The Q3 slowdown at major subscription-based video-on-demand (SVOD) player Disney+ has generated most of the headlines in recent days.
But on the flip side, cord cutting also appears to have experienced a notably significant slowdown during the quarter.
Total Q3 pay-TV subscriptions declined by only 105,000 compared to Q2, according to a new analysis by Wells Fargo analyst Steven Cahall.
Cahall says that growth in vMVPD (virtual multichannel video programming distributor) subscriptions offset an estimated 7% decline in linear subs, resulting in a modest — by recent years’ standards — total pay-TV decline of 5%.
For the full year, he projects that pay-TV subs will be down 4.8% to 85.6 million subscribers — an improvement of 10 basis points over last year’s decline. As of May, Cahall had been projecting 2021 pay-TV losses at 6%, up from 5.1% in 2020.
Still, while the degree of improvement in Q3 was surprising, a long-term slowing of pay-TV losses has been expected.
In fact, vMVPD gains and lower losses for satellite and telco services also helped offset cable-TV losses and slowing broadband subscriber additions in Q2, according to Leichtmann Research Group.
Cahall has said that cable distributors’ profitability is likely to be impacted by the slowing of the rapid growth of highly profitable broadband subscriptions, resulting from rising marketplace saturation, combined with the continued shift to lower-revenue-per-user streaming subs.
However, the volumes of cable and other traditional pay-TV subscriber losses may stabilize as the customer base is whittled down to its core base of older consumers.
A Leichtmann survey released in October found that 71% of TV households nationwide still have some form of live pay-TV service (including vMVPDs, as well as cable, satellite and telco) —although that’s a far cry from 82% in 2016, 87% in 2011, and 86% in 2006 (when vMVPDs weren’t available).
Meanwhile, while analysts have also anticipated a slowing in the rapid growth of SVOD subscriptions — due not only to consumers returning to work and outdoor activities in the short term, but to the long-term inevitability of rising saturation levels, particularly in the U.S. and other developed markets — the degree of slowing seen in Disney+ in Q3 surprised many.
Disney had warned that it would likely see low single-digit subscriber growth in the quarter, but its addition of just 2.1 million subs, to a total of 118.1 million, fell considerably short of analysts’ expectation of 125.4 million.
Cahall's take: “Momentum was bound to decelerate at some point. We expect the stock to pull back and hang out for a bit. However, we view this as an excellent opportunity to accumulate as this is a long-haul content story."
Netflix has bounced back from its early-year slowdown — beating analysts’ Q3 expectations with 4.4 million subscriber adds, to reach 214 million — and is now projecting 8.5 million adds for Q4 based on “Squid Game” and other hot original content.
Still, year-to-date, Netflix has added just 88,000 subscribers in the U.S. and Canada, versus 6 million in 2020, reflecting its high saturation level in North America.
Netflix, Disney+ and other big players still have huge global growth opportunities, of course. But Netflix appears to be anticipating lower long-term growth levels with investments that allow for increasing sub pricing, while supporting retention and new-prospect engagement. Those investments now included moving into branded gaming, as well as beefing up original content.
Overall, Wells Fargo projects that U.S. D2C subscriptions will rise from 250 million in 2020 to 317 million this year, resulting in an increase in penetration from 81% to 85%.
Over the next four years, Cahill projects that U.S. SVOD households will grow by just 8 million, while pay-TV households will decline by 18 million.