Pay-TV providers sick over Q1 results; Comcast, AT&T, Verizon face worse Q2

pay-tv provider

Pay-TV provider Comcast today posted a mixed bag of first quarter results. The company missed Wall Street expectations for revenue, but topped profit forecasts while warning of a potentially “significant” downturn for the second quarter owing to COVID-19 restrictions.

Comcast posted net income of $2.1 billion in the quarter, 40% off last year’s net income of $3.5 billion. Ad revenues were off 2.2%, which Comcast said was a result of “audience ratings decline” and reduced ad spend as COVID-19 shut down live sports.

More good news? Cable revenue was up 4.5% Y/Y as wireless revenue increased and total customer relationships increase. Internet traffic was up 33% and wireless data over Wi-Fi increased rose 40%. Comcast also added 477,000 high-speed internet customers.

COVID-19 had a big impact on the bottom line, with Comcast’s filmed entertainment down 22.5% from a year ago. Theme park revenues tumbled by nearly one-third, off 31.9% Y/Y.

Pay-TV subscribers continue to flee

In what has become the norm for pay-TV operators, Comcast also reported it has lost 388,000 residential video subscribers in the first quarter, a 263% increase over the 107,000 subs it lost last year in the first quarter. The company enters Q2 with 19.9 million residential pay-TV subscribers.

Comcast isn’t alone in subscriber losses as Verizon last week reported it lost 84,000 video subscribers.

The biggest losses reported so far have been from AT&T, which said during its earnings call that more than 897,000 premium TV subscribers had churned, along with 138,000 over-the-top subscribers. It’s the third consecutive quarter the telco has seen losses top one million, and it’s not likely to be the last quarter of big losses. As the economy sags due to COVID-19, more consumers will cut the cord, opting for streaming services, which are far more affordable, especially during a recession.

As newly anointed AT&T CEO John Stankey during AT&T’s earnings call: “One would conclude that in a stressed economic environment, there probably are going to be adjustments that people make within their lifestyle and their home. So, I would expect that we may see more pressure on [cord-cutting] as we move through the year.”

Indeed.

Content is the next big issue

A bigger problem facing pay-TV (can there be a bigger problem than erosion of a subscriber base? Yes) is a looming shortage of content. Sports has been gone since mid-March with no clear outlook for when they’ll start back up. The NBA? This late in the year, the league has to be considering just wiping this year from its collective memory. MLB? Closer and closer to a mini-season in front of empty seats. Even the NFL is looking at a season that’ll be truncated – and likely not to start up until October.

It’s not just sports, of course. Production companies are – for the most part – shuttered in response to COVID-19. And that, too, isn’t going to end anytime soon.

Deadline has this list of broadcast and cable series that have halted production. As of today, more than 55 broadcast series are on hiatus and more than 30 cable network shows have stopped production. Add to that nearly 40 shows from streaming services (Netflix leads with 10). The shutdown has hit even recent launches like Disney+ (4), Apple TV+ (9), Peacock (2) and soon-to-launch HBO Max (5).

The bottom line

In the end, we’re still talking value proposition and perceived value.

Consumers are deciding – at an accelerated pace – that streaming is a better financial option than pay TV. And don’t get caught up in the fake math that says streaming will be more expensive. Got one word for that: Bunk.

Will viewers pay full boat to a pay-TV service for a schedule of reruns or older movies (CBS has brought back its Sunday Nigh movie franchise)? Not likely, and that means there will be an even more rapid flow to less-expensive streaming services… as Netflix’s 15.77 million subscriber add in Q1 suggested.

Stay tuned and stay well.

Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn