Will U.S. Pay-TV Industry's Distressing Times Continue?

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Research firm SNL Kagan recently predicted that the U.S. pay-TV industry (consisting of cable, satellite and IPTV operators) will lose approximately 10.8 million customers by 2021. Total pay-TV subscribers will be around 82.3 million at that time, which will be 20% less than the industry's historical high level.

In terms of customer retention, legacy pay-TV operators are yet to cope with the onslaught of low-cost online video streaming service providers. In the last ten years, the internal dynamics of the pay-TV market have gradually shifted from legacy pay-TV offerings to low-cost over-the-top (OTT) service providers.

The strong presence of online video streaming providers is posing a significant threat to the existing pay-TV business model. Video offering, which represented the core business function of cable TV operators, seems to be slipping out of their hands fast.

In order to remain competitive in the market, pay-TV operators stared offering Internet TV with selected TV channels at cheap rate. Technically, Internet TV is similar to pay-TV offerings. Its shows can be viewed using a broadband connection and mobile gadgets like tablets, smartphones, Roku box and smart TV, to name a few.

Major pay-TV operators, such as AT&T Inc. T , DISH Network Corp. DISH and Sony Corp. SNE have already launched their Internet TV services. Verizon Communications Inc. VZ and Comcast Corp. CMCSA are the latest entrants. Most of these companies are offering both legacy pay-TV as well as Internet TV services with selected TV channels at lower costs. AT&T, DISH and Sony carry a Zacks Rank #3 (Hold). Verizon has a Zacks Rank #4 (Sell) while Comcast holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here

Interestingly, a few days ago, another research firm, Strategy Analytics, estimated that major pay-TV operators who offer both traditionally managed TV services and next-generation online services will hold nearly 80% of the market share till 2022. They will continue to do so despite facing intensified competition from low-cost OTT service providers.

Nevertheless, pay-TV operators are yet to find out an appropriate trade-off between these two types of services. Making online ventures more attractive is resulting in more subscribers for the new services at the expense of the traditional pay-TV business model. Ultimately, the cord cutting due to Internet TV is yet to stop, which is currently the biggest threat for pay-TV operators.

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AT&T Inc. (T): Free Stock Analysis Report

Verizon Communications Inc. (VZ): Free Stock Analysis Report

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DISH Network Corporation (DISH): Free Stock Analysis Report

Comcast Corporation (CMCSA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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