Hollywood Finally Admitted Cable TV Is Dying: What Happens Next? | Analysis

The write-down of linear assets by major entertainment companies in the latest earnings cycle speaks to the end of cable television, experts agree. But as these assets continue to drive billions of dollars in revenue to these same companies, a final chapter of this decline is unfolding: Cable distributors are in a standoff with television networks that have pivoted their investments to streaming.

The narrative that cable TV is declining isn’t new, but in recent years the universe of endless channels really has become a wasteland. Channels like VH1, a once valuable hub for a younger generation, has devolved into a steady stream of “Cheaters,” “Living Singles” and Tyler Perry reruns. TBS, once an experimental comedy hub, now largely alternates between reruns of “The Big Bang Theory” and “Friends.”

Overall, the number of cable subscribers has plummeted and no one thinks it’s coming back. In 2010, a year that is largely considered to be around cable’s peak, the number of pay-TV households peaked at 105 million . Nine years ago, pay TV had 94.9 million subscribers. That number is expected to drop to 70 million by the end of 2024, according to Leichtman Research Group. That’s a 26% decrease in revenue over nine years.

And therein lies the problem.

“The cable industry is not going to go away,” Brad Alfest, director of media and entertainment at Agora, told TheWrap. “In the history of media, no new medium has ever replaced any of the media that has come before. We still have radio, we still have newspapers, we still have television … we still have theaters, but the way that we understand that experience is going to change.”

He added: “The types of content that [cable] brings is going to change.”

The lack of investment in cable has stoked tensions between distributors and content companies. Last fall, Disney and Charter Communications engaged in a heated carriage dispute that revolved around Disney insisting on what Charter deemed were “unsustainable price hikes” and frustration that Disney’s ad-supported streaming apps, which contain the bulk of the company’s investments in new originals, weren’t being included in its linear packages.

“If you’re looking at the pay TV operators, a lot of the smaller ones have just stopped carrying a video product because it doesn’t make sense anymore,” Scott Robson, senior research analyst in the Kagan media research group within S&P Global Market Intelligence, told TheWrap.

At the same time that content companies are pulling away from investing in cable, they’re spending more on their own streaming services. This is happening even as pay TV continues to generate a “lion’s share” of profits for companies like Warner Bros. Discovery and Paramount, Robson said.

“If [content companies] can continue to sign carriage deals where the major pay TV operators agree to take these networks, then they can keep kicking the can down the road in terms of keeping them on air and programming,” Robson said.

As the streaming wars continue, pay TV has entered into what very well may be the final impasse between distributors like Comcast and content companies like Disney. Here’s why this apparent cable bloodbath is happening now, who may be on the chopping block and what this shift may mean for the future of the television industry as a whole.

A change that’s been in the works

Despite declining figures on all fronts, pay TV remains the main source of revenue for major TV players, including WBD, Paramount and AMC Networks. This revenue is largely tied to carriage agreements — a deal that occurs between a content provider, such as Disney, and a distributor, such as Comcast or YouTube TV. Distributors can range from broadband companies and traditional cable providers to live streaming options like Sling TV and are also referred to as MVPDs (Multichannel Video Programming Distributors).

“The hope is that [content companies] can continue to drive earnings from the existing deals with cable companies,” Jamie Lumley, a sector analyst at Third Bridge Group, told TheWrap.

This precarious relationship was tested a couple of weeks ago during the second quarter earnings reports for WBD, Paramount and — to a lesser degree — AMC Networks. All three companies reported non-cash goodwill impairment charges connected to their linear assets.

Warner Bros. Discovery announced a $9.1 billion impairment charge, largely credited to “continued softness” in linear advertising and “uncertainty” related to affiliate and sports rights renewals after the company lost the rights to the NBA. Paramount Global credited its $5.98 billion impairment charge primarily to “recent indicators in the linear affiliate marketplace” as well as “the estimated total company market value indicated by the Skydance transactions,” according to its earnings report. Finally, AMC Networks’ $97 million impairment charge included a $29 million charge specifically tied to the value of its linear asset, BBC America. These three massive write-downs happened within three days of each other from Aug. 7 to 9.

What the companies were saying by taking the charges is that their asset’s value was “impaired,” that its value had decreased when compared to its fair market value or recoverable amount. An impairment charge can indicate everything from a change in economic conditions to a shift in technology. In the case of the three Hollywood companies, the impairment charges were largely taken due to changes in viewership and advertising.

Even though Disney didn’t suffer a write-down this quarter, the company has also become less bullish on cable in recent years. In June of last year, CEO Bob Iger said the company’s cable brands like ABC, FX, National Geographic and Freeform “may not be core” to Disney moving forward. (Iger later clarified he wasn’t interested in selling these assets and said Wednesday he regretted making the comment. )

It’s no shock that the audience for pay TV has gone down. More than 5 million subscribers dropped out of the pay TV ecosystem last year compared to about 4.6 million subscribers who departed in 2022. Meanwhile, average cable viewership has dropped from 38% of all U.S. households to 28%, according to Nielsen’s The Gauge report. (During that same time period, average broadcast viewership declined 3% and streaming viewership increased 11%.)

