As The Cord Snaps: Is The Curtain Starting To Fall On Pay-TV Services?

A recent survey by Leichtman Research Group reveals that the largest pay-TV providers in the United States lost 1,730,000 subscribers in the second quarter of 2023. That’s a slight increase over the estimated 1,725,000 lost during the same period in 2022. 

These numbers shine a harsh light on a trend the pay-TV industry has observed in recent years.

“Pay-TV net losses of about 1.73 million in 2Q 2023 were similar to the losses in last year’s second quarter,” explains Bruce Leichtman, president and principal analyst for Leichtman Research Group, Inc. “Over the past year, top pay-TV providers had a net loss of about 5,360,000 subscribers, compared to a net loss of about 4,235,000 over the prior year.”

As studios and broadcasters continue to shift their focus towards streaming services such as Paramount+, Hulu, and Max, could this hemorrhaging of traditional pay-TV subscribers mark the beginning of the end for the cable programming model?

The Early Rise of Cable And Pay-TV Services

In a sense, the pay-TV industry’s current struggles with viewership can be traced back to its rise to market domination decades ago. At a time when over-the-air network broadcasting was the only viable option for millions of TV viewers, the fledgling cable television industry found a niche market with TV owners who could not receive a clear, strong signal from network-owned transmitters. 

Cable television providers would deliver signals directly into subscribers’ homes through a regulated receiver box for a small fee. Not only did it become possible to provide significant network transmissions, but other broadcasts from regional or independent stations as well.

As more and more broadcasters opted to add their proprietary signals to pay-TV service providers, traditional over-the-air networks started to lose dominance in the marketplace. Cable and satellite systems for home subscribers also had technological advantages over traditional television, including the capacity for pay-per-view events and premium programming.

A Battle For Hearts, Minds, and Revenue

The appeal of cable and pay-TV services also lies in the difference between broadcast standards determined by the Federal Communications Commission (FCC) and the voluntary standards imposed by the pay-TV industry itself. While traditional network broadcasts are regulated for adult content by the FCC, pay-TV systems remain primarily self-regulating. Modern streaming services also follow this more permissive business model.

As the pay-TV industry continues seeking more revenue opportunities, subscribers have been reevaluating the cost versus the benefits of pay-TV services. Cable companies frequently adjust their fees and channel availability, prompting subscribers to “cut the cord“ and subscribe to less expensive streaming services such as Roku, Netflix, and Apple+.

Revenue generation, whether through subscription fees or commercial breaks, has been an issue since the earliest days of cable television service. With the exception of premium subscription-fueled channels such as HBO, Cinemax, and Showtime, cable content providers still rely on the same sources of revenue as the broadcast channels. Streaming services have also introduced commercial breaks into their channels, with or without a paying subscriber base.

The Appeal of Streaming Channels

In the same way that a single coaxial cable replaced the need for a bulky and unreliable TV antenna, streaming technology offers subscribers a reliable and wireless alternative to the cable box. Streaming services take advantage of the WiFi and broadband technology already present in many modern homes and businesses. The conversion from pay TV to streaming services is user-friendly and does not require expensive installations or billing arrangements. 

While streaming channels may not offer an exact match regarding available content, they still provide viewers with on-demand programming and hundreds of niche channels. Streaming channel subscribers can achieve the personalized “ala carte” channel selection that cable services are not designed to offer.

Don’t Count Pay-TV Out Completely

While the raw numbers provided by the Leichtman Research study suggest a significant shift from pay TV to streaming content, cable, and pay-TV providers still offer advantages over current streaming services. Many streaming services cannot access local network broadcasts or live content. Notable cable-based channels such as ESPN, CNN, and AMC can only offer limited content on streaming media.

Subscribers to both pay TV and streaming services often have a dilemma. While cutting the cord altogether has a solid financial and logistical appeal, the fact that some popular content is strictly cable-based creates a continued need for subscriptions.

“It is certainly possible that people have a couple of subscriptions that they have serially because of the content that they are accessing; however, I think that there is a continual revisiting about what they are getting out of your service and a willingness to cancel services or pick up services to customize what they are looking for from a content perspective,” Jana Arbanas, leader of the U.S. telecom, media and technology sector for Deloitte, told Alex Weprin of The Hollywood Reporter.

“The idea of picking up a subscription or a couple of subscriptions and keeping them for years and years is falling by the wayside in favor of this hyper-focused management of these subscriptions.”

The Future of Pay-TV and Cable Services

It’s not unusual in any industry for one technology to slowly lose market share as another gains momentum. The pay-TV and cable industry continues to bring in substantial revenue through subscriptions, licensing fees, and proprietary content creation. The documented decline in subscribers is a critical issue, but the traditional cable industry, much like the broadcast television industry before it, is not entirely without options or hope for a meaningful recovery.

This article was produced by Media Decision and syndicated by Wealth of Geeks.