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Distressing Time for U.S. Pay-TV as Customer Churn Soars

Research firm, Dataxis recently reported that the U.S. pay-TV subscriber base has declined by 612,000 to 100.3 million in the first quarter of 2017. This indicates a fall of 0.61% year over year. Cable TV subscriber base remains almost flat at 58.4 million. However, satellite TV customer base was down 1.32% to 33.2 million and IPTV customer base declined 3.1% to 6.3 million. On the other hand low-cost OTT (over the top) pay-TV service grew 6% to 2.4 million subscribers.

Research firm, SNL Kagan recently predicted that the U.S. pay-TV industry (consisting of cable, satellite and IPTV operators) will lose approximately 10.8 million customers by 2021. Total pay-TV subscribers will be around 82.3 million at that time, which will be 20% less than the industry’s historical high level.

In terms of customer retention, legacy pay-TV operators are yet to cope with the onslaught of low-cost online video streaming service providers. In the last ten years, the internal dynamics of the pay-TV market have gradually shifted from legacy pay-TV offerings to low-cost OTT service providers.

The strong presence of online video streaming providers is posing a significant threat to the existing pay-TV business model. Video offering, which represented the core business function of cable TV operators, seems to be slipping out of their hands fast.

In order to remain competitive in the market, pay-TV operators have started offering internet TV with selected TV channels at cheap rate. Technically, internet TV is similar to pay-TV offerings. Its shows can be viewed using a broadband connection and mobile gadgets like tablets, smartphones, Roku box and smart TV, to name a few.

In the U.S. cable TV operators command over 50% of pay-TV market share. They are followed by satellite TV (nearly 33%), IPTV (6%) and OTT (2%). AT&T Inc. T holds 25% of market share (including DIRECTV, DIRECTV Now and U-Verse), followed by Comcast Corp. CMCSA with a 23% share and Charter Communications Inc. CHTR with a share of 17%. Recently, Charter Communications rejected a $100 billion takeover bid from Verizon Communications Inc. VZ.

AT&T currently hold s a Zacks Rank #4 (Sell) while the rest of stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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