Disruptions caused by hurricane disasters in Texas and Florida will impact subscriber performances for pay-TV operators in the soon-to-be-completed third quarter, but not as much as competition from OTT services, Jefferies analyst Mike McCormack told investors this morning.
“We expect an especially weak quarter for video, and although partially storm-related, we believe changing behaviors will continue to weigh on overall video subscriber trends,” McCormack said in an investor note.
The analyst’s note comes after the two largest U.S. pay-TV operators, Comcast and AT&T, said last week that the combination of storm disruption and competition from OTT services will result in a weak quarter for customer growth. In fact, Comcast residential product chief Matthew Strauss said Comcast could report video subscriber losses of up to 150,000.
“Comments made last week by both Comcast and AT&T should sound a warning bell for investors on the state of competition; competing offers for video packages are exploding in the marketplace,” McCormack said. “In some cases these offers are sweetened if taken as a bundle, highlighting the importance of the multi-product bundle. We question the ability for companies that lack leverage (existing linear subs) against the programmers to compete profitably longer-term in this market. We also are not convinced that some existing players are able to elegantly migrate customers to apps-based video viewing, and offset lost margin dollars on higher-margin broadband. We expect that having to service both IP, and traditional QAM-based video transmission will create unanticipated network challenges.”
While emphasizing the impact on OTT competition, McCormack said the hurricane effect isn’t insignificant.
“While we don’t expect churn to be a major problem stemming from the hurricanes, we will undoubtedly see an expense impact (though certainly called out appropriately as one-time), and lower volumes as the workforce is redirected to repair work and installs take a back seat,” the analyst wrote. “We have reduced our subscriber expectations for all companies due, in part, to what is sure to be a weak gross add quarter for all companies impacted by the hurricanes. The table in this report shows the major markets likely to be most impacted and each PayTV provider’s exposure. AT&T, Comcast, and Charter clearly have the most exposure.”