In the age of on-demand streaming and digital TV packages, more people are dropping their cable TV subscriptions than initially forecast, which doesn't exactly bode well for companies like Comcast Corp. (CMCSA), AT&T Inc. (T) or Charter Communications Inc. (CHTR). A recent report by leading research firm eMarketer estimates that a total of 50 million people will have ditched their cable or satellite TV subscriptions by 2021, lifting its forecast from last year by 25% and reflecting 20 million more people canceling their subscriptions than today. (See also: Mergers to Make AT&T, Comcast Highest-Debt Cos.)
Paul Verna, principal video analyst at eMarketer, spoke with CNBC about the accelerating trend for consumers to cancel their traditional TV packages for new alternative entertainment options. He noted that so-called cord cutting is happening at a faster-than-anticipated rate for a few key reasons.
First is cost, he explained, noting that people feel that the roughly $100 average that they pay for their cable or satellite bill is too much. Plus, there are already alternatives that cost a lot less, he stated.
Abandoning Cable and Satellite
"We've already seen people go to on demand platforms like Netflix Inc. (NFLX), Amazon.com Inc. (AMZN) and Hulu, but now people have access to these great packages that are delivered digitally like Sling TV and YouTube TV and others that cost roughly half or maybe even less than half of the average cable bill," stated Verna, referring to DISH Network Corp.'s (DISH) Sling TV and Google parent company Alphabet Inc.'s (GOOGL) YouTube. He noted that these packaged options give users many of the same features as the traditional bundles in term of live channels, resulting in "basically a TV like experience," that "just happens to be delivered differently."
While new entrants are taking money away from traditional multisystem operators like Comcast, AT&T, Charter and Cablevision Systems Corp. (CVC), CNBC noted that consumers will still have to get the broadband signal into their households. As traditional companies hedge against the loss, they may raise price for broadband services, just as new entrants have raised prices for their subscriptions by an average of $5, noted Verna. (See also: Netflix Has 'Insurmountable' Lead: Credit Suisse.)