Decline of cable: Is pay TV about to sign off permanently?

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  Quantumrun Foresight
• April 5, 2023

The 2020 COVID-19 pandemic forced millions of people to stay home but did not increase cable television subscriptions. Instead, six million households decided to cut cords in 2020, posing an existential threat to the industry. However, streaming services such as Netflix, Amazon Prime, and Disney+ significantly increased subscribers during this time.

The decline of cable context

The decline of cable television has reportedly been a long time coming. As competition has increased between on-demand over-the-top (OTT) streaming services, cable companies like AT&T and Comcast (in the US) have lost customers at a record pace. Market research firm Parks Associates estimated that 43 percent of US households with cable subscriptions switched to streaming platforms in 2021. 

In 2020, consultancy company McKinsey argued that earnings within the cable industry were not yet dire, with companies averaging around a 25 percent return on invested capital from 2016 to 2019. However, the future of cable companies is highly dependent on how well they transition to a digital-first culture, which streaming companies have always embodied and used to their advantage. According to a report by CNBC, the future of the cable industry does not appear favorable, with about 25 million US households forecast to end their subscriptions between 2021 and 2026. 

A study commissioned by advertising technology firm The Trade Desk discovered that advertisers are noticing these trends and scaling back their spending on pay television. By 2021, US television consumers spent 68 percent of their viewing time on OTT streaming platforms, with advertisers allocating about 18 percent of their budget to connected televisions. Live sports such as the Super Bowl and English Premier League soccer, which used to be a massive motivator for consumers to keep their cable connections, are now available on streaming services such as Amazon, diluting cable's value further.

Disruptive impact

The shift to streaming services may also impact the overall television industry, as it could change how content is produced, distributed, and consumed. For example, streaming services are now making their own original content, which could lead to a decline in the number of traditional television shows produced by cable companies. For instance, Netflix shows have started competing not just for audience attention but industry awards and prestige, a realm traditionally dominated by cable shows.

Furthermore, as streaming services continue to grow in popularity, it could lead to a decrease in the number of channels available on cable TV, as companies may focus on their streaming offerings instead. Additionally, cable companies may reduce their investment in infrastructure as the demand for their services decreases, resulting in fewer upgrades and maintenance to the existing networks. As the cable industry continues to shrink, it could also result in job losses for those working in the field, such as technicians, salespeople, and repairers. Alternatively, as more people rely on streaming services, Internet service providers (ISPs) may see a significant increase in demand for high-speed internet services. 

However, streaming services are also starting to see a slowdown in their subscriber growth post-pandemic. According to earnings reports, Netflix has the most global subscribers at 220.67 million as of June 2022. However, it's also the only streaming service to have lost paid subscribers, with a decrease of almost 1 million subscribers since March, and nearly 1.2 million subscribers since December 2021, as competition with newer platforms increases.

Implications of the decline of cable

Wider implications of the decline of cable may include:

• Cable companies offering more OTTs instead of paying television packages to their customers. Options for increased broadband speeds will likewise be prioritized to support streamers.
• Cable companies pivoting to business-to-business services for broadband to augment income from the loss of household cable subscribers.
• Customers preferring to have pay television as a free add-on service to broadband or at a low-cost supported by advertising to avoid paying the full price.
• Advertising agencies increasingly adjusting their models so they can dedicate more resources to producing campaigns specifically designed for the streaming market.
• A decrease in the amount of time people spend watching traditional television, potentially leading to changes in how individuals interact and spend their leisure time.
• Cable companies are often major donors to political campaigns, so declining subscriber numbers could lead to changes in political spending and influence.
• As more and more people turn to streaming services and online options for their entertainment, the demographic of cable subscribers may shift to an older, potentially less tech-savvy population.

Questions to consider

• Do you still watch cable TV? What are your reasons for doing so?
• How have streaming platforms and smartphones changed the way you watch television?