Pay TV's Q3: Win Some, Lose Some

The pay TV industry's quarterly numbers are (mostly) in, and they tend to indicate a continuation of years-long trends in the video space. Traditional providers are still losing subscribers, and OTT is still gaining them.

Expo '18 trends to watch: DAA, wireless
Expo '18 trends to watch: DAA, wireless

The pay TV industry's quarterly numbers are (mostly) in, and they tend to indicate a continuation of years-long trends in the video space. Traditional providers are still losing subscribers, and OTT is still gaining them.

Both SNL Kagan and the Leichtman Research Group report that traditional U.S. pay TV providers (cable, satellite and telco) shed hundreds of thousands of video subs in Q3 2016. While their numbers differ - LRG says 255,000, while Kagan says 430,000 - the discrepancy stems from how they count DISH's Sling TV subs rather than from any fundamental difference in findings.

Otherwise, the trend lines are clear: Telcos are shedding the most video subs, followed by cable, whose losses seem to be stabilizing. Unlike last quarter, the direct broadcast satellite (DBS) segment gained subscribers this time around, which Kagan attributes to AT&T's (NYSE:T) shift away from its U-verse TV service in favor of DirecTV, which the telco bought last year.

Unlike most U.S. cable ops, Comcast (NASDAQ:CMCSA) actually gained video subs in Q3 and is up on the year as well. The MSO gained 32,000 subs in the quarter and 170,000 in the last year. Otherwise, cable ops are still shedding, having lost some 90,000 video subs on the quarter.

Overall, the U.S. pay TV industry today has nearly 94 million subscribers and about 82% penetration rate, but given ongoing trends, that can be expected to drop. Digital TV Research forecast in March that North American pay TV penetration will drop to 80% by 2021 from a peak of 87% in 2012.

In contrast, the OTT space is looking rosy, with subscription OTT video providers adding American subs in the millions. Netflix (NASDAQ:NFLX) reported a gain of 480,000 U.S. subscribers in Q3 and more than 4 million on the year to date, for a total of nearly 46.5 million. Similarly, Hulu has reached 12 million subs, up from 9 million in the year-ago quarter, and Amazon Prime had some 63 million subs as of June, up from 44 million the year prior. However, some reports indicate that OTT growth is slowing, and the segment has churn rates of 20% or more according to Parks Associates data from April.

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