Some of the bigger companies like Charter and Comcast have recently started seeing modest bumps in pay TV subscribers for a number of reasons. Some telcoTV and satellite defectors have returned to try out new set top boxes on promotional deals. Companies have also started padding subscriber rolls with streaming video customers. And cable giants are also taking full advantage of their monopoly over broadband markets where telcos refused to upgrade DSL lines -- offering customers broadband and TV bundles that are notably less than just buying broadband alone.
In other words, you've got an undetermined number of customers signing up for TV only because it was less expensive than just broadband. That's not something that should be confused with "beating back cord cutting," as it's just using the bundle and cross-subsidization to sign up TV subscribers that may not even have wanted television in the first place. These users also may not remain connected to legacy TV once the latest promo ends and new streaming services emerge.
But while big cable companies are having temporary luck using bundles to technically keep customers subscribed to TV, many smaller cable operators aren't having the same luck.
Cablevision this week announced that the company lost 15,000 pay TV subscribers and 8,000 phone customers as it prepares to be acquired by Altice. Mediacom similarly noted a 2,000 TV subscriber dip. Frontier Communications lost 10,300 subscribers last quarter, while CableONE lost 13,000 pay-TV customers last quarter, and 17.2% of its residential TV video base in the last year.
Sure, these are relatively modest losses, in contrast to some of the modest gains seen at bigger cable providers. But many of these smaller companies have made it clear they don't think they'll be in the TV business longer term. Smaller operations lack the leverage necessary to get the best deals from broadcasters, meaning they can't afford to remain in the TV sector as broadcasters pummel them with rate hike after rate hike.
CableONE CEO Thomas Might last week called the pay TV sector a "tragedy of the commons" that he doesn't think ends particularly well for legacy TV providers.
"Once one programmer started taking double-digit rate increases, even in the face of falling ratings, each of the other programming groups felt compelled to do the same," said Might. "The reason the theory is named "tragedy" is because it is guaranteed to end badly for all in the long run. It appears that long run is finally arriving."
"The lower end of the market can no longer afford the big bundle; the number of disruptive OTT technologies and vendors are now multiplying rapidly; and the millennial generation has very limited interest in traditional TV viewing," Might said in an added moment of candor you won't see from bigger cable executives. "These patterns will inevitably bring an end to the ubiquitous fat bundle, but only slowly and painfully."
None of this will get any easier for cable companies as consumers start to see more streaming options and the FCC forces them to open the cable box to these surging competitors. An endless roster of companies are now bypassing traditional cable operators and striking deals with broadcasters for cheaper skinny bundle streaming services, including Apple, YouTube, Hulu, and Amazon. Most of these services are expected to launch later this year or early 2017. Companies like AT&T have seen the writing on the wall, and are now embracing entirely re-configuring their own cable TV empires to become streaming providers.
The other strategy is of course usage caps. AT&T, Comcast, CenturyLink, Suddenlink and others have embraced usage caps to extract their pound of flesh -- even if TV customers head to greener pastures.
Smaller cable providers will respond to this changing, more competitive landscape by getting out of the TV business entirely and focusing on broadband and partnerships with streaming providers. Larger cable, satellite and TelcoTV providers will -- eventually -- try to stem the losses by more seriously competing on price. The problem is disruptive pricing -- and offering a streaming service that's too attractive -- only acts to cannibalize their legacy cash cow customers. The result has been a lot of underwhelming "me too" streaming services, and some fee-laden skinny bundles that only give the illusion of value.
But pretending to innovate and compete on price obviously isn't going to be the answer long term.
Because they're terrified of self-disrupting the cash cow too early, cable execs are only going to seriously compete on price once cord cutting becomes less of a trickle and more of a dull roar. Expect that to start happening late this year and early next as we start to see a broader variety of third-party streaming services from hungry companies. Companies actually interested in giving consumers something they've been begging for for the better part of a generation: cheaper, more flexible television.