The Cable Industry's Ingenious 'Solution' To TV Cord Cutting? Raise Broadband Rates

from the Comcastic dept

In a healthy, competitive market, cable providers would respond to the growing threat of streaming video competition by lowering prices, improving their historically awful customer service, and giving consumers more flexible cable bundles.

But because these same cable operators enjoy a growing monopoly over the uncompetitive broadband market -- they don't have to do that. Instead, they've found that the easiest response to added competition on the TV front is to impose a relentless array of rate hikes on captive broadband customers. There's a myriad of ways they accomplish this, ranging from misleading hidden fees that jack up the advertised price (something they're being sued for), to usage caps and overage fees (which let them not only charge more money for the same service, but hamstring streaming competitors via tricks like zero rating).

But with the U.S. entering a period of rubber stamp regulators, and a lack of telco upgrades resulting in less competition than ever, Wall Street is pressuring cable operators to also jack up the standalone price of broadband services outright. New Street Research analyst Jonathan Chaplin recently predicted that a lack of broadband competition could allow cable providers like Comcast to double already expensive broadband prices over the next year. UBS analyst John Hodulik issued a research note the same week stating that cable operators should specifically jack up the price of standalone broadband service to $80 to $90 per month.

Not too surprisingly, cable operators are already heeding these demands. Analysis from Morgan Stanley this week indicated that cable operators had already hiked the cost of standalone broadband 12% from last year's rates:

"In a note to clients Tuesday, Morgan Stanley said that based on its own survey, cable TV companies hiked broadband prices by 12% to $66 monthly from a year earlier for customers that buy only high-speed internet and not a TV package.

"As video revenue growth is increasingly pressured, leaning on data pricing is tempting to sustain earnings," said Benjamin Swinburne, a Morgan Stanley analyst in a report."

Tempting, indeed. Especially when there's neither healthy market competition nor regulatory oversight there to stop companies like Comcast and Charter from doing so. Of course this is before you factor in all manner of additional costs that await consumers over the next few years, from the problems that will be caused by the mindless gutting of popular net neutrality protections, to the Trump administration's gutting of privacy rules that would have stopped ISPs from their stated goal of charging users more money if they want to protect their own privacy.

And instead of creating policies aimed at improving competition in what's clearly not a healthy market, the Trump administration's FCC is engaged in the mindless gutting of consumer protections, and the manipulation of data to try and pretend the broadband market's obvious problems don't actually exist.

Filed Under: cable, cord cutting, fees, prices

AT&T Spent Hundreds Of Billions On Mergers And All It Got Was A Big Pile Of Cord Cutters

from the synergies,-yo dept

Over the last few years AT&T and Verizon have been desperately trying to pivot from stodgy, protectionist old telcos -- to sexy new Millennial media juggernauts. And while this pivot attempt has been notably expensive, the net result has been somewhat underwhelming. Verizon, for example, spent billions to gobble up AOL and Yahoo, but its lack of savvy in the space has so far culminated in a privacy scandal, a major hacking scandal, a quickly shuttered website where reporters couldn't write about controversial subjects, and a fairly shitty Millennial streaming service even Verizon's own media partners have called a "dud."

AT&T's efforts have been notably more expensive, but just as underwhelming. The company first decided to shell out $70 billion for a satellite TV provider (DirecTV) on the eve of the cord cutting revolution. And the company's putting the finishing touches on shelling out another $89 billion for Time Warner in a quest to gain broader media and advertising relevance. That was paired with the launch of a new streaming service, DirecTV Now, which the company hoped would help it beat back the tide of cord cutting.

But things aren't really working out quite like AT&T planned. The company's stock took a beating last week after it acknowledged it would be facing a 390,000 reduction in pay TV subscribers this quarter. AT&T, in an 8K filing with the SEC, tried to partially blame hurricanes for the mass exodus occurring at the company:

"The video net losses were driven by heightened competition in traditional pay TV markets and over-the-top services, hurricanes and our stricter credit standards. The decline of traditional video subscribers negatively impacts our Entertainment Group revenues and margins, resulting in an adjusted consolidated operating income margin that will be essentially flat versus the year-ago third quarter."

