Introduction
It's been an interesting few days in the world of Pay-TV. First, Nielsen (NYSE:NLSN) came out with a report showing that Disney's (NYSE:DIS) ESPN network had lost 621,000 subscribers in the month of October. A concern not only to Disney but also to Comcast (NASDAQ:CMCSA) and other cable carriers since the most likely cause of a decline in a core tier channel like ESPN is that consumers simply cancelled their pay-TV service all together. Then, a roaring dissent from Disney, the company Nielsen is supposed to be measuring and evaluating, led the ratings service to withdraw its numbers. The quintessential case of the tail wagging the dog.
A Rather Odd Time
There is some reason to think that Disney's skepticism is not just sour grapes. October historically has been a strong month for ESPN and Pay-TV in general, because it is football season. ESPN subscribers often rise - or just fall much less, depending on the overall annual trend - August through December, when college football starts up again, followed closely by the NFL.
There is a clear correlation between football season and pay-TV, documented by many individual sports lovers as well as industry data. Usually when ESPN has a bad month, especially a historically bad month, you can bank on that month being January or February, when the last NFL games are broadcast. The regular NFL season ends early January, and if your team didn't make it you might not care enough about the playoffs to keep paying. If you want the playoffs, you still might not keep the Pay-TV package past middle or end January, when the last cable game plays on ESPN and all the remaining games are available OTA on broadcast stations. And even if you can't be bothered to set up an OTA antenna, you might cancel after the Super Bowl in early February.
But you probably won't cancel in the heart of the season. So a bad number in October is rather odd. College and NFL football are in full swing and college subscribers just got back. So maybe something really did go wrong with the counting.
But It's Not Just Nielsen
But Disney still shouldn't rest easy that the Nielsen number is wrong. This is only the latest in a series of poor showing for pay-TV this season, including NBC's Olympics coverage. And what's more, there was already evidence football itself was losing its luster. Disney's ESPN Monday Night rating are down a staggering 24%. Thursday and Sunday nights are a little better but still seeing declines in the high teens. At first pay-TV bulls blamed this on the presidential debates. But the debates ended two weeks ago, and yet Sunday Night NFL ratings that week came in at a five-year low.
So the number is surprising, but it isn't necessarily incongruous. It actually correlates very well with everything we are hearing about an accelerating decline in pay-TV and the diminishing ability of sports in general, and football in particular, to counteract it. Disney's assertion that Nielsen's data doesn't match with its own isn't really worth much, either. Because, as leading analyst Rich Greenfield never gets tired of reminding us, Disney refuses to publish what its internal numbers are.
It's also worth noting that when Disney protested Nielsen's announcement, it did not actually identify a particular flawed assumption or method in Nielsen's survey that it wanted corrected. It simply insisted that Nielsen was wrong - "does not match our data" - and all but demanded they pull the report. When Nielsen did, they didn't identify a particular flaw either. All they said was that they "took accuracy seriously" and were going over everything again. But presumably they take accuracy seriously every month. So aside from the fact that one of their big clients isn't happy, is there any other reason to question the report?
Why These Subscribers Matter More
The last major dust-up between Nielsen and Disney over subscriber numbers was in February, when the January numbers came out. A more typical time. Nielsen caved then, too, withdrawing its figures but never quite actually saying it found evidence they were wrong. ESPN also has historically struggled in May and June, when college students move back home for the summer and families tend to consolidate into fewer households.
But that actually scares companies like Disney and Comcast less. Because in the fall those students will move back out to college and start up subscriptions again. Probably. But when someone leaves in February, when they take the real cord-cutting plunge, almost half of them find they like not having the bill and don't come back in August.
And that is subscribers who actually waited till the end of the season to cancel, and therefore probably still loves the sports product. Even those subscribers might not be able to stay away when next season came in the fall. But these 621,000 subscribers left - if they left, we still don't know - in the middle of the season, apparently fed up with the product, as well as the bill. That is why Disney is so insistent that investors not credit Nielsen's latest survey. Unlike summer losses, if 621,000 people really did leave ESPN, and cable, in the heart of football season, those subscribers are probably never coming back.
Conclusion
Disney probably knows more than we do about how accurate this report is, but it still won't release hard numbers. Nor can it identify a specific methodological error. Assuming there isn't an actual error to correct, Disney will just have to wait and see if it can again compel Nielsen to "adjust" its report, like last time, or if this is finally the straw that breaks the camel's back. If the report is adjusted substantially, Disney and Comcast stock may soldier on for a while. But if this really is a tipping point for pay-TV, they may fall sharply over the winter.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
from Don T Breathe - Google News http://ift.tt/2fkLAKG
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