Moody’s Outlook For US Cable Television Industry Changed To Stable With EBITDA Growth To Slow, And Margins To Fall

Posted by Moody’s Research

Sector earnings will not benefit from material acquisition-related cost savings and will be burdened by the cost to build mobile wireless at certain companies.

Steady broadband growth will be outpaced by accelerating losses in video and voice revenue generating units (RGUs)

The outlook for the US cable television industry has been changed to stable from positive, Moody’s Investors Service says in a new report. Earnings growth for the sector will slow and margins are expected to decline over the coming 12 to 18 months.

“The stable outlook for the cable television industry reflects a deceleration of EBITDA growth, to about 4% in 2020 from about 5% this year, as well as future margins below 39%,” said Jason Cuomo, a Moody’s Senior Vice President. “The absence of material merger synergies and the rise in costs at certain companies to build mobile wireless services are weighing on the sector.”

Steady broadband growth will be outpaced by accelerating losses in video and voice RGUs, Cuomo says. While demand for high-speed, reliable wireline broadband remains strong, more customers are cutting the cord on cable TV in favor of streaming services. But, the growth of mobile wireless subscriptions should provide some offsetting benefits. If mobile additions continue on pace with recent history, the gains over the next 12-18 months could be sufficient to hold constant the total number of RGUs.

According to Moody’s, the rate at which broadband is replacing video subscriber losses is today the lowest it’s been in five years and is expected to fall further in the next 12-18 months, though the rate should still be well above 1.25x, supporting both revenue and earnings growth, albeit at a lower level. Moody’s outlook assumes broadband subscriber growth of 4%-6%, and video losses of -2% and -4%, driving video penetration down to about 31% and voice to under 19% by the end of 2020; rising broadband penetration is unlikely to hold the triple-play-equivalent metric steady.

Pressure on video is increasing, as the number of over-the-top streaming video services is rising, along with growing market coverage and subscriber counts. While the ultimate success of these services is uncertain, pricing can be much lower than Pay-TV and the value proposition is evident in the traction, with the acceleration of cable video subscriber losses over the last year. Meanwhile, 5G promises very high-speed wireless broadband in both fixed and mobile networks, which could ultimately compete with the cable industry’s golden goose, wireline broadband.―BCS Bureau

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