Persistent pay TV losses help Google in the long run – analyst

The rate of pay-TV subscriber losses dipped to a record low in the second quarter of 2023. Google's YouTube TV was the lone bright spot, adding about 300,000 subs in the period, according to fresh estimates from MoffettNathanson.

The total pay-TV industry, including virtual multichannel video programming distributors (vMVPDs), lost about 1.76 million subs in the second quarter of 2023, nearly matching a loss of 1.85 million in the year-ago period. However, the industry shrunk in Q2 at a record pace of 7%, a percentage point higher than a year ago, MoffettNathanson estimated in its latest quarterly Cord-Cutting Monitor report (registration required).

When vMVPDs are taken out of the equation, the rate of loss for traditional pay-TV accelerated to a record 11.5% in Q2 2023.

The Q2 decline left total pay-TV penetration (residential and commercial) of occupied homes and buildings at just 56.6%, "a level last seen in 1991, three years before the debut of DirecTV brought 'cable TV' to rural America for the first time," MoffettNathanson analyst Craig Moffett noted in the report.

Traditional pay-TV providers (cable, satellite and telcos) were again hit particularly hard, losing roughly 1.8 million subscribers combined. The rate of decline for US cable operators was 10.1%, the first time the figure has hit double digits, while US satellite TV providers (DirecTV and Dish Network) saw losses reaccelerate to a rate of 13.5%.

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Once again, vMVPDs failed to pick up the slack. The vMVPD market's "conversion rate" of capturing lost traditional pay-TV subs dropped to just 24.9% in Q2, according to MoffettNathanson.

Within that vMVPD group, Sling TV (-97,000), Fubo TV (-118,000) and Hulu live TV (-100,000) all lost customers in the quarter. DirecTV Stream added a mere 9,000. But the big winner in the vMVPD world is YouTube TV, which added an estimated 300,000 subs in the quarter and has tacked on nearly 2 million subs over the past year, according to MoffettNathanson.

Google 'playing the long game'

"With more than six million subscribers, YouTube TV now accounts for more than a third of the vMVPD industry’s 17M subscribers," Moffett said. He noted that YouTube TV, which has the coveted NFL Sunday Ticket package, is on a path to surpass Dish as the fourth-largest MVPD of any kind in the US and could pass DirecTV for third place in less than a year.

"As Cable and Satellite shrink, and as YouTube and YouTube TV grow, it is not hard to see a future where Google emerges as the dominant video distributor in the United States," Moffett wrote. He thinks that should make media companies "shudder," because it's possible that Google's video distribution business doesn't need to be independently profitable.

"Google can afford to play the long game; they appear to be intent on building the position first and deciding how to monetize it later," Moffett explained.

Possible way out of the Charter-Disney mess

Moffett's analysis also takes a deeper look into the carriage dispute between Charter Communications and The Walt Disney Company, suggesting a potential way out.

In one possible settlement scenario, Moffett sees Disney+ and Hulu staying separate from a new affiliate agreement, with Charter possibly marketing those streaming services on Disney's behalf.

But the analyst said Disney will have no choice but to guarantee that the ESPN+ streaming service "won't undermine" the traditional, linear ESPN network.

"[O]r if it does, then ESPN+ will need to be made available to Charter subscribers as part of their linear agreement," Moffett surmised. "Getting to a settlement along these lines obviously isn't guaranteed, and we really do believe that Charter is prepared to walk away if they have to, but, again, this seems to us to be the obvious, and likely, outcome."