Cable TV providers will continue to struggle to hang on to customers amid increasing competition from satellite TV, telephone companies offering TV channels -- and lower cost online video services, according to a new report.
Pay-television penetration hit a high-water mark in 2009 when nearly 82% of homes in the U.S. had a pay-TV subscription, according to PricewaterhouseCoopers’ Global Entertainment and Media Outlook report released late Tuesday.
The number of pay-TV subscriptions is expected to grow to nearly 108 million homes in the U.S. by the end of 2018, the report found. Formation of new homes will help fuel the expansion.
Nonetheless, the consulting firm predicted that pay-TV penetration would decline to 77% of homes in the U.S. during the same time period.
More people are expected to embrace lower cost options, including free programming and online video services such as Hulu, Netflix and Amazon Prime Instant Video.
These services are known in the industry as over-the-top (OTT) offerings because they come into the home over the Internet and not through one of the multi-channel TV providers.
“The disruptive influence of over-the-top has to be acknowledged,” Stefanie Kane, a partner in the PwC Entertainment, Media & Communications practice, said in an interview. “Some folks are moving to other screens.”
The high-cost of TV subscriptions has prompted families to switch -- and discouraged some younger consumers from getting their own TV subscription when they leave their parents’ homes.
The biggest customer losses have come from the cable TV sector.
At the same time, satellite TV providers DirecTV and Dish Network and telephone companies Verizon and AT&T have been expanding their base by scooping up many former cable customers.
DirecTV is expected to become the nation’s largest pay-TV operator, surpassing Comcast Corp., in 2016, PwC said.
Satellite TV companies should gain at least 1.8 million customers to 36.2 million by the end of 2018. Verizon FiOS and AT&T U-Verse are expected to collectively add 5.4 million subscribers by the end of 2018, bringing the telephone total to 16.8 million homes.
Cable companies are expected to witness a decline in their base to 53.9 million homes from 54.8 million at the end of 2013.
“The room for significant organic growth is limited, and that’s why you are seeing these industry players turn to consolidation,” Kane said.
In February, Comcast unveiled its plans to acquire Time Warner Cable in a $45-billion deal. Last month, AT&T announced its intention to swallow DirecTV in a $49-billion deal. Federal regulators must review both deals.
Despite the customer losses, revenue has not declined as pay-TV companies roll out more products and services to help compensate, PwC found.
“We do still see that revenue from subscription fees is expected to grow,” Kane said, adding that the cumulative annual revenue growth rate over the next five years is forecast at 1.5%.
Meanwhile, PwC said that other major players are expected to join Netflix, Hulu and Amazon with their own over-the-top services, including Google, Sony and Apple.