Why Cord Cutting Hasn't Doomed Cable Companies

Some four million households per year are dropping their cable and satellite TV services—cutting the cord and relying on Internet alternatives—a trend which should continue for at least the next five years, research firm eMarketer predicts.

At the end of last year, about 90 million households paid for either satellite or cable TV from a provider like Comcast, Verizon, or Dish network, while 36 million opted out of the traditional pay TV market. But by the end of 2023, the number of pay TV households will be under 73 million versus 56 million who have opted out, eMarketer said in a report it released on Tuesday. Over five years, the 17 million projected cord cutters is almost twice as many as who dropped pay TV over the prior five years, eMarketer said.

The cord cutting phenomenon, which has been gaining strength for the past few years, is fueled by customers fed up with high cable bills and the giant bundles of channels cable providers they are forced to pay for. In turn, that’s boosted the growth of Internet video alternatives like Netflix, Amazon’s Prime Video, and Google’s YouTube TV.

Still, the cable industry isn’t suffering much, as they’ve made up most of the lost revenue by increasing their sales of high-speed home Internet connections. And providing Internet service has a much higher profit margin than TV service, since there are no programming costs, eMarketer forecasting analyst Eric Haggstrom noted in the report. With customers dropping pay TV subscriptions, “it removes consumers from bundled deals,” he noted. “It forces consumers to pay a higher price for internet, which dramatically improves profit margins.”

As a result, shares of the major pay TV providers have been largely unaffected by the acceleration of cord cutting. The share price of Comcast, the largest cable provider, is up 24% in 2019, second-ranked Charter Communications is up 33%, and fourth-ranked Altice USA is up 59%. (Cox Communications, the third-largest provider, is not publicly traded.) Shares of satellite TV service Dish are up 27%, as well.

In addition, people are also spending less time watching traditional TV channels, eMarketer said in the report. American television viewership will decline 3% this year to three hours and 40 minutes per day on average, the firm said.