Analyst: Pay TV’s ‘salad days’ are gone as losses continue

Investors in traditional TV providers are reeling as companies from AT&T to Viacom fail to stop the desertion of customers lured away by cheaper entertainment options such as Netflix and Snapchat.

AT&T, whose ownership of the DirecTV satellite service makes it the biggest U.S. pay-television provider, said late Wednesday it will report a third-quarter loss of 390,000 satellite and cable customers, echoing a similar warning weeks earlier from Comcast.

Also this week, Viacom cautioned that its distribution deal with Charter Communications, the second-largest U.S. cable company, may lead to a blackout, potentially testing whether millions of viewers are willing to go without MTV and Nickelodeon.

Shares of both companies tanked Thursday, leading to a broader selloff in the sector. The S&P 500 Media Index, which includes Comcast and ESPN owner Walt Disney Co., slid to the lowest level since January.

After decades of steadily increasing bills and ever-bigger packages of channels, the pay TV ecosystem is in fullblown crisis mode. AT&T, Dish Network and others are offering cheaper, onlineonly versions of cable to lure customers back, but that means having to accept thinner profit margins.

“Those salad days of fat bundles, automatic carriage renewals and customary affiliate step-ups are long gone,” Citigroup analyst Jason Bazinet wrote this week. “Today, every media and cable firm is jockeying for self-preservation. And we suspect the next chapter in this new era means Charter will drop — or significantly curtail — distribution of Viacom’s content.”

Barring a major fourth-quarter comeback, 2017 is on course to be the worst year for conventional pay-TV subscriber losses in history, surpassing last year’s 1.7 million, according to Bloomberg Intelligence. That figure doesn’t include online services such as DirecTV Now. Even including those digital plans, the five biggest TV providers are projected to have lost 469,000 customers in the third quarter.

AT&T sank as much as 4.3 percent Thursday, the most in almost a year. The Dallas-based telecommunications giant is pushing headlong into TV programming by acquiring HBO and CNN owner Time Warner in an $85.4 billion deal. Chief Executive Officer Randall Stephenson has argued that the acquisition will let AT&T create compelling video packages for mobile subscribers and provide valuable targeting information for advertisers.

But with video subscriptions falling, Stephenson is also under pressure to prove he can keep people paying for TV in the first place.

“It is becoming increasingly clear that the wheels are falling off satellite TV,” said Craig Moffett, an analyst at MoffettNathanson.