MediaTalk | Season 2 | Ep. 43 - Maturity vs. convergence: Connecting streaming, cable broadband, wireless

View Full Transcript

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence tech, media, and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape.Today, we're going to talk about the stories that shaped the broadband and wireless markets in 2024, as well as the streaming space. I'm joined by a trio of S&P Global Market Intelligence Kagan analysts: John Fletcher, who specializes in US broadband and multi-channel; Lynette Luna, who tracks US wireless carriers; and Seth Shafer, who writes about subscription and ad-supported streaming, among many other things. Let's start with John. How you doing, John?

John Fletcher: Great. Thanks for having me.

Reynolds: All right. Streaming remains in ascent. Cord cutting continues. I know we only have results through the September quarter, but how bad a year has 2024 been for traditional video distributors in terms of customer defections?

Fletcher: It wasn't any better than last year. Last year, they were all reporting eight to 10% annual declines in their video business. This year, it's more like 11%.

Reynolds: Really?

Fletcher: Yeah. I think the bump up has to do with, obviously, cord cutting. But there's also the halo effect of the Affordable Connectivity Program expiring. And so as people lost their broadband, maybe that had an impact on some video services getting hit as well.

Reynolds: I was gonna ask you about that — so if you drop broadband, you might have dropped video along the way.

Fletcher: Yeah. These operators are great at bundling lots of different services, and video is still an important one, especially for Comcast Corp., Charter and Altice USA Inc. So a lot of the smaller operators have been throwing in the towel with the traditional video service and just telling their customers to go ahead, figure out video on your own, get your own Netflix Inc., or, and, or, hey, we partnered with YouTube TV. We can add that to your cable bill too. So there are two different stories happening in the multi-channel space right now.

Reynolds: So in terms of the Affordable Connectivity Program, cable took a harder hit than the telcos there.

Fletcher: Yeah, everybody had a rough year with the exception of fixed wireless and Space Exploration Technologies Corp.'s Starlink, and this year was the first year the cable broadband space shrunk. I had to double-check my numbers. I think it was the first or second quarter. I was like, really, are we really not growing any more cable? And it's never happened. But here's the good news: Charter had a huge chunk of its base on the ACP plan, I think it was 10% from memory serves. They lost 1% of their broadband customers in the last year. So that's pretty good. If 10% of people were on ACP and then we lost one, these operators are good at retaining customers when they call up to cancel and sweetening the deal. I think that's a pretty impressive retention ratio, all things considered.

Reynolds: I know the expiration came back in May. Is ACP going to have an impact on '25 as well, or is it all cleared up at this point?

Fletcher: Yeah, I think you're right. I think for the most part, it's a 2024 thing. The industry is looking forward to having it behind us. Comcast said, "Hey, we're front-loading all of our future expected losses," and they just dumped them into the third quarter. So they don't expect to have anything next quarter. Charter did mention there's going to be a little bit more of an impact next quarter, and some of the other operators might see some more impact from it going forward, but the bulk of it is behind us.

Reynolds: All right. So all things considered, when the book closes on 2024, you mentioned that fixed wireless and Starlink, there's some gains there. What kind of year will broadband have overall when you look back on 2024?

Fletcher: Yeah, speaking of numbers, I had to go double-check again for the third quarter '24. We do a percentage of occupied households that have a fixed broadband connection. And the number went from 89.6% to 89.5%. So it went down just a tiny bit, and I think that's really reasonable considering what happened with ACP. So it really is a testament to the growth of fixed wireless and, to an extent, Starlink as well. The wireline operators, with the exception of fiber, had a rough year. Despite that, the strength of fiber, fixed wireless and Starlink were enough to keep everything basically flat throughout the year in terms of household adoption.

Reynolds: Flat would be a good thing for the video side, right, John?

Fletcher: That would be the new up for video.

Reynolds: All right, John, thanks for spending time with us. Happy New Year.

Fletcher: Cheers, Mike.

Reynolds: Next up is Lynette Luna. As senior research analyst, Lynette leads Kagan's coverage of wireless, US consumer mobile, and tower markets. How are we doing today, Lynette?

Lynnette Luna: I'm doing well, thank you.

Reynolds: As the days grow to a close on 2024, and I know we only have through third quarter numbers, but can you give us a summary of how the wireless industry performed overall or your thoughts on, when they close the book on 2024, it's going to be what kind of year?

