Video distributors embrace cord-cutting | Media Analysis | Business
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Research from leading TV and video analyst MoffettNathanson has revealed what it says is a surprising but incontrovertible truth: not only is cord-cutting increasing but video distributors are actually embracing the phenomenon.
Disney Verizon 23Oct2019
In making its case, the analyst pointed to the specific cases of Google Fiber pulling the plug on its own video offering  video services and of leading US telco Verizon reorganising and rebranding its video bundle, primarily promoting YouTube TV along with its FiOS broadband package as its core video proposition. In doing so, the analyst said the two companies, like others, were unwinding nearly five decades’ worth of video bundles.

In its look at the industry trends, MoffettNathanson said that as video distributors change their pricing and marketing strategies, the media industry was finally facing that long-feared moment of accelerating cord-cutting. Moreover, it said that there seemed to be only two optimal strategies to survive this disruption. 

In the first course of action, MoffettNathanson said that media owners could build a large enough alternative distribution world to re-assemble consumer spending in new digital products that slows or potentially benefits from the erosion in traditional video bundles. This is said was Disney’s plan. The second strategy was to own the minimum number of must-have networks that have true pricing power to offset the falling volumes of video subscribers, or the strategy being employed by Fox. The analyst said that Fox — along with companies with similar strategies such as Discovery, ViacomCBS and AMC Networks —are facing the headwinds of falling volumes with few long-term solutions.

The general market condition was that pay-TV penetration was tumbling and has done so over the last decade. MoffettNathanson noted that just as 2010 was breaking, pay- TV penetration hit an all-time high of 87.8% of US households but that ten years later it had slid to just 65.3%. By its estimates, more than six million households cut the cord in 2019 alone and that in the fourth quarter, traditional distributors lost roughly 1.5 million subscriptions. It calculated that pay-TV subscribership ended the fourth quarter of 2019 declining at an annual rate of 6.8%, the fastest ever.

For the analyst, the broader takeaway for the pay-TV market as a whole was that trend to, and drivers of, cord-cutting were continuing and were not going to change any time soon. none of this looks like it is going to change any time soon. It said that the strategies that accommodate, or even encourage, cord-cutting were part of a continuum from a plan to defend video at all costs to abandoning video altogether.

In a complement to the company’s research on cord-cutting MoffettNathanson described it as interesting that given the acceleration in the number of cord-cutters and cord-nevers in 2019, Netflix’s net paid subscriber growth of 2.6 million in the US was the slowest year on record.

MoffettNathanson quoted Nielsen data showing that Netflix was most highly penetrated in the leading and most expensive video platforms in the US. It estimated that 62% of video customers from the eight leading pay-TV distributors were subscribing to Netflix, while only 29% of the rest of US homes were Netflix customers. To MoffettNathanson, the conclusion was that those consumers that have valued the traditional bundle have seen value in Netflix and that as consumers cut the cord, they take their OTT services with them.