Unmentioned is that AT&T also lost 351,000 pay TV subscribers the quarter before, as the company gets hit harder by cord cutting than most pay TV providers. One of the real reasons for these departures? While AT&T was willing to spend hundreds of billions on megamergers, it has spent the better part of the last decade (especially in places where poor people live) neglecting necessary network upgrades. As a result, in countless markets Verizon & AT&T users on last-generation DSL lines are switching to cable providers for faster broadband, and bundling cable TV service that's priced cheaper than broadband alone.

In short AT&T neglected its core business in order to daydream about matching Google or Facebook's ad revenues, but (so far) lacks the core competency to jump the gap from telecom to Silicon Valley-esque Millennial marketing. Both AT&T and Verizon have spent so many years operating as government-pampered protected duopolies, they believed they could pivot on a dime, ignoring that years of regulatory capture left them with only a few key skills: charging too much for too little, lobbying to thwart competition and bullshit.

To its credit, AT&T was at least willing to take a risk and launch DirecTV Now, a streaming alternative. And while the company did manage to add 300,000 streaming customers on the quarter, those users pay a fraction of what traditional cable TV customers do - and AT&T still saw a net loss of 90,000 pay TV users. Still, most other incumbent pay TV providers have responded to the cord cutting threat by raising cable TV rates (ingenious!) or by pretending to keep pace via the launch of streaming alternatives that are intentionally designed to be underwhelming, lest they cannibalize more lucrative legacy customers.

One of the core problems here is that Wall Street isn't satisfied with ISPs simply doing a good job and making a reasonable profit. The relentless, myopic need for quarterly improvements has companies like AT&T and Verizon trying to use megamergers and vertical integration to magically elbow their way into markets it's unclear they lack the competency for. And only after mindlessly cheering these deals do some Wall Street analysts realize some of these arrangements don't even make coherent business sense given the current market climate:

"Though the company partly blamed recent hurricanes for these trends, MoffettNathanson analyst Craig Moffett notes that weather was only the third of four reasons that AT&T listed. “Heightened competition in traditional pay TV markets and over-the-top services” came first. In other words: cord cutting. “It is becoming increasingly clear that the wheels are falling off of satellite TV,” he writes, meaning that Dish Network might announce similar results."

In an ideal world, AT&T would realize its core competencies (building and maintaining wireless and fixed-line networks) should take priority. That $70 billion spent on buying a doomed satellite TV company could have gone a long way in shoring up broadband service that in many regions still doesn't even meet the FCC's base 25 Mbps definition. But in the world we live in that's simply not sexy enough for Wall Street, and the need to grow simply for growth's sake will likely result in AT&T making even more expensive deals of dubious net benefit down the line. Next up: Waffle House?

Filed Under: broadband, cable, competition, cord cutting, dsl, mergers, satellite, tv, video
Companies: at&t, directv

Yet Another Report Says The Rate Of TV Cord Cutting Is Worse Than Anybody Thought

from the not-just-a-river-in-Egypt dept

For years the traditional cable and broadcast industry has gone to comedic lengths to deny that cord cutting (getting rid of traditional cable TV) is real. First, we were told repeatedly that the phenomenon wasn't happening at all. Next, the industry acknowledged that sure -- a handful of people were ditching cable, but it didn't matter because the people doing so were losers living in their mom's basement. Then, we were told that cord cutting was real, but was only a minor phenomenon that would go away once Millennials started procreating.

Of course none of these talking points were true, but they helped cement a common belief among older cable and broadcast executives that the transformative shift to streaming video could be easily solved by doubling down on bad ideas. More price increases, more advertisements stuffed into each minute, more hubris, and more denial. Intentional blindness to justify the milking of a dying cash cow -- instead of adapting.

But we're slowly but surely reaching the point where the rise of the streaming video revolution can't be denied, with data indicating it's worse than anybody thought. While the pay TV sector lost another 1 million subscribers last quarter, those totals don't factor in those that bought a new home or rented a new apartment, but chose not to sign up for cable. Many of these folks are dubbed "cord nevers," having never bought into the value proposition of paying $130 more per month for a bloated bundle of largely-unwatched reality TV channels from a company that treats paying customers with disdain.

