WOW Ending Traditional Pay-TV Offering Is Seen as Harbinger of More to Follow
Expect more cable providers, particularly smaller ones, to follow Wideopenwest's model and drop linear video service in the near future, cable executives and observers told us. WOW said Monday it will begin transitioning its residential video subscribers to YouTube TV subscriptions starting this summer.
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Video was never very profitable for smaller operators, but margins have eroded so much in the past 10 years that the service typically loses money, thus making sense for operators like WOW to cut their losses and focus on broadband, said nScreenMedia analyst Colin Dixon. Cable operators traditionally relied on video's "stickiness" in their double- or triple-play service offerings, but cord cutting in the past three to four years accelerated so much that traditional pay-TV penetration will be below 50% of homes this year, he said. “Their customers are dumping it fast anyway,” he said. He said it has become clear “there’s a video play for them even though they don't have any video” by being a reseller of over-the-top service. He said it's conceivable even major cable operators could opt to go all-OTT for video service within three or so years, given the inevitability of cord cutting making video service unsustainable.
"It's difficult for any operator of any scale to maintain a profitable [video] business," said WOW Senior Vice President-Programming Roger Seiken in an interview. The company offers both its traditional pay-TV service and is a reseller of multiple virtual MVPD services, including YouTube TV, Philo and DirecTV Stream, he said. The YouTube TV deal has network efficiency and financial benefits and will bring a variety of channels to WOW subs that WOW doesn't carry now, including Spanish-language channels, he said. YouTube TV will be cheaper for subscribers than the current video bundle is, and YouTube TV billing will be part of the WOW monthly bill, he said.
WOW will continue to offer traditional linear pay-TV service for commercial customers, and the transition of residential video subs to YouTube TV could take "several years," Seiken said.
Cable, satellite and telco pay-TV subscriber losses hit 7% last year and will likely hit 12.4% this year, S&P Global said. That's "somewhat tempered" by an expected 10.4% growth in virtual MVPD service subscribership, with a lot of that driven by the NFL Sunday Ticket moving from DirecTV to YouTube TV, it said.
A scattering of small cable operators axed traditional pay-TV service in recent years, including Massachusetts's Beld Internet and Montana's 3 Rivers Communications.
Though video service at Boycom Vision reached a tipping point in 2015 and hasn't been profitable since, the Missouri cable operator doesn't foresee a time when it ceases offering it, said President Patty Jo Boyers. But moving to an IP TV offering "is where everybody is going," said the ACA Connects chairwoman. Boycom has been slimming its channel bundle significantly, which helps manage costs and frees up spectrum on its network for faster broadband delivery, she said. Video "is still a good business" and Boycom will provide “a lean and mean, tiny linear product until I don't have anybody else to watch it," she said.
WOW CEO Teresa Elder barely mentioned video in the company's most-recent earnings call earlier this month, except to say that a 13% decline in video revenues helped more than offset a growth in broadband revenue. It ended its most-recent quarter with 135,500 video subs, down 24,900 year over year. At the end of the quarter, nearly 78% of WOW's total subscribers didn't opt for its traditional pay-TV video service, compared with 73.4% the same quarter a year earlier.