As Cord Cutting Grows And Streaming Video Struggles; Viewers Are Buying Digital Antennas

Third quarter was particularly difficult time for media owners. Cord cutting, a trend begun one decade ago is escalating. Streaming video, an alternative to cord cutters, has had a financially difficult third quarter. With churn rate (the percentage of customers ending their subscription) reaching an all-time. As a result, in fourth quarter media companies announced a series of layoffs, cutbacks and restructuring impacting thousands of employees

At a time when consumers are concerned about the economy, home video costs continue to rise, one bright spot has been digital antennas. In third quarter the household penetration of digital antennas reached an all-time high, as consumers seek a less expensive alternative to home entertainment.

Cord Cutting: The rate of consumers dropping their cable/satellite subscription, a trend begun more than a decade ago, has been escalating. With consumers expressing concerns about the cost-of-living and spending, they continue cancel their pay TV subscription. A recent study from U.S. News and World Report, sourcing a variety of public information, says the average monthly cable package is $217.42 more than what the average home pays for all other major utilities combined ($205.50).

The numbers dropping their pay TV subscribers are stark. In MoffettNathanson’s latest “Cord-Cutting Monitor” points out, this third quarter, 655, 000 subscribers cancelled their cable subscription. A figure higher than the third quarter 2021 falloff of 617,000 and second quarter 2020 of 91,000. (Pay TV subscription includes cable, satellite operators and virtual MVPDs such as YouTube TV and FuboTV). Leichtman Research had similar findings reporting a loss of 785,000 net pay TV subscribers in third quarter 2022. Compared to a loss of 650,000 in third quarter 2021.

The household penetration of pay TV subscribers is now at 61% its lowest in nearly thirty years. By comparison, in 2011 nine in ten households were pay TV subscribers. agency GroupM forecasts “traditional pay TV” will have a U.S. household penetration of 50% in three years.

Subscribers that cancel pay TV subscriptions present financial challenges to cable owners. According to the 2021 THEME Report from the MPA, the cable TV subscription market totaled $96.7 billion in 2021, a 3% decline from 2020. Also, in a first, the revenue of online video surpassed satellite TV. In addition, with a cutback in original programming, the ratings for many top tier cable entertainment networks continue to decline impacting ad dollars.

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Streaming Video: Another reason consumers have cut the cord is the same content on cable is also available on streaming video. Nonetheless, streaming video is having growing pains with production costs in the tens of billions and a new round of monthly rate increases, resulting in the launch of ad supported tiers on Netflix
NFLX
and Disney+ and more expected.

In analyzing quarterly earnings reports, Bloomberg found in the first nine months of this year, Disney, Paramount, Comcast
CMCSA
and Warner Bros. Discovery have reported a greater revenue loss compared to both 2020 and 2021. So far this year, Disney’s streaming has recorded a net revenue loss of $3.4 billion. Netflix is the only prominent streaming service projected to make a profit this year. (Amazon
AMZN
and Apple
AAPL
do not break out streaming revenue in their corporate earnings report.)

While production costs in the billions continue to impact the bottom line. Another reason is churn. According to research company Antenna, in third quarter of 2022, the rate of streaming video subscriptions being cancelled grew to 6%, nearly double the rate from 2019. In third quarter, there were 32 million cancellations among the ten largest SVOD providers with 37.2 million new sign-ups. Hence, for the quarter there were only 5.2 million net new subscribers less than half the 11.4 million net new subscribers from one year prior.

Nonetheless this is an improvement compared to second quarter when there were only 3.1 million net new SVOD subscribers, when 28.0 million subscriptions were dropped. Antenna reported the second quarter subscriber growth of 1.5% was the lowest since they began measuring it in 2019.

The churn for individual streaming providers varies; but overall, the percentage of churn rates has been on the upswing with more competition. Perhaps, a merger of SVOD services, similar to HBO Max and Discovery+, would help to bring about a slow down to the churn rate.

Digital TV Antennas: As the number of cable subscriptions continues its freefall and streaming video works on a viable revenue model, one area of growth has been the number of households with digital antennas. In the most recent “State of OTA” report, Horowitz Research, found 18% of households have digital antenna, up from 14% in 2021. (Nielsen
NLSN
reports in fourth quarter 2021 that 15% of households used antennas or 18.6 million homes). In its report Horowitz noted that at 23%, the more cost conscious younger viewers, were more likely to have a digital antenna than persons age 50+ at 15%.

A one-time cost of a single digital TV antenna is affordable. The price range can be as low as $10 or up to over $150. Owners can receive, for free, all local over-the-air broadcast channels (the typical range of a digital antenna is 60 to 75 miles) as well as multicast TV stations (or subchannels) such as Me TV, Cozi and dozens of others. Linear, over-the-air television has been around for 75 years and continues to be the most affordable viewing source available especially during economic slowdowns.