Pay-TV Operators Face Headwinds, Brace for Change with Rise of Video Streaming Services
DENVER (October 17, 2019) — The cable and satellite TV industry is currently going through a major structural change as more consumers move to broadband internet-based video streaming services such as Netflix, Hulu and Amazon Prime Video for content. Meanwhile, programming costs for pay-TV operators are rising and margins are tightening, leaving some operators with tough decisions about their future business models.
A new report from CoBank’s Knowledge Exchange division analyzes the underlying trends and economics for streaming video services and how some pay-TV operators are navigating these changes. The report also evaluates the risks cable and satellite operators face with deemphasizing or exiting the video business, and how a broadband-first mentality can be a good thing for operating margins.
“Major technology companies are entering the streaming market with disruptive pricing strategies, putting more pressure on the traditional pay-TV industry,” said Jeff Johnston, lead economist, CoBank Knowledge Exchange division. “The question for pay-TV operators becomes how do you exit or deemphasize the video business without negatively impacting your broadband subscriber bases.”
While over-the-top streaming services are a threat to the pay-TV market, they are a bright spot for the broadband market. Streaming these video services requires a fast and reliable broadband connection. As a result, consumers are opting for high-speed broadband plans, pushing broadband operating margins for smaller fixed operators into the 35-45% range.
On the surface, disrupting or discontinuing pay-TV service seems like a scary proposition for operators. However, CoBank’s analysis shows that operators would need to shed 10% of their broadband subscribers before their exit from pay-TV would negatively impact operating margins.
Johnston said this suggests that with the right strategy, operators can successfully transition their pay-TV subscribers to alternative video platforms without negatively impacting their business. Some operators have demonstrated that by offering a white label streaming service, broadband subscriptions can increase and corporate operating margins can expand.
CoBank is a $139 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.