January 21, 2021

Let’s Not Get Ahead of Ourselves

2020 was an interesting year for home video, with stay-at-home directives fueling demand for streaming and pay-TV services. Though demand for both will moderate post pandemic, the impacts will be very different. For streaming, the pandemic has been a catalyst, with the segment maturing the equivalent of five years in one-fourth of that time. For streaming, then, there will be no return to pre-pandemic “normal,” and that’s a good thing.

For pay-TV, despite a softening of cord-cutting in Q2 and Q3 2020, legacy losses will unfortunately return to (higher) 2019 levels, with virtual additions still unable to close the gap. To believe otherwise is an act of bad faith.

Streaming’s Accelerated Maturation
With stay-at-home directives in place, families turned to a wider array of video sources for not only breaking news but to escape the lethargies of the pandemic. Streaming services fared particularly well. According to December research, the average adult TV streamer spent just over 33 hours a week watching video on television, more than half of which came from streaming sources. In terms of the Big-4 SVOD services, 23% of adult Netflix users reported a “very significant” increase in time spent using the service during the pandemic (roughly 10 hours per week). Similar results were seen among Hulu users (17%, 7.2), Prime Video users (14%, 5.3), and Disney Plus users (14%, 4.2).

As well, most all SVOD services experienced a growth in subscribers, Disney Plus chief among them. As of December 2, 2020—just one year after its debut—Disney Plus had signed up 87 million users, an astonishing feat. Even mature services reported gains, with Netflix adding 6.5 million U.S. and Canadian subscribers in 2020, suggesting that a good number of those households waiting on the streaming sidelines were compelled to sign up during the pandemic.

The biggest winners may have been free ad-supported streaming video services such as Pluto, Tubi, and Xumo, each of which saw a sizeable uptick in both users and activity. Though 90% of users perceive these services as secondary or “last resort” content sources, with TV production schedules largely halted, their large libraries of older shows & movies became quite popular. And let’s not forget PVOD, as the pandemic hastened the pivot to streaming high-value film debuts.

Pay-TV’s Losses Ease, But Normalcy Hearkens
For pay-TV, 2020 told the tale of significant gains among virtual providers and reduced losses among legacy MVPDs.
Virtual MVPD subscriptions in the U.S. topped the 12 million mark at year’s end, up more than 20% over 2019, despite significant increases in retail prices. The vast majority of these gains can be attributed to YouTube TV and Hulu Live TV, though Sling TV notably returned to positive territory in Q3.

Legacy pay-TV subscriptions also saw a ray of sunshine in 2020, with cord-cutting declining from 1.84M in Q1 to 1.47M in Q2 and 1.3M in Q3 (the least since Q1 2019). TDG Members were first advised in April of a pending decline in subscriber losses, when research revealed that 10% of legacy subscribers were at least moderately likely to cancel service in the next six months, a 23% improvement over Q4 2019 scores. (TDG was the only firm to predict this decline in cord-cutting before it happened. Lucky, I guess.) Unfortunately, September research found that legacy cancellation scores had returned to pre-pandemic levels, portending an uptick of cord-cutting in late 2020 and early 2021. December research affirmed August’s insights.

So what is driving this renewed interest in dropping legacy pay-TV? The chart below offers insight into current motivations.

Notably, the most important reasons for cord-cutting are much the same as before the pandemic, with the need to reduce expenses topping the list (42% cite this as a “very important” reason for their proclivity to cancel service), followed by poor value (37%), itself a direct function of expense (cost vs. value). Three-in-ten would-be cord-cutters said that a pandemic-induced loss of income was a “very important” reason for their inclination to drop service.

A new appearance in the top-5 cord-cutting drivers was the increased use of free streaming video services, selected as “very important” by 38% – a rate 25% greater than the percentage citing increased use of SVOD services as “very important” in their inclination to cut the cord. This may be a temporary shift in relevance due specifically to the pandemic (i.e., viewers running low on new SVOD content and desperate for new sources), or may in fact carry over post pandemic. We will, of course, continue to monitor how FVOD impacts cord-cutting.

Conclusion
Those believing the future of pay-TV somehow improved in 2020 are guilty of false consciousness; willfully ignoring the fact that the segment remains in secular decline. Yes, virtual services added more than two million subscribers in 2020, but legacy pay-TV services lost more than five million subscribers during the same period despite a few quarters of reduced losses.

2021 will bring more of the same, with streaming’s recently-accelerated ascendancy in full force and pay-TV’s losses returning to, if not exceeding, pre-pandemic levels.

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