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Onward,

Michael Beach

We’re in a Tight Spot!

In O Brother, Where Art Thou?, Everett McGill said it three times in a row, each time more desperate than the last: "We're in a tight spot!" He was chained to two other men, standing in a barn that was about to be set on fire. Cable TV knows the feeling. It's chained to a business model that's burning, and the flood is on its way.

For 30 years, cable charged families $100+ a month for 500 channels they didn't watch. Prices rose faster than inflation. Networks kept 60% gross margins. Wall Street called the moat deep. Then streaming broke the monopoly. And it turned out the moat was a ditch.

Today, pay-TV has lost a third of its subscribers since the 2012 peak. The decline is accelerating, not slowing. And for the first time, the companies that built cable are the ones dismantling it.

Let's break it down into 3 big questions:
1) How many homes subscribe to a pay-TV bundle?
2) Is time spent with pay-TV declining at the same rate as subscribers?
3) How is cord-cutting impacting the economics of cable networks?

Past cord-cutting: 2024 | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016

How many homes subscribe to a pay-TV bundle?

68M (51% of all HH)

YoY change in pay-TV subscribers:
1) Traditional pay-TV - ↓ 3.8M
2) Streaming pay-TV - ↑ 1.1M
3) Total pay-TV - ↓ 2.7M

Pay-TV status (Kagan):
1) Pay-TV - 68M (51%)
2) No pay-TV - 67M (49%)

Household penetration:
1) 2015 - 80%
2) 2025 - 51%

Pay-TV households:
1) 1995 - 64M
2) 2005 - 93M (↑ 46%)
3) 2015 - 100M (↑ 8%)
4) 2025 - 68M (↓ 32%)

Is time spent with pay-TV declining at the same rate as subscribers?

No. Time spent is declining 4X as fast as subscribers.

Last year, this ratio was 2.5X. It jumped to 4X in a single year. A 58% increase.

The people who cut the cord last year weren't light viewers. They were heavy cable viewers. The kind who watch hours a day. And they left.

The remaining subscribers are increasingly people who pay for cable but don't watch it. They haven't gotten around to canceling, or they keep it for one live sports season a year. By definition, they are the lowest-value customers an ad-supported business can have: paying subscribers who generate no impressions.

Best case for cable networks: they lose a massive chunk of ad inventory as viewership drops faster than the subscriber base. Fewer eyeballs, fewer impressions, lower CPMs.

Worst case: these light viewers eventually realize they're paying $100+ a month for something they barely use. And cord-cutting accelerates even further.

Charter's broadband bundling has slowed the decline slightly. But that's a distributor subsidizing a product its own customers are abandoning. A holding action, not a reversal.

How is cord-cutting impacting the economics of cable networks?

Cable networks make money in two ways: advertising and affiliate fees. Both are collapsing from the same cause.

Side one: advertising:
1) 2015 peak - $28B
2) 2025P - $19B
3) Back to 2007 levels

In 2007, $19B was a stepping stone. The bundle was growing. Today, $19B is a ceiling. No new subscribers. No time-spent growth. No ad dollars migrating back. Same number, opposite meaning. That's structural collapse.

Side two: affiliate fees:
1) Down ≈3% in 2024 to $39B
2) Declining 8-10% per year per network
3) Average cable network lost 7% of its base last year alone

And this is the part nobody in media wants to put in a deck: both of these revenue streams shrink from the same cause. Cord-cutting. It's not a diversified revenue base. It's the same house on fire, twice.

The Versant example shows exactly how this plays out.

Comcast spun out its cable networks (CNBC, MSNBC, Bravo, Syfy, Oxygen, E!, Golf Channel) into a new company called Versant.

YoY change for Versant:
1) Revenue - ↓ 6%
2) Profit - ↓ 14%

A 6% drop in revenue produces a 14% drop in profit. A 2.5X multiplier. Cable networks cannot cut costs (programming, production, sales) at the same rate as revenue falls. Spend less on content, and the product gets worse. Worse product drives more cancellations. More cancellations drive revenue down further. The doom loop, expressed in a P&L.

You don't spin off a business you think will recover. You spin off a business you want to harvest on the way down. When every major cable owner runs this play simultaneously in public, that's not a signal. That's a verdict.

Bottom line

Cable TV isn't dying. It's already dead. The last decade has just been the wake.

The 2007 ad revenue. The 51% penetration. The five networks that matter out of hundreds. The owners are building lifeboats in public. A software company (YouTube TV) is about to become the biggest "cable" provider in the country without running a single coax cable.

The doom loop is the model now.

Everett, Pete, and Delmar survived because the flood washed away the old world, leaving them standing in a new one. Cable won't be so lucky.