Meanwhile, a new report by eMarketer this week indicates that the pace of customer defections is notably higher than most previous estimates. The firm notes that it was forced to reduce its estimate for US TV ad spending due to faster-than-expected growth in cord-cutting:

"eMarketer expected a slowdown this year in TV ad sales, after 2016 benefited from both the Olympics and US presidential election,” said Monica Peart, eMarketer’s senior forecasting director. “However, traditional TV advertising is slowing even more than expected, as viewers switch their time and attention to the growing list of live streaming and over-the-top [OTT] platforms.”

All told, the firm predicts that by the end of this year, there will be 22.2 million consumers over the age of eighteen that have cut the cord, up 33.2% since 2016. And while there's still a whopping 196.3 million US adults that subscribe to traditional pay TV (cable, satellite, or telco), that tally is down 2.4% over 2016 levels, with the defection rate only accelerating. The cause? A strange idea known as competition and, by proxy, lower prices:

"The acceleration of cord-cutting is the result of several factors,” said eMarketer principal analyst Paul Verna. “First, traditional pay TV operators are increasingly developing streaming platforms, such as Dish Network’s Sling TV. Second, networks such as HBO and ESPN have launched standalone subscription services that allow users to tap those channels without a cable subscription. And third, digital players like Hulu and YouTube are now delivering live TV channels over the internet at reasonable prices—including sports properties that were previously available only through traditional distribution.”

As we've long noted, it wouldn't be particularly hard to nip this entire revolution in the bud. Entrenched cable providers simply have to shore up their abysmal customer service and lower rates for legacy TV. And while a few cable and broadcast executives are finally starting to get it, most would rather double down on lip service, bad ideas and price hikes in the false belief they get to nurse the dying cable cash cow in perpetuity.

Filed Under: cable, cord cutting, internet, tv

Tech Journalists Keep Completely Missing The Point Of Cord Cutting

from the buy-ALL-the-things! dept

It has become the laziest "hot take" in technology media. Once a month or so, a writer decides to subscribe to as many streaming video services as possible. They then proudly declare that this whole cord cutting thing (ditching traditional cable TV for streaming video) is a waste of time. Why? For whatever reason, these writers feel compelled to try and use streaming alternatives to perfectly mirror the existing, bloated cable bundle consumers have spent two decades complaining about, only to shockingly wind up disappointed by the cost (gosh, it's almost as if broadcasters dictate the pricing for both services!).

Each time one of these stories pops up (from Gizmodo to USAToday,) we note how these writers are completely missing the point. Cord cutters aren't trying to precisely mirror traditional cable bundle, they're simply looking for greater flexibility. Cord cutting provides just that, in that if you don't like sports -- for example -- you don't have to subscribe to any services that offer it. As such, "cord cutting is really expensive when I subscribe to every streaming service in the known universe" is just an odd narrative that just keeps bubbling up across various media outlets despite not really making much sense.

The latest culprit is the New York Post, which recently penned a missive declaring that "streaming TV is getting as bad as cable." Why? Again, it's apparently because when you sign up for every streaming service imaginable, it starts to get somewhat expensive:

"Home entertainment is really starting to add up. Want to watch “The Crown,” “The Handmaid’s Tale,” “Transparent,” “Game of Thrones” and “Homeland”? Prepare to drop $51 a month — minimum. And that number doesn’t even include your Internet package or basic options such as Food Network, Travel Channel and Syfy.

And just when we thought we’d reached maximum capacity, in September, CBS will resurrect “Star Trek” for a new series called “Discovery.” Fans rejoiced at the announcement — they’d been without a “Trek” series for 12 years — until they made a rude discovery of their own: The new show would only be available on the CBS All Access app. That’s $5.99 a month to basically watch one show. Absolutely nobody is signing up for the “NCIS” reruns. So now we’re at $57 a month.