Luna: It'll be another strong year. Cable MVNOs are really making strong inroads, being really aggressive on the pricing front. There's still not a huge threat to operators in some sets, just because they are targeting their own customers with bundled offers. And really, the strategy is to increase revenue for those bundles and increase customer satisfaction. But their net adds are pretty minuscule when you compare it to T-Mobile US Inc., which continues to lead the industry in postpaid phone subscriptions and other metrics. So yeah, the question always is, where are these subscribers coming from? They're coming from prepaid. They're coming from, I think kids are getting phones at a younger age. And I also think that employees are getting their own personal phones, so carrying around two different phones, one, a corporate phone and one, a personal phone.

Reynolds: So even though, I forgot what you've told me in terms of a very high percentage of the U.S. have in the wireless game. But again, as some of the dynamics you just mentioned, it continues to grow a bit.

Luna: Yeah. Churn rates still continue to stay pretty low for operators. So it doesn't appear that there's a lot of just switching operators over and over again. So it's an interesting dynamic, and carriers are being really careful about their offerings. Like they're not being too aggressive. But also, the new iPhone came out. So there's a lot of opportunity to upsell as well, using that as a lever.

Reynolds: Okay. I think this is a perennial question and not just for 2024, but the industry needs more spectrum. What kind of services could be enabled? And more importantly, where is the industry going to find new spectrum?

Luna: They need additional mid-band spectrum, which is becoming increasingly dire. The US spectrum pipeline currently has no bands for auction in the near term. And really, Congress allowed the FCC authority to auction spectrum to lapse way back in March 2023. So that needs to be reinstated. Most of the mid-band spectrum for consideration is encumbered by the Department of Defense. For commercial operators in the Citizens Broadband Radio Service (CBRS) band, if you remember that band, it's 3.1 GHz to 3.45 GHz, and it's important for 5G, but it's not very useful for 5G because of the power limits. So carriers are really lobbying the FCC to change some of those limits for CBRS and possibly even re-auction it, but there are so many moving parts.

Reynolds: It's a new Congress, with GOP control, a new president, a new FCC commissioner, all those things. So how quickly could things turn?

Luna: It could be pretty slow. In August, the FCC issued a notice of proposal that would revise the CBRS rules. And they want to better protect incumbent federal users, but also improve the rules for both priority access license holders and the general authorized users. Companies like AT&T Inc. are urging the FCC to move on this, move the CBRS spectrum users to a different part of the three gigahertz band. So there are lots of different things the industry could fund a move to different parts of the band. But then, there are other incumbents already in there, especially the cable MVNOs have a lot of CBRS spectrum; it may take a while to hash out.

Reynolds: In the event that more spectrum comes, what might it be used for? What will be the new game, if you will?

Luna: We just need more. The industry needs more just for capacity. The amount of traffic going over these networks continues to grow. The higher the data speeds, the more capacity issues that we have.

Reynolds: So we need more to keep it going or make it go a little faster.

Luna: And then you have advanced use cases like ultra-low latency. It just needs a lot more capacity in a network to be able to do some of these things.

Reynolds: As you look back on '24 overall, was it a good year, a bad year, or a mixed bag?

Luna: Oh, it was a good year for the industry. It's a mature industry now, but they're still humming along. The big three are still pretty strong. U.S. Cellular is selling itself off. We're just seeing the makings of a mature industry moving along and perhaps, wireless becoming more like a utility where everybody needs it.

Reynolds: All right. We appreciate you taking some time to take a look at '24 for us.

Luna: Thank you.

Reynolds: Next, we're going to speak with Seth, who wears many hats very well for Kagan, including being involved with many of the consumer research surveys. But today I'm going to ask Seth about some of the big stories across the streaming realm. Actually, this story has legs that date back to late summer of 2023 when the Walt Disney Co. and Charter Communications, which I guess is now the nation's largest linear distributor, were in a carriage dispute. After a 12-day blackout, the parties came to terms. As a result, Charter is no longer carrying some of the smaller Disney networks, but the cable operators are now offering some of Disney's streaming services. If you can pick up the story there, Seth, this is a big to-do in '24 and moving forward.

Seth Shafer: Yeah, Mike, I think that first one you mentioned with Charter and Disney set the stage, and really, at the heart of that is just Charter looking for a way to keep people within that pay TV world for as long as possible. So an obvious incentive there is to negotiate for a streaming service bundled in, and then for Charter throughout the year, we saw them as they came to new carriage agreements with Paramount Global, Warner Bros. Discovery Inc., Comcast's NBCUniversal Media LLC and AMC Networks Inc. Each of those deals included the primary streaming service at the media company as part of the renewed carriage deal. Will this apply outside of Charter? If you look at Charter, DIRECTV Entertainment Holdings LLC, Comcast — those bigger traditional multi-channel TV providers — it looks like this will probably continue as these other carriage agreements come up for negotiation. With DIRECTV, we saw a blackout between DIRECTV and Disney, but they eventually came to terms, and a similar playbook there with the Disney streaming services being included for free for DIRECTV customers.

