The emergence of over-the-top (OTT) television platforms will not result in a widespread increase in cable subscription cancellations (i.e. cutting the cord), and will not affect the credit ratings of the US content providers, according to Fitch Ratings.
Fitch estimates that only 10 per cent to 20 per cent of the overall US population is at risk of cutting the cord in favour of alternative platforms. This ‘high-risk’ segment is likely comprised of households that are: 1) middle-income, 2) low in TV consumption, 3) single-person, 4) technology-savvy, and 5) young. Even within this high risk population, Fitch suggests there are several mitigants, including a currently less compelling line up of content, the OTT viewing experience, sports programming, DVRs, and initiatives taken by pay-TV distributors.
Fitch believes that cord cutting will not be material to the media conglomerates’ free cash flow generation or credit profiles, despite some modest demand reduction for content delivered via traditional methods over the intermediate term. Fitch estimates that subscriber losses would have to exceed four per cent annually for ratings to be affected.
“Consumer demand for high-quality and expensively produced programming will remain,” said Melissa Link-Cohen, Director, Fitch Ratings. “The large, well-capitalised content providers are crucial to the industry and will remain so. We expect them to remain rational players and not sign deals that reduce the long-term value of their content.”
Fitch believes the best-positioned sectors in an OTT world are film and TV studios, as the content creators and licence holders. Cable networks, particularly premium cable and networks that rely largely on buying syndicated content, face elevated risk of lower audiences and potential business model interruption. Also likely to be negatively affected is the home entertainment segment.