So, several things. One, $57 a month is still significantly less money that what many people pay for cable. Two, writers like this ignore a number of obvious realities that can lower your costs further, including the fact that countless people share streaming service passwords (something most streaming companies don't care about because they see it as free advertising). You also need to factor in things like over the air antennas (and the rising number of solutions that let you record this content to DVR), which provide additional options for less money -- or free.

Writers like this also hysterically like to avoid so much as mentioning piracy. Too many writers bizarrely act as if you're not allowed to even acknowledge piracy exists because it's naughty. But if you're "analyzing" how much it costs for an ordinary consumer to get TV content and you're not factoring in piracy, you're missing a fairly massive part of the overall picture. It doesn't really matter if you or your publisher don't like it, or don't think people should be doing it. It's happening, it's part of the overall cost-saving picture, and it's something companies have to compete with. Yet it's never even mentioned in these reports.

That said, journalists pushing the "if I buy everything in the store it gets expensive" narrative are missing the most important point: actual consumers repeatedly say cord cutting saves them significant sums of money each and every month. And if any of these writers had actually bothered to, say, talk to actual cord cutters, they would tell them the same thing.

Every time a story like this pops up I enjoy heading over to Reddit where users quickly point out how cord cutting is saving them plenty of money. Why? Because it provides something most traditional cable providers aren't willing to: flexibility and choice. With cord cutting, the end user gets to decide how to best balance their viewing options to build a content package that works for them and their budget. That's in contrast to your cable provider, who'll consistently pay empty lip service to choice and flexibility, right before it raises both your cable bill and set top box rental fee.

Yet somehow the reality that consumers are truly saving money escapes these pearl-clutching authors. Like in this recent story at Wired pushing the same, stale narrative. One user at Reddit put their objection to these reports rather succinctly:

"I don't know why every article like this dives into recreating cable, and then laments that it's not that much cheaper than cable. He's way more concerned with watching channels than watching shows or entertainment."

Look, if you really like paying a significant sum of money for 500 channels to a company with a worse customer service rating than the IRS nobody's stopping you. In fact, if you truly need to access every shred of programming imaginable and have oodles of disposable income, cable remains your best bet. But the idea that cord cutting is somehow "failing" just because it's not good at mirroring the abysmal value presented by the traditional cable bundle makes no coherent sense. At the very least, the next time you proudly declare that cord cutting doesn't save consumers money -- perhaps talk to some actual consumers first?

Filed Under: cable, cord cutting, television

As A Streaming Future Looms, ESPN Is Damned If It Does, Damned If It Doesn't

from the rock-and-a-hard-place dept

So for years we've examined how executives at ESPN completely whiffed at seeing the cord cutting revolution coming, and personified the industry's denial that a massive market (r)evolution was taking place. As viewers were beginning to drift away from traditional cable and erode revenues, ESPN executives were busy doubling down on bloated sports contracts and expensive Sportscenter set redesigns. Only once ESPN lost 10 million viewers in just a few years did executives finally acknowledge that cord cutting was a problem, though they subsequently have tried to downplay the threat at every opportunity.

The question now is how to fix that problem. ESPN's first step was to try and save costs by firing oodles of on-air talent, but not the executives that failed to navigate this sea change. That has since been followed by ESPN-owner Disney recently proclaiming it would be offering two direct to consumer streaming platforms -- one stocked with Disney and Pixar fare, and the other being a direct to consumer ESPN product. During a recent earnings call, Disney CEO Bob Iger verbalized the company's slow epiphany in the face of cord cutting:

"We’ve got this unbelievably passionate base of Disney consumers worldwide that we’ve never had the opportunity to connect with directly other than through the parks,” Iger said. “It’s high time we got into the business to accomplish that.”

Iger acknowledged that the decision to act was spurred by the disruption in the traditional TV eco-system that has been rocking ESPN for the past few years. But Disney’s blue-chip brands give them a leg up in taking a radical new approach to reaching consumers.

“It’s not just a defensive movie, it’s an offensive move,” Iger said.