Reynolds: One thing with Charter, Seth, they've got ties to most, if not all, of the traditional top video player streaming services. But I don't think they've really started to market it yet. I've got to think that's gonna help the business for both sides.

Shafer: It'll be interesting to see how much this has played up, keeping in mind too that the shift from pay TV to streaming is ongoing, and there's not a lot that's going to stop that. So the game is less about, is this a huge appealing package that's going to get new people to come back to Charter and things like that, or is it more an engagement tool? And not just an engagement tool for the pay TV service, which is really low margin; Charter doesn't make very much money off offering pay TV, but does it keep people with broadband and TV and these kinds of bundled packages where they're getting a double play, triple play, even across mobile now? That's probably more of the angle, where if you see Charter selling up, "Oh, look, you can get access to nine services now on Charter that are for free," or across all those companies I mentioned. So that's pretty compelling, especially if it's a bundled Charter consumer that's getting broadband where they have really good margins and mobile and pay TV as well.

Reynolds: Like you said, we'll see if the other multi-channel distributors follow suit if this is now, if Charter's in fact charted the new way. There's other collaborations going on though too, right? The streaming services and forgive me, I don't have them off the top of my head. They're working with DoorDash Inc. or Walmart. There's other collaborations. So again, as you said, streaming's not going to go away. It's only going to become more in the forefront.

Shafer: Yeah, for sure. And that's definitely something in our research. We started this year, and we're going to continue that next year, especially in our surveys about getting at what's the overlap of usage. And you mentioned the shopping angle, Uber Technologies Inc., sort of DoorDash, those kinds of angles. Yeah. But it wouldn't be surprising to me to even see broader packages put together across gaming, some of the cloud gaming services, music, things like that, where you start looking at a household package that spans different sorts of verticals and are there a way for these companies to come together? I think the trick is, everybody wants to make their money in the end. So when you start offering these bundled discounted things, it's who takes the hit on that package? Who pays for the discount? And at the end of the day, is the upside worth kind of the hassle of making all these agreements work? But definitely seems like consumers, I think, are less asking for, "I want a bundle of three video services together," "I want a bundle of four," like they've figured all that out. I think more of the upside may be in finding a way to partner up across these entertainment verticals as far as music and video and gaming and other things like that.

Reynolds: You've just described a lot of moving parts, a lot of different entities, different media conglomerates, and content providers with their streaming services. Everybody's got different strategies, different goals. I'm going to ask you and hope you can summarize for 2024: what kind of year for streaming overall?

Shafer: I think 2024, even 2023, there were questions in the U.S. market especially, like what is the growth arc for streaming video? At that time, we're in this transition between all of the SVOD, the traditional streaming services, tacking on ad-supported tiers and things like that. So now universally, except for Apple TV+, all the major services have an ad tier, a cheaper ad tier that's worked; it's helped keep growth there and alive in the US. But we really are getting close to that ceiling of how much can you ring out? There aren't many new households that have never signed up for a streaming service to market, so it's a lot of poaching customers and trying to adapt to consumer behavior where you sign up for a service and you have it for three months and drop it and you rotate and all this stuff. All that aside, it was a pretty good year in 2024, and especially if you look at the push towards being profitable. In the streaming divisions of the major media companies, we have to put Netflix in a league of its own here. Netflix really is operating on a different scale as far as free cash flow and profitability. If we say, "Good job, Netflix," and put them to the side, and we look at Disney and Warner Bros. and Paramount and companies like that, a good year as far as pushing towards proving they can be profitable, a reasonably good year in growing subscribers and growing revenue. But the challenge for those companies really is scaling that profitability. They got there by layoffs, cost-cutting in some cases, just taking down content entirely off the streaming services.

Reynolds: Comparison to the Hollywood and writer's strike. There was less content last year, those kinds of things too.

Shafer: Yeah, and I think the big question there, I think they've proven they can be really efficient and lean now and get to break-even slight profitability in streaming. Can they keep investors happy by scaling that up? Is there a pathway there? And I think that's going to be the real challenge for the big media companies outside of Netflix in 2025. Not to get ahead of ourselves, but you asked me about 2024. I think it's setting the stage for, you've righted the ship, you've proven to the investing community you can do it and not hemorrhage billions every year. Now, what is the big question?

Reynolds: Seth, I want to thank you for spending time talking about the streaming world. It's growing in many different ways, tentacles everywhere.

Shafer: Thank you. Always a pleasure.

Reynolds: That concludes this episode of "MediaTalk." This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on the next edition of "MediaTalk."