Cheap digital TV packages are cannibals — and could push traditional TV to its worst subscriber losses on record

Hannibal NBC

Since internet-TV packages began to pop up in earnest last year, a question has hung in the air: Are they cannibals?

These streaming-TV packages function much like traditional satellite or cable ones, except they generally have fewer channels, more flexibility to cancel, and are delivered over the internet.

The companies that offer these services — AT&T, Dish, YouTube, and so on — have usually described these streaming-TV services as built for people that don’t currently subscribe to a pay-TV service (“cord-cutters,” or “cord-nevers”).

That’s one market, sure. But the outstanding question has been whether these packages will hurt their traditional counterparts, sometimes offered by the same company, by cannibalising their customers.

In short: Will people who have a $US100-a-month DirecTV package right now trade it down for something smaller and digital?

In a new report from UBS analysts led by John Hodulik on Tuesday, the answer seems to be “yes.”

UBS said the “availability of cheap live streaming alternatives” is contributing to more people cancelling traditional packages (“elevated traditional video churn”). The analysts also said it’s hurting the ability of pay-TV companies to charge high rates (their “pricing power”). If you are a pay-TV operator, especially one that doesn’t own one of the upstarts, that’s bad news for you.

UBS said the trend will be evident when the full second-quarter numbers come out, especially given the launch of two significant streaming TV services: YouTube TV and Hulu with Live TV.

UBS expects historically brutal subscriber losses for traditional TV this quarter, with the market losing 1.2 million subscribers, widening from both 795,000 last quarter, and 821,000 in the quarter a year ago.

“This would be the worst traditional video result on record, equate to a 2.5% annual decline in traditional subs (vs. -2.1% last quarter) and put the industry on pace for a 3.4% decline for the year (vs. -1.5% in 2016),” UBS wrote. As I said, brutal.

Here’s a chart of what UBS expects for the traditional TV industry over the next few years:

Screen Shot 2017 06 27 at 4.20.03 PM

NOW WATCH: The best time to eat carbohydrates so that your body uses them up instead of storing them as fat