After a record year in 2022, look out, because cord-cutting is expected to accelerate in 2023, according to Wells Fargo analyst Steven Cahall.
Cahall calculates that the pay TV universe lost 5.175 million subscribers in 2022, a 6% drop. And he said it will get even worse in 2023 and beyond. Previously the industry’s biggest losses came in 2020, when 4.651 million consumers dropped their subscriptions.
Wells Fargo estimates there are about 81.2 million U.S. pay-TV subscribers, down more than 100 million in 2015. Penetration of TV households by pay-TV services is down to about 53% from the peak of 80%.
Cahall is looking for 7% of cords to be cut in 2023, another 6.7% in 2024 and 7% again in 2025. That’s actually more moderate than Cahall’s previous forecast of 7.9%, 7.7% and 7.5% declines for 2023, ‘24 and ‘25, respectively.
The forecast is less dire because of better-than-expected results at Comcast and Charter Communications in the fourth quarter, he said.
“In 2023, we expect linear sub losses to remain steady year over year but slightly improve from 6.5 million losses in 2022 to 6.1 million in 2023, but we expected vMVPD net adds to slow from 1.3 million in ‘22 to 400,00 to 500,000 in 2023,” Cahall said.
Cahall said that he has already included a 7% drop in subscribers in his earnings models for the media companies he covers.
“We think media/entertainment stocks like Disney, Comcast, Paramount, Warner Bros. Discovery and Fox assume something similar when providing guidance,” Cahall said. “However, we think broadcasters, which have longer arrears for their sub counts, might still be expecting subs down more like mid-single-digits in their retrans outlooks, presenting greater risk."
Looking at the fourth quarter, Cahall said cord-cutting accelerated to 7% year over year, compared to 3.9% in the third quarter. He said the acceleration was mostly driven by linear, which was down 9% in the fourth quarter.
“We think linear sub declines worsened due to some combo of more streaming options and streaming awareness, a challenged macro environment and/or a tougher broadband outlook at cable companies (which continue to offer bundled discounts for internet plus video),” he said. “We expect these to persist and hence we don’t expect an improvement in the linear trends.”
As for the vMVPDs, they grew modestly in the fourth quarter, offsetting some of the linear losses. ■