Granted it's not really playing offense when you only react after worries about cord cutting and ratings slides causes a $22 billion valuation hit in just a few days, something Disney experienced last year. Still, it's good to see Disney pull its head out of the sand and embrace the idea of giving consumers what they want, even if the move is painfully belated and under-cooked. The problem for ESPN specifically, as many have been quick to point out, is that the company is still stuck between a rock and a hard place in terms of navigating the transition to streaming -- even if it does everything right (which it won't).

There's plenty of reasons for that, the biggest being that streaming simply can't be as profitable as the long-standing practice of forcing cable TV customers on to bloated bundles filled with channels (like ESPN) that they may not want. ESPN currently makes $7.21 for each cable TV subscriber, many of which pay for ESPN begrudgingly. One survey found that 56% of ESPN viewers would ditch the channel if it meant saving that money off of their monthly bill. Fear of losing those customers was one of the reason ESPN sued Verizon when the company tried to take ESPN out of its core TV bundle.

And while ESPN may now be technically doing the right thing in finally offering a direct-to-consumer streaming product, such an offering will only aid to expedite viewer defections, while ESPN's sports licensing costs remain the same:

"A streaming service, while it might attract sports fans who have cut the cord, won’t solve ESPN’s profit problems. Instead it will exacerbate them. Why? Because ESPN will continue to lose the millions upon millions of cable subscribers who pay for it but never watch it. Losing $7.21 from each non-watcher is going to be a revenue killer. There is no possible way the universe of sports fans who want ESPN can make up that revenue, even if they’re charged more for a streaming service."

Traditionally, many cable and broadcast companies have tried to give the impression of adaptation by launching a streaming service, then saddling it with all manner of caveats to prevent existing, traditional cable TV customers from downgrading to the cheaper, more flexible streaming option. This really never works, but it looks like the path Iger and Disney are going to follow when it comes to ESPN's latest streaming venture:

"To make matters worse, Disney appears to be planning a streaming service that even the most rabid sports fan will be reluctant to pay for. All the good stuff — big-time college football, professional basketball, the Monday night National Football League game — will remain exclusively on ESPN’s cable channels. The streaming service will get, well, other things. It’s pretty clear that Iger is still trying to protect Disney’s legacy cable business, and that his move to the internet is not exactly a wholehearted embrace."

In other words, ESPN's epiphany and transition isn't quite as profound as many are suggesting, and ESPN still somehow believes it can control the rate of evolution; a fool's errand. Many industry insiders also have told me over the years that ESPN's contracts with many cable providers state that should ESPN offer its own streaming services, cable providers will no longer be bound by restrictions forcing them to include ESPN in their core lineups, which will only accelerate the number of skinny bundle options without ESPN.

It's a damned if you do and damned if you don't scenario for ESPN, and even if ESPN does all the right things here and offers a truly compelling streaming platform customers really enjoy -- there's simply no getting around the fact that this transition is still going to really hurt.

Filed Under: cord cutting, streaming, television
Companies: disney, espn

Charter Spectrum 'Competes' With New $20 Streaming TV Service Featuring $6 In Entirely Bogus Fees

from the the-illusion-of-competition dept

You may have noticed that things aren't going particularly well for the traditional cable TV industry. Ratings for many channels are in free fall, the rate at which customers are cutting the traditional TV cord is accelerating, and the number and quality of competing streaming services is only growing. Cumulatively, this has forced many previously myopic cable and broadcast executives to stop denying the obvious and to candidly admit there's an actual market (r)evolution afoot, even if most of them still aren't quite exactly sure how to adapt to it.

And while the headlines are often filled with dire warnings about traditional cable TV being "doomed," that's not really true. Cable operators still lay claim to somewhere around 98 million paying customers. And keeping these users from fleeing to competing streaming services really isn't that complicated. These companies just don't want to do what's necessary. Namely, listen to their customers, offer more flexible and convenient services, shore up their atrocious customer service, and finally begin seriously competing on price.

Many traditional cable providers have responded by offering a new suite of so-called "skinny bundles" that profess to offer lower costs and to offer greater channel flexibility. But more often than not old habits die hard, and the industry often saddles these offerings with numerous murky restrictions, or layers of misleading fees. The end result is that these offers either aren't really competitive, or wind up costing nearly as much as traditional cable.

