Cable TV Still Big Business Despite Cord-Cutting Trend

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The NBC logo and Comcast are displayed on 30 Rockefeller Plaza, formerly known as the GE building, in midtown Manhattan in New York July 23, 2015. Reuters

This article was originally published on the Motley Fool.

Every year for the past few years, second-quarter pay-television subscriber numbers have come out and people have started writing obituaries for the industry.

Since 2012, data from Leichtman Research Group (LRG), which aggregates pay-television subscriber totals each quarter, has shown that the industry takes a precipitous drop in Q2, followed by a smaller loss in Q3, then a rebound to end the year. The losses have been accelerating with both the second-quarter and year-end numbers getting worse, but the numbers have not even approached end-of-the-industry proportions.

Pay television as we know it may someday be a shell of its former self—like the record business or the newspaper industry—but those are areas that had steep fall-offs, and that has not happened in pay television no matter how many headlines play up the gloom-and-doom angle.

Cable added 380,000 subscribers in 2011, then added 170,000 in 2012 before turning to a loss in 2013 of 105,000, followed by a drop of 125,000 in 2014, and accelerating to a loss of 385,000 pay-TV customers last year, according to LRG. In every single year since 2012, when LRG began quarterly reporting, the industry lost subscribers during the second quarter. That includes 2012, when the year-end number was an overall gain.

You can see that the 2016 Q2 drop is bigger than previous-year numbers in that quarter, which may show cord-cutting accelerating. Or it might not. Even if you assume the year-over-year increase in Q2 reflects a big step up in people cutting the cord, past history indicates the numbers will slow in Q3 before the industry rallies in Q4. Overall, the rolling-12-month loss has just about doubled, according to LRG President Bruce Leichtman.

"The top pay-TV providers lost about 665,000 subscribers in the traditionally weak second quarter, with net losses in 2Q 2016 surpassing the previous quarterly low set in last year's second quarter," he said. "Over the past year, the top pay-TV providers (including DISH 's Sling TV) lost about 705,000 subscribers—compared to a loss of about 380,000 over the prior year."

09_02_comcast_02 The NBC logo and Comcast are displayed on 30 Rockefeller Plaza, formerly known as the GE building, in midtown Manhattan in New York July 23, 2015. Reuters

It's a bad number following a year where the Q2 results were only slightly worse than in the previous three years. The drop deserves watching and it could mean the long-predicted demise of cable may be unfolding, but one worse-than-usual quarter does not offer definitive proof of anything.

What does this mean for pay TV?

Even if doubling the annual loss becomes the norm for the next few years (and there's not enough data to suggest it will or won't), that would be a drop of 1.4 million at the end of Q2 2017, followed by a 2.8 million fall-off in 2018. At that point, pay television would dip under 90 million paid subscribers. So, if we have three years of accelerating losses, it might be reasonable to predict that a free fall could occur. One year with a significantly accelerated loss does not make a trend.

Q2 2016 could be the quarter where all the gloom-and-doom prophesiers are finally proved correct. More likely, these numbers show something in the middle. Pay television had a bad quarter, a terrible one by historical standards, which shows that it has been correct to worry about cord-cutting. That said, every major cable company (and most of the minor ones) have plans to address people leaving for streaming options. This includes big players like Comcast and  Charter Communications testing skinny bundles and playing with broadband bundles in order to make it hard for people to cut the cord. In addition,  AT&T 's DirecTV has its own Sling-like streaming service one tap.

Cable is changing and pay television absolutely had a bad quarter. Consumers may not like Comcast, Charter, and AT&T, but in many markets, they need them for internet access. Until that changes, all three of those companies as well as any other pay TV/internet service provider has a pretty good hook into consumers to keep them from leaving.