OTT adoption is showing the first signs of slowing, and that may be a warning sign for the newest streaming services set to launch from Disney and AT&T, according to a new note from Cowen analysts.
The findings come from a report, published each quarter in front of earnings, which surveys a statistically comparable portion of the US population to understand consumer behavior.
The survey asked respondents “has your household disconnected Pay TV in the past 6 months?”, and the percentage answering “yes” decreased across all of the large Cable companies — Comcast, Charter, Cox, Cablevision, and Suddenlink — following three consecutive quarters of increases, the analysts wrote. And for the past five months, cord cutting has remained generally flat, the report noted.
A portion of the slowing may be related to seasonal trends, as cord cutting moderates every Q1, the analysts wrote. But overall they believe the slowing stems from price hikes from streaming services. The price of TV service remains the top reason for cord cutting, far above access to exclusive content, the analysts wrote.
In the past several months there have been price hikes at vMVPDs, like DirecTV Now, FuboTV, and YouTube TV, which all increased their monthly prices to $50 a month or more. The vMVPDs, in raising prices, seemed to acknowledge that costs were irrationally low to incentivize growth in the early stages of growing their businesses.
Netflix also bumped up the price on its most popular plan to $13 from $11 in the first quarter.
These price increases make OTT solutions less compelling, according to the report.
In the fourth quarter 2018 video ARPU, a good proxy for the cost of cable service, was $84.6 at Comcast and $90.17 at Charter, the two largest cable TV providers in the nation. While that’s still more expensive than OTT streaming services, cable providers typically have more complete programming networks. DirecTV Now, for example, removed A&E, AMC, Discovery, and Viacom from its packages along with increasing the cost of service.
This means that the pricing for soon-to-be-launched services from Apple TV+, WarnerMedia, NBC, and Disney+ is especially important, according to the analysts. None have yet indicated exactly how much the services will cost.
Wireless carrier T-Mobile released a $100 a month streaming service called TVision last week. The Cowen analysts believe it could be difficult for the wireless carrier to succeed at that price point.
The silver lining for cable companies as OTT streaming services continue to adjust pricing is that it may produce better video subscriber figures compared to past quarter. Cable operators could report lower video churn in the first quarter 2019, the analysts wrote.