Cord-cutting will cost cable companies $5.5B this year: Survey

Rob Pegoraro
Contributing Editor
Streaming services like Netflix are helping consumers cut the cord, which is putting a hurting on cable companies.

Pay-TV subscriber rolls are in line to get whacked this year, according to a new survey that predicts 5.4 million subscribers will drop traditional cable, satellite or fiber-optic TV bundles.

And that massive exodus will cost the pay-TV business $5.5 billion in lost revenue, the cg42 study says. Those numbers, based on a survey of 3,385 U.S. customers in September, even managed to surprise the New York-based management-consulting firm.

“We were expecting the trend to continue to accelerate,” said managing partner Stephen Beck in an interview Tuesday. “I don’t think we were expecting the behavior to jump up as much as it did.”

But does that mean legacy pay-TV providers will drop the habits that led so many viewers to flee? Unfortunately, history suggests the pain will continue.

Some ugly numbers

The top-line figures cg42 cites understate how bad things look for some of the seven firms covered in this study. For instance, the survey predicts Comcast (CMCSA) will lose 7.2% of video subscribers, while the smaller cable firm Cox will see even worse attrition, 7.9%.

Comcast declined to comment, citing the required quiet period before it releases quarterly earnings. Cox spokesman Todd Smith called that “high,” saying a raw total like that would be inflated by customers dropping service before moving to new locations within its service area.

Yahoo Finance’s parent firm Verizon (VZ) is on this list too, although its 4.8% estimated loss is on the low end; only Charter Communications (CHTR) and its Spectrum service, projected to lose 4% of TV subscribers, did “better.” The study also looked at cord cutting at AT&T (T)’s U-verse and DirecTV, Dish Network (DISH) and the Optimum service sold by Altice subsidiary Cablevision.

All of those estimates exceed earlier cord-cutting figures by a large margin. For instance, in March MoffettNathanson Research estimated that pay-TV subscribers dropped by  3.4% from the fourth quarter of 2016 to the fourth quarter of 2017.

“Do remember that these are gross losses, not net losses,” cg42’s Beck said. He added that he expects these companies to push hard to acquire new customers by offering promotional discounts and other sign-up incentives—even though seeing new customers get better deals than those offered to existing subscribers ranked as one of the top three complaints at all seven providers.

The most popular gripe at every single provider was “Not getting competitive / reasonable rates / pricing,” while “Being nickeled and dimed with multiple fees and charges” alternated with the new-customer-bias complaint for second or third place.

Going over the top for better choices and lower costs

Customers who decide to dump traditional TV service immediately get a better variety by going online, even if some of these streaming services come from the companies they just fired. The five major choices are AT&T’s DirecTV Now, Dish’s Sling TV, Google’s (GOOG, GOOGL) YouTube TV, Hulu with Live TV (owned by a joint venture of entertainment firms), and Sony’s (SNE) PlayStation Vue. Less obvious streaming-TV services like Philo and fuboTV further expand viewer options, although neither of those includes ESPN.

And there’s always the option of buying a cheap over-the-air antenna to get your local stations.

Provided you have sufficient home broadband for online viewing—figure downloads of 10 megabits per second, a speed available in 98% of census blocks at the end of 2016—that choice represents an immense improvement over being locked into one cable company. And none of these online options make you pay extra each month to rent a tuner box.

The cg42 survey found that many cord cutters warmed up to the idea of online streaming via Netflix (NFLX) or Amazon’s Prime Video (AMZN).

“It’s portrayed as a hard cut,” Beck said. “That’s not how it plays out now; most customers have spent time on Netflix.”

Respondents also reported that they were saving substantial sums—although the exact numbers cited in the survey suggest their math got a little fuzzy. It quotes an average home telecom cost of $203 before cutting the cord—that’s $92 for pay TV, $55 for internet access, $26 for streaming video and $30 for phone—and $118 afterwards, consisting of the same price for Internet access, $29 for streaming video and $34 for phone service.

Since so many cable providers charge more for internet access when it’s not bundled with TV, and since the entry-level packages of DirecTV Now, YouTube TV, Hulu and Vue all start at $40, those estimates warrant serious skepticism. Therefore, so does the $5.5 billion lost-revenue estimate calculated from that $85 estimated savings.

“I think this is where self-reported data sometimes presents a bit of a challenge,” Beck admitted.

How will cable companies respond?

Will Big Cable respond to this accelerating trend by recognizing that it’s now in the internet business first, TV second and begin marketing its services accordingly? Beck doesn’t expect such enlightenment.

“I would expect that part of the story for cable providers to get worse,” he warned, citing not just punitive pricing for internet-only subscribers but the possibility of cable operators using the absence of net-neutrality rules to lean on online-only TV services. “You’re going to see more bad behavior.”

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Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraro.