuesday. Walt Disney Co. led media stocks in a meltdown in 2015 after acknowledging that its flagship ESPN sports network was losing subscribers as viewers traded down to lower-priced TV options. The stock has mostly recovered.
Consumers are also getting more knowledgeable about online live-TV services as well. At least a half dozen companies, including Hulu, AT&T, Dish, Sony Corp. and Google’s YouTube are convinced they can lure people back to live TV packages by offering a slimmer selection of channels at a lower cost than the average cable package. They’ve also all tried to improve upon the presentation of on-demand programs.
“This could be leaving more households on the sidelines,” Cahall added, as they wait and see what these services can offer.
At Charter, which has been busy working to integrate the acquisitions of Time Warner Cable and Bright House Networks, executives are seeing a shift in market share from satellite providers DirecTV to Dish to cable operators, according to Chief Executive Officer Tom Rutledge.
Comcast, the largest cable operator in the U.S., added pay-TV customers for the fifth time in the past six quarters, likely at the expense of the satellite-TV industry. Charter, the second-biggest cable provider, shed 100,000 video subscribers in the quarter because Time Warner Cable relied heavily on promotions that are ending, and Charter depends less on offering temporary discounts to lure customers.
“There is a general decline in the marketplace that is mostly price-driven, and I think that those trends are unlikely to change in the near term but not to particularly accelerate,” Rutledge said on a conference call Tuesday. Shares of Charter fell as much as 3.2 percent to $333.20 in New York Tuesday, the biggest intraday decline in three months.
The Stamford, Connecticut-based company, backed by billionaire John Malone, is expected to rebound as customers sign up for new packages at new prices. Rutledge also said he’s confident that Charter can also differentiate its service offerings from over-the-top video providers that have become so popular with consumers.
“None of them have a product that is better than ours that we can see in the marketplace,” said Rutledge. “So, we expect to succeed in the marketplace going forward.”
One bright spot for Charter in the first quarter was its internet business. After all, to subscribe to online video services that have become increasingly popular around the world, you need fast a broadband connection.
The company added 428,000 residential internet subscribers in the quarter on a pro forma basis, compared with 520,000 a year earlier. Three analysts surveyed by Bloomberg predicted a gain of 388,000 customers, on average.
The company is also planning to integrate Netflix Inc.’s service into its user interface and is in talks with YouTube to do the same, just as Comcast has done recently.
--With assistance from Scott Moritz
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