Case in point: Charter (Spectrum) is currently hyping a new $20 bundle of a few dozen channels they're testing in a handful of markets. Usually these trials exist to give the impression the cable company is being innovative, but are never launched nationwide for fear of mass-cannibalization of traditional customers downgrading from more expensive plans. But most news outlets were quick to lavish praise on Charter's new offering, many posting the ad for the $20 price point alongside their reports on the new service:

Except that "$20" isn't really $20, since the cable industry just can't let go of some bad habits.

Trial participants who actually have tried the service say it not only doesn't work all that well, but Charter has chosen to hide a number of obnoxious fees that dramatically jack up the price of the service. Of particular note is the fact that Charter saddles the offering with a $6 per month "broadcast TV fee." As we've noted previously, this increasingly-utilized fee simply takes some of the cost of programming and buries it below the line. Why? It lets the cable provider falsely advertise a lower price. And despite being false advertising, regulators from both parties traditionally haven't given much of a damn.

Some companies, like Comcast, have gone so far as to try and claim the broadcast TV fee is just their way of being transparent with consumers, since nothing quite says transparency like customers having no idea what a service they're buying will actually cost. But as the market floods with alternatives from the likes of Hulu, YouTube, Sling TV and more increases, cable and broadcast executives are eventually going to have to realize that the threshold for tolerating this kind of bullshit -- in the face of real competition -- isn't going to be quite at high as they're accustomed to.

Filed Under: cable tv, competition, cord cutting, fees, hidden fees, over the top, streaming, tv
Companies: charter, charter spectrum

Disney Feels The Heat As Children Lead The Cord Cutting Revolution

from the adapt-or-perish dept

For a while now we've noted that it's actually the youngest among us that are leading the cord cutting revolution. Viacom has watched channels like Nickelodeon experience a ratings free fall for several years now as streaming alternatives have emerged as a useful alternative to strictly-scheduled, commercial-bloated Saturday morning cartoons. Toddlers don't really care if they're watching the latest and greatest "True Detective" episode or not, and parents, like everybody else, are tired of paying for bloated cable bundles filled with channels they never watch.

Like Viacom, Disney has been feeling the brunt of this evolution, especially since cable TV accounted for 30% of its revenue and 43% of profits last fiscal year. But, as evident by the ongoing subscriber exodus at Disney-owned ESPN, the company really hasn't really done a very good job adapting to the changing market. The same thing is occurring at Disney's kid-oriented networks like the Disney Channel, Disney Jr., and Disney XD, all of which are, well, not faring particularly well under this new streaming paradigm:

"For the first six months of this year, the commercial-free Disney Channel's ratings among in its core 2-11 and 6-14 demographics fell 23% in prime time and 13% and 18%, respectively, during the full day, compared with the same period a year ago. Ratings are also down at the smaller Disney Jr. and Disney XD networks, which fall under Mr. Marsh's Disney Channel umbrella.

Cable revenue at Disney is relatively flat, and operating income is down 6% in the first half of the current fiscal year. That has contributed to a freak out or two among Wall Street analysts, which have in recent months finally, truly woken up to a trend they spent years both ridiculing and denying. That's in large part thanks to the fact that 2016's 1.7% decline in traditional cable TV viewers was the biggest cord cutting acceleration on record. The second quarter is expected to be notably worse, with most analysts predicting a 1 million subscriber decline (or greater).

And that fear on Wall Street has, in turn, forced traditionally myopic cable executives to finally realize that they need to stop trying to defend the traditional bloated cable TV cash cow -- and begin offering cheaper, more flexible streaming alternatives:

"Disney Chief Executive Robert Iger has said that strengthening online accessibility for television programs is a priority and that the company is preparing to offer its channels, in part or whole, directly to consumers online rather than just through costly cable packages. Profits for Disney Channel and Freeform are driven in part by long-term contracts with cable companies, but the erosion in ratings is likely to ultimately hit the bottom line unless the networks can generate substantial new digital revenue."

