Pay-TV Companies Tank As Subscriber Losses Surge To Record Highs In 2017

As the broader markets casually melt-up to new record highs with each passing day, one small corner of the equity market is in full on meltdown mode: cable and satellite pay-tv providers.  Down anywhere from 3-10% on the week, investors in this space seem to be finally admitting that record subscriber losses, quarter after quarter, just may end up being a bad thing.

As Bloomberg points out this morning, pay-tv subscriber losses are expected to set a new record in 2017, surpassing the 1.7mm homes that "cut the cord" in 2016, as industry analyst Craig Moffet warns "it is becoming increasingly clear that the wheels are falling off..."

Barring a major fourth-quarter comeback, 2017 is on course to be the worst year for conventional pay-TV subscriber losses in history, surpassing last year’s 1.7 million, according to Bloomberg Intelligence. That figure doesn’t include online services like DirecTV Now. Even including those digital plans, the five biggest TV providers are projected to have lost 469,000 customers in the third quarter.

AT&T sank 6.1 percent, the biggest one-day loss since November 2008. Dish, which also provides satellite service, declined 5.1 percent. Viacom dropped 2.5 percent while AMC Networks Inc. fell 6.8 percent after Guggenheim Securities LLC downgraded the two stocks to neutral from buy.

Dallas-based AT&T is pushing headlong into TV programming by acquiring HBO and CNN owner Time Warner Inc. in an $85.4 billion deal. Chief Executive Officer Randall Stephenson has argued that the acquisition will let AT&T create compelling video packages for mobile subscribers and provide valuable targeting information for advertisers.

“It is becoming increasingly clear that the wheels are falling off of satellite TV,” said Craig Moffett, an analyst at MoffettNathanson LLC, in a research note.

AT&T set off the selling panic earlier this week when they announced they would lose 390,000 pay-tv customers in 3Q 2017 alone.  As a reminder, AT&T purchased DirectTV for $48.5 billion just 3 years ago...something tells us shareholders might like a "do-over" on that colossal misallocation of capital.

AT&T, whose ownership of the DirecTV satellite service makes it the biggest U.S. pay-television provider, said late Wednesday it will report a third-quarter loss of 390,000 satellite and cable customers, echoing a similar warning weeks earlier from Comcast Corp. The same night, Viacom cautioned that its distribution deal with Charter Communications Inc., the second-biggest cable U.S. company, may lead to a blackout, potentially testing whether millions of viewers are willing to go without MTV and Nickelodeon.

Shares of both companies retreated Thursday, contributing to a broader selloff in the sector. The S&P 500 Media Index, which includes Comcast and ESPN owner Walt Disney Co., slid 2.3 percent to the lowest level since December.

Meanwhile, the bigger question that remains to be answered is whether cable providers will finally use this customer backlash to push back on content providers who have managed to force ridiculous annual price increases down the throats of American consumers for decades...Citi analyst Jason Bazinet seems to think so...

After decades of steadily increasing bills and ever-bigger packages of channels, the pay-TV ecosystem is in full-blown crisis mode. AT&T, Dish Network Inc. and others are offering cheaper, online-only versions of cable to lure customers back, but that means having to accept thinner profit margins.

“Those salad days of fat bundles, automatic carriage renewals and customary affiliate steps ups are long gone,” Citigroup Inc. analyst Jason Bazinet wrote in a note this week. “Today, every media and cable firm is jockeying for self-preservation. And we suspect the next chapter in this new era means Charter will drop -- or significantly curtail -- distribution of Viacom’s content.”

Of course, some of these content owners are making the decision to drop the cable bundle much easier all on their own...

DirecTV Will Allow Angry Customers To Request NFL Refunds

In the first reported case of corporate blowback involving the ongoing Trump vs NFL feud, the WSJ reports that DirecTV is letting some angry customers cancel subscriptions to its Sunday Ticket package of NFL games and obtain refunds "if they cite players’ national anthem protests as the reason", according to customer service representatives. While DirecTV"s regular Sunday Ticket policy doesn’t allow refunds once the season is under way, the representatives said they are making exceptions this season, which began in September, in response to the player"s growing protests, either kneeling or linking arms during the national anthem.

DirecTV service representatives contacted by The Wall Street Journal had different understandings of the policy. One said refunds to those concerned about the anthem protests were only offered to subscribers with certain offers or plans. One representative said full refunds were available for those who complained about anthem protests. Another said such people could only get prorated refunds for the remainder of the season.

While other representatives said the policy hadn’t changed and that no refunds were allowed for any reason, DirecTV subscribers contacted by the WSJ showed the satellite broadcaster was offering at least some refunds.

Marc Hoffman, a longtime subscriber to Sunday Ticket, which gives sports fans the ability to watch every Sunday game, said in an interview he was able to cancel his subscription and receive a refund on Monday. The package costs around $280 per season. “I honestly didn’t think I’d get a refund,” Mr. Hoffman said. “I know their guidelines, I just wanted to make a point.”

Chris Baker, who lives in Indiana, told the WSJ that he reluctantly canceled his Sunday Ticket subscription, but not precisely as a response to the protests. “I explained to them I was tired of politics in sports, and it’s not how I want to spend my Sunday, watching all that transpire,” he said he told a DirecTV representative. He said the representative “insinuated there was a high volume of calls calling in to cancel.”

The shift is the latest twist in a controversy that has divided the nation after President Donald Trump blasted players who took a knee during the anthem and said they should be fired. He has called on people to walk out of stadiums when players are kneeling.

To be sure, Trump added to the fire on Tuesday saying that “for people to disrespect that by kneeling during the playing of our national anthem, I think is disgraceful.”

While several teams have issued statements defending the rights of their players to express their opinion - and the NFL also has shown solidarity with them - the stakes are much higher, and go beyond just the political. As the WSJ reports, football draws the biggest TV audiences of American sports and is a vital income source for a host of major media companies. For DirecTV, Sunday Ticket is a major customer draw and one of the NFL’s premier franchises, earning it $1.5 billion a year in licensing revenue.

Aside from DirecTV, the NFL-owned channel RedZone, which provides live action and scoring from every game on Sundays, is also experiencing some cancellations due to the protests.

Chuck Plavk, a veteran who resides in Wisconsin, canceled his subscription to the channel from Charter Communications ’ Spectrum Cable. He said when he called, the customer service representative said, “everybody’s calling about that today.” Unlike Sunday Ticket, which is only available through DirecTV, RedZone is available through a number of cable providers and streaming outlets.

Needless to say, a spike in cancellations risk further damage to both viewership and revenues as the league tries to stem an ongoing decline in ratings. Viewership fell last year and, as Trump pointed out, continues to do so this year.

Network executives and league officials attributed last year’s declines in part to viewing competition from the presidential election, consumer distaste with the pace and quality of games.

And now, based on DirecTV"s announcement, one can add anthem protests to the list.