Deeper Dive—What Comcast, DirecTV and Charter said about video subscriber losses in Q2

The U.S.’ three biggest pay TV providers—Charter, Comcast and AT&T (DirecTV and U-verse)—have all reported second-quarter earnings. And all three lost significant numbers of video subscribers.

The losses could be a sign of the cord-cutting trend intensifying, or they could be a result of the seasonally difficult second quarter. But, with help from broadband, wireless and business services revenue growth, the big three came out with either flat or improved revenues for their cable/entertainment segments.

Still, video subscriber losses drive a compelling narrative and AT&T, Charter and Comcast each provided their own positive spins on the story.

What AT&T said

As has become tradition for satellite operators, DirecTV got absolutely pounded by video subscriber losses in the second quarter. The company lost 778,000 traditional TV subscribers, and the hits are going to keep coming in the back half of this year. AT&T is looking to get another one million subscribers off promotional pricing locks, which expire in the fourth quarter. It’s an effort the company has described as “cleaning up” its customer base.

The strategy seems to be working. AT&T’s video entertainment revenues only dipped slightly, down 1.7% to $8.03 billion. The company’s overall entertainment group revenues fell just 1% year over year, and operating income rose 2.6% to approximately $1.5 billion. Operating income margin expanded 40 basis points to 13.3%.

AT&T is also cooking up AT&T TV, a new streaming TV service that will expand its addressable market for video services and reduce customer acquisition costs.

“…When I look at 2020, and we’ve been through the two year price locks, we’ve been through a full year of adding a long-term value based customer, and we have the potential to use AT&T TV…We have more optimistic expectations for 2020 that gives us the basis to believe that our margins will continue to be stable next year,” said AT&T CFO John Stephens, according to a Seeking Alpha transcript.

What Comcast said

Comcast’s residential video subscriber losses accelerated to 209,000 in the second quarter, significantly more than the 136,000 the provider lost in the year-ago quarter. But, as the company has said before, video subscriber losses are collateral damage resulting from a disciplined, connectivity-led strategy.

“Video will continue to play an important role in our strategy. But, as we said before, we will not chase unprofitable video subs,” said Comcast CFO Mike Cavanagh, according to a Seeking Alpha transcript. He said that the approach has helped Comcast increase monthly adjusted EBITDA per customer relationship by 3.8% year over year.

Comcast also has a plan to keep its broadband-only subscribers close to the Comcast video ecosystem. The company’s recently launched Xfinity Flex platform charges $5 per month for a voice remote, box and interface that integrates most major streaming video services. It also gives customers the option to upgrade to a traditional Comcast video package at any point. CEO Brian Roberts said Flex is deepening the relationship with the company’s broadband customers and promised Comcast would have more to show and talk about regarding Flex in the months ahead.

What Charter said

Charter’s video subscriber losses more than doubled from what the company posted in the year-ago quarter. Charter CEO Tom Rutledge reiterated his company’s view that video is no longer a standalone business, and said that the plethora of free viewing options has devalued the big channel bundle.

“We look at video as an attribute of our overall customer relationship. We want to have the best video services of all kinds available and make it easy for consumers to consume video on our product,” said Rutledge. “But, we don’t look at it as a standalone business.”

Unfortunately for Charter, having the best video services of all kinds means more of its customers can choose less expensive options like Choice, which they are doing. The company blamed its mostly flat video services revenue growth in part on customers either downgrading or joining Charter those packages. Rutledge admitted that those packages are causing tension in the company’s video strategy, which still very much relies on selling full video bundles to consumers.