Analyst Note| Michael Hodel, CFA |
Following an ugly start to the year, trends in the pay television industry didn’t worsen materially during the second quarter. We estimate the industry lost about 1.6 million net customers in the U.S. during the quarter (to around 86 million), better than the 2.0 million lost in the prior period but worse than 1.3 million lost during the same quarter a year ago. The year-over-year change in customer losses was the smallest in nearly two years, per our estimates. More important, the second quarter is usually seasonally weak as snowbirds head north and college students head home, often disconnecting service. While 2020 is far from a normal year and seasonal swings have likely steadily diminished with the rise of online content options, the sequential improvement amid the worst of the pandemic and sports shutdown provides some evidence supporting our view that the industry isn’t headed for a customer death spiral, a key element of our fair value estimates and moat ratings across much of the media sector, including Disney, Comcast (NBC Universal), AT&T (Warner), Fox, and ViacomCBS.