How does the old saying go? When it rains, does it pour? This is probably how some shareholders of the cable television giants Charter Communications ( CHTR 0.41% ) and Comcast (CMCSA 0.05% ) feeling good now, after a double dose of bad news earlier this month. Cord-cutting in the United States is set to hit record highs this year, and the streaming movement that’s driving it isn’t likely to subside anytime soon.
That’s the word from digital market research team eMarketer and TV market research firm Digital TV Research, anyway. The former predicts that the total number of US homes without conventional cable will grow from 24.6 million in 2019 to 46.6 million by 2024, with the 6.6 million cable cutters projected for this year being the largest annual exodus nowadays. The latter estimates that the total number of streaming subscriptions enjoyed by American consumers will increase from 203 million last year to 317 million by 2025. That’s about one for every person living in the United States, or an average of 2.7 on-demand streaming services per household.
There’s no getting around it – it’s an ugly prospect. Yet, given what we already know, there is little reason to doubt the projections.
Calculate the numbers on cable and streaming subscriptions
DIRECTV parent AT&T ( T 0.28% ) has already seen its pay-TV workforce steadily reduced, from 25.4 million customers two years ago to 18.4 million at the end of the second quarter of this year. Comcast has seen similar attrition, with total video customers of 22.1 million in mid-2018 slipping to 20.4 million in mid-2020. than two years ago. This is a drop of around 3%, in line with the attrition of competitors’ customers. For eMarketer’s outlook to materialize, the industry’s subscriber losses need only stay on their current trajectory.
However, the surge in cord cutting caused by COVID this year arguably marks the point of no return.
There is something of a bright spot buried in perspective. A handful of multimedia cable players on the receiving end of the cord-cutting move are also on the other side of it. Digital TV Research expects AT&T’s new streaming platform, HBO Max, to secure more new subscribers than the leader of SVOD netflix ( NFLX 0.60% ) made for the period in question. Ditto for Comcast’s Peacock.
Even so, competition from streaming offers established cable players none of their historical advantages. It’s geography, viz. It is possible to enter a market where Charter or Comcast are well established, but it is not easy. The streaming market is also much more competitive simply because it’s grown significantly since late last year, with the unveiling of the aforementioned HBO Max and Peacock as well as Disney+’s disney. More streaming services are on the way in 2021.
Additionally, premium streaming services like Netflix and HBO Max, and the ad-free version of Peacock, only charge a monthly fee of around $5 to $15, depending on the plan. Comcast’s cable plans start at $70 per month and increase rapidly. AT&T’s plans, whether through the AT&T TV Now or DIRECTV streaming cable option, start at $55 or $65 per month, respectively, and also get very expensive very quickly.
Revenue is not profit, of course; Comcast, Charter and AT&T all have to pay distribution fees to creators of content that supplements their cable packages. These fees have increased largely at the rate of cable bills. Even to the extent that margins are better on in-house filled streaming packages, there won’t be much revenue left to work with. Comcast executives hinted months ago that the advertising value Peacock subscribers were expected to be in the range of $6 to $7 per month.
No matter how you slice it, streaming cannot entirely replace cable revenue for cable TV operators.
In the meantime, Charter has no streaming game at all, aside from a stripped-down version of its conventional cable content.
The insane takeout on the cord cut
Even without the numbers, most investors felt this was the shape of things to come. Digital TV Research and eMarketer have just provided the details to help put things in their own grim perspective. The projected loss of 22 million pay cable customers by 2024 will reduce the industry’s workforce from about 86.5 million to 64.5 million. This is anything but a modest setback. Meanwhile, every home household should add about one – but only one – new streaming service to its current subscription lineup, and there are plenty more SVOD options to choose from now than there are barely a year.
At the end of the line ? The cable industry will not come out unscathed. Each of its respective broadband businesses will have to bear more than its fair share of the load, and soon. With 5G wireless connectivity speeds now able to replace wired connectionseven these broadband companies are not guaranteed to be bulletproof.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.