Of course, like the Millennials ahead of them, most of these kids will grow up (correctly) believing its bizarre and punitive to force people to buy oodles of often-horrible cable TV channels at outrageous prices. And contrary to some cable and broadcast executives who still think this is all just a temporary blip on a radar screen, this rise in competition and the resulting massive shift toward cheaper, more flexible viewing options isn't going anywhere.

Filed Under: cord cutting, streaming
Companies: disney

Wall Street Is Starting To Get Very Nervous About Cable TV Cord Cutting

from the from-denial-to-hyperventilation dept

Wall Street is finally starting to realize there's a storm brewing on the horizon for the nation's biggest cable companies. Cable stocks took a notable dip this week after MoffettNathanson analyst Craig Moffett downgraded the entire cable sector because of worries surrounding cord cutting and streaming video competition. Moffett, who not that long ago used to mock cord cutters for being irrelevant basement dwellers, has seen the light -- more recently noting that 2016's 1.7% decline in traditional cable TV viewers was the biggest cord cutting acceleration on record.

And in a lengthy research note to investors this week, the analyst warned that the cable industry's approach to cord cutting (raising rates and offering horrible customer service while hoping it all works out) simply isn't going to cut it given the competitive threats to come:

"Broadband growth will inevitably slow, and it will likely do so at precisely the same time that video growth rates also come under pressure from OTT substitution," Moffett said in his Tuesday-morning note. "And while cable operators have the pricing power to offset these headwinds via their broadband business, we believe it is likely that investors will (appropriately) apply a somewhat lower terminal growth rate assumption to a business that is achieving its growth through pricing rather than unit growth."

Wall Street and the cable sector's optimism in the face of a massive sector (r)evolution is running out of oxygen, Moffett insists:

"The cable stocks have climbed a wall of worry to get here," Moffett wrote to clients. “But as any mountain climber knows, the higher you go, the thinner the air."

It's an interesting position for Moffett to take, given the fact that for years the analyst breathlessly supported broadband usage caps and overage fees as a fail-safe solution to this problem, once going so far as to declare usage caps "the next generation of communications." Arbitrary and utterly unnecessary usage caps are one trick Comcast has been using to hamstring streaming competitors, while raising prices on broadband to counter any potential TV revenue loss.

For the moment, Comcast has been cushioned from the cord cutting threat by its growing monopoly over fixed-line broadband service. Companies like AT&T and Verizon have shifted their attentions to media and advertising, and other major telcos like Windstream, Frontier, and CenturyLink lack the courage, money or incentive to upgrade their aging DSL lines at any real scale. So in many markets, customers looking for next-gen broadband speeds only have one option: cable. And when they show up, they're forced to sign up for TV services they may not want.

You'd think that a growing broadband monopoly, usage caps, and the government's decision to gut most meaningful oversight of one of the least-competitive sectors in America would have Wall Street stock jocks pretty damn excited. The fact that many of them are still very worried about the cord cutting threat to come -- despite Comcast's immense position of power -- tells you precisely what kind of threat we're looking at.

Filed Under: cable tv, cord cutting, craig moffett, tv

80% Of Cord Cutters Leave Because Of High Cable TV Prices, But The Industry Still Refuses To Compete On Price

from the it's-not-a-problem-if-we-ignore-it,-right? dept

A new study from Tivo (pdf) notes that nearly half of current pay TV subscribers are considering cutting the cord this year. That's not particularly surprising given the fact that the first quarter set cord cutting records, and the second quarter is expected to be significantly worse. Similarly unsurprising is the fact that of these defecting customers, roughly 80% of those departing say they're doing so because traditional cable TV service is simply too expensive:

37.1% of respondents spent at least $101 per month on cable TV, with some spending upwards of $150 per month, with trends only aiming higher. While cable providers often pay ample lip service to "providing value," the entire cable and broadcast sector continues to believe that it can simply refuse to compete on price with a growing roster of streaming competitors now arriving at the gates of their beloved cash cow.

