U.S. pay TV business to lose 10.8M more subscribers by 2021, Kagan predicts

Sling TV Windows
Traditional pay TV will continue its subscriber slide, while virtual MVPDs pick up the slack. Image: Sling TV

S&P Global Market Intelligence’s Kagan is the latest research company to come out with bearish subscriber-growth projections for the traditional pay TV industry, predicting that U.S. cable, satellite and IPTV operators will lose another 10.8 million customers by 2021. 

The total U.S. pay TV subscriber base will stand at only 82.3 million at that time, off about 20% from its peak. 

Concurrently, Kagan predicts virtual services such as Sling TV and Sony PlayStation Vue to evolve into “mainstream” consumer choices and garner around 11 million users collectively by 2021. 

Households relying entirely on aggregated over-the-top video choices, meanwhile, will grow to 18 million, Kagan predicts, accounting for 14% of households. 

"Changing viewing habits point to mounting losses for traditional video services, and challengers are lining up to capitalize," said Ian Olgeirson, research director for S&P Global Market Intelligence. "However, the operators are not without significant fortifications enabling expectations for preserving a majority share in the five-year outlook.”

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After shedding more than 700,000 subscribers in the first quarter, the pay TV industry could post collective losses of more than 1 million linear customers in the second quarter, UBS analyst John Hodulik told investors earlier this month.  

"That would be the worst result on record and equate to a 2.5% annual decline,” Hodulik said. 

The linear pay-TV industry was already on track for a 2.1% decline based on its first-quarter losses. Hodulik believes the attrition will only continue to get worse in ensuing quarters. 

"We estimate this will put the industry on pace for a 3.3% decline in 2017 and 4.0% in 2018,” he added. 

Tallying first-quarter results from the 11 largest pay-TV companies in the U.S., covering 95% of the market, Leichtman Research Group estimated that the linear portion of the business shed around 758,000 subs during the first three months of the year. This loss was offset somewhat by the growth of virtual MPVD services run by satellite TV carriers Dish Network and DirecTV. 

MoffettNathanson analyst Craig Moffett estimated the total linear loss to the industry to be 768,000.

For his part, Hodulik is bullish on the virtual services.

"We believe YouTube TV and Hulu Live are off to strong starts (both launched in 2Q17) while DirecTV Now regroups as it deals with technical issues,” the analyst wrote. “While Sling TV and DirecTV Now offer consumers lower prices, we believe YouTube and Hulu are more clearly taking advantage of the benefits of being an online/mobile service (intuitive user interface, strong search & discovery, etc.), have leading expertise and trusted brands for streaming video, and will have significantly faster innovation cycles given their tech scale."