After another quarter of pay TV subscribers dropping their subscriptions, Wells Fargo analyst Steven Cahall forecasts that cord-cutting will hit 8.1% for the full year.
Cahall said pay TV would lose 8.1% of its subscribers in 2024 and 2025. Cord-cutting was 6.2% in 2022.
The continued erosion of the pay TV universe will increase pressure on the stock prices of companies in the media and broadcast business. That could lead to further strategic pivots by TV companies and potential merger and acquisition activity, Cahall said.
After a round of earnings reports, Cahall said the number of pay TV subscribers fell by 7% in the second quarter. That compares to 6.8% in the first quarter and 4.1% a year ago.
Losses at traditional multichannel video programming distributors (MVPDs), such as cable and satellite providers, were 1.72 million subscribers in the second quarter. Virtual MVPDs added just 8,000 subscribers in the quarter, the lowest since Cahall started tracking them.
From a historical perspective, the pay TV universe peaked at more than 100 million subscribers in 2015. Now there are just 76.9 million homes. Cahall estimates that pay TV penetration is about 56% of TV households, down from a peak of 80%.
The forces behind the cord-cutting trend have been well documented: More content available via streaming, higher pay TV costs and the fragmentation of engagement on all screens, according to Cahall.
“But streaming prices are now set to rise so we'll see if that changes cord-cutting. We think the strikes favor streamers to linear as streamers often have longer content pipelines.” Cahall said, citing the ongoing strikes by the Writers Guild of America and SAG-AFTRA that have shut down the Hollywood studios.
According to Cahall, the companies most exposed to the decline of linear TV are TV station owners Nexstar Media Group and Sinclair, which have 54% and 50% of their revenue, respectively, coming from domestic affiliates.
Fox is the most exposed media company, with 49% of 2024 revenue coming from domestic affiliates.
“The other media companies have much lower relative risk due to larger alternative business,” Cahall said.