Case in point is Charter Communications, which after a recent acquisition spree has been raising TV rates upwards of 40% despite the supposed bump in competition. Charter CEO Tom Rutledge, who was deemed to be the highest paid executive in the United States last year at $98 million, has insisted that these customers were simply "mispriced" under previous ownership and needed to be nudged in the "right direction" (read: paying even more money for the same service they already thought was too expensive):

"It’s a difficult thing to model. But we’re coming at it both ways, both from creating a value proposition in the pricing and packaging we have, and doing those smart things that you can do with an existing customer base that’s been mispriced to move them in the right direction."

That's gibberish, and shockingly, this kind of tone deafness to the overall trajectory of the cable sector is only causing a spike in cable TV defections at the company, which lost more than 100,000 cable TV subscribers last quarter. Tivo makes it clear that the cable industry can't continue the ongoing head-in-the-sand approach to dealing with the rise of cord cutting and streaming competition:

When the increase in monthly bills is coupled with the fact that 81.4% of unsatisfied respondents selected “Too expensive/increase fees for cable/satellite service,” it becomes evident that something must be done about this group. With more options than ever for TV in 2017, consumers continue to get smarter about their TV options, and many have discovered ways to access TV for far less than $100 a month. Skinny buddle offerings have increased, too, and options include Dish Networks’ SlingTV, DIRECTV NOW and Sony’s PlayStation Vue.

Instead of competing on price and package flexibility, most large cable companies (like Comcast) have responded to cord cutting by not only raising TV rates, but ramping up deployment of arbitrary and unnecessary broadband usage caps and "overage fees", allowing them to counter any lost TV revenues with broadband price hikes, and punish folks looking to wander away from Comcast's own TV walled garden. But Charter is prohibited from using caps for another six years as a condition of its recent megamerger, conditions the FCC has started to slowly but surely nibble away at.

Still, the cable industry has at least progressed in one meaningful metric: a few years ago it denied any of this was happening whatsoever.

Filed Under: cable, cable tv, competition, cord cutting, fees, high prices, tv

TV Cord Cutting Poised To Smash Records During Second Quarter

from the inevitable-(r)evolution dept

So we've already noted that with the rise of streaming video competition, more people cut the TV cord last year than any other time in history. MoffettNathanson analyst Craig Moffett has noted that 2016's 1.7% decline in traditional cable TV viewers was the biggest cord cutting acceleration on record. SNL Kagan agrees, noting that traditional pay TV providers lost around 1.9 million traditional cable subscribers. That was notably worse than the 1.1 million net subscriber loss seen last year. And once you factor in the fact that people are buying and moving to new homes without signing up for cable, the full numbers are actually worse.

And things are only going to accelerate as companies like Dish (Sling TV), Sony (Playstation Vue), Google (YouTube TV), Amazon and others flood the market with cheaper, more flexible, streaming alternatives.

Pay TV providers already lost roughly 789,000 subscribers this year. Wall Street analysts expect the second quarter to see more than 1 million subscriber defections away from cable. The second quarter is already historically the worst of the year for cord cutting, as college students cancel school service and pad the defections. This year, however, the belated rise in real streaming competition means things will be arguably worse:

"Pay TV providers could lose more than a million subscribers in the current period, a team of analysts at UBS led by John C. Hodulik wrote in a research note distributed Tuesday. "That would be the worst result on record and equate to a 2.5% annual decline," compared to 2.1% last quarter, the analysts wrote.

And things for the industry could only get worse, the analysts wrote.

"We estimate this will put the industry on pace for a 3.3% decline in 2017 and 4.0% in 2018," they said in their note.

You might just notice a bit of a trend after UBS put its estimates into visual form:

As we've long noted, none of this will be fatal for industry giants like Comcast, who plan to counter lost TV revenues by jacking up broadband prices via arbitrary and otherwise unnecessary usage caps, using bundled pricing to force people to take TV bundles they may not even want. The broadcast and cable TV sector could also easily counter these losses by doing something uncharacteristic and unthinkable for the sector: listening to these defecting customers and actually competing on price and package flexibility.

Filed Under: cable, cord cutting, tv