So why did these massive write-downs happen this quarter? It comes down to the tipping point between distributors and content companies.

In previous years, companies were able to offset the loss of pay TV subscribers by price increases in cable TV packages. In 2015, consumers spent an average of $99.10 per month on pay TV — 39% more than average spending in 2010. The average cost of pay TV is now $112.70 per month . Because of these price hikes, the price-per-subscriber increased even as the overall subscriber base was shrinking. In 2019, The Information reported that even though Disney’s ESPN had fallen from the most-watched cable channel in 2015 to the third most-watched channel, its per-subscriber fees jumped by 33%.

Now, the TV industry has hit that point of no return. Distributors are no longer as willing to raise prices for an asset most content companies are clearly no longer investing in as subscriptions continue to drop. This, partnered with pay TV’s decline in advertising, makes for a bleak story.

From 2022 to 2023, advertising revenue for Disney around its linear networks fell from $4.88 billion to $4.16 billion due to decreases in lower average viewership and lower advertising rates. During that same time period, Paramount saw a 8% decrease in advertising revenues ($10.9 billion in 2022 to $​​9.99 billion in 2023) due to a decrease in linear advertising. For its part, WBD saw a 14% decrease from $2.23 billion in 2022 to $1.95 billion in 2023, owing to domestic audience declines when it comes to general entertainment and news as well as “soft” linear advertising markets.

“There’s an admission that this is the new normal, and the days of improving advertising revenue trends are over,” Robson said.

This decline has also already impacted media companies’ workforce. Earlier this month, Paramount announced plans to lay off roughly 15% of its U.S. staff in a series of cuts across the company, as it seeks to reduce its annual costs by about $500 million. This included the shuttering of Paramount Television Studios . In July, WBD cut 100 staffers at CNN before another round of layoffs that impacted workers across Max, production, business affairs and finance. Later that month, Disney Entertainment Television laid off 140 staffers , impacting 2% of the division’s overall staff and targeting cable brands National Geographic and Freeform as well as Disney-owned TV stations, marketing and publicity.

Sports are a saving grace — for now

“It’s increasingly evident that the only thing that can prop up these cable businesses is major sports events,” Lumley said.

Each year the most-watched TV events are consistently NFL games. There are several reasons why cable can find its saving grace in sports. Sport rights deals are increasingly more expensive and difficult to come by. The NFL’s 11-year deal with CBS, NBC, Fox, ESPN and Amazon went for $110 billion in 2021, and the NBA’s 11-year deal with Disney, NBC and Amazon was reported to be $76 billion.

There are also the technical costs and logistical challenges to consider. Cable and broadcast are already designed to show live games. Though certain streamers are trying to more seriously enter this space, such as Peacock with the Olympics and Netflix with its Christmas Day NFL games, the infrastructure to show these games requires a major investment.

Alfest sees live sports and the fan interactivity that these leagues inspire to be what is “now dragging the traditional industry, kicking and screaming, into the digital age.”

There’s also brand loyalty to consider. For example, ESPN has established itself as a trusted and valuable leader in the live sports space. Many viewers are as invested in the games the network broadcasts as they are in its studio shows, such as “First Take” and “College GameDay.”

It’s this difficult-to-build brand loyalty that has made WBD’s loss of the NBA such a hard blow. “[Without the NBA], the idea of asking for a rate increase is completely off the table, and the idea of even maintaining their rate is going to be a challenge,” Leichtman said.

What’s next

Despite cable’s gloomy state of affairs, signs of life remain. WBD’s cable networks hold five of the top 10 spots for primetime viewership with TNT/TBS, TLC, Food Network and Discovery Channel, according to Nielsen data. Bravo remains a valuable asset for NBCUniversal, with 71% of its originals posting season-over-season growth in total viewers across platforms. Paramount’s Comedy Central has “The Daily Show,“ which has seen significant gains since Jon Stewart’s return for the 2024 presidential election cycle.

The major entertainment companies all boasted about their upcoming slates across linear and streaming in the latest earnings reports — but obviously leaned on their impact on growing streaming ventures over the networks that provide them.

There are also certain cable brands that have developed a symbiotic relationship of sorts with streaming. While the NBCUniversal-owned Bravo has turned new episodes of “The Real Housewives” and “Below Deck” into must-see television, Peacock has also become a hub for fans of the channel. “Rick and Morty,” the WBD-owned Adult Swim’s crown jewel, has a streaming rights deal with both Max and Hulu. Comedy Central’s “South Park” is available to stream exclusively on Max thanks to a $500 million deal, as well as a $900 million deal that included the renewal of the series through 2027 and 14 specials for Paramount+.

Perhaps the most interesting cable-to-streaming story is Disney-owned FX. John Landgraf, FX’s chairman, noted that the network is thought of as a Disney “brand” rather than just a linear asset. The channel, which broke its own Emmy nomination record with 93 nods this year, has produced several Hulu exclusives such as “The Bear,” “American Horror Stories” and “Reservation Dogs.”

There’s also YouTube TV. On Monday, YouTube made Nielsen history, becoming the first individual streaming platform to hit a double-digit viewership share with 10.4%. Though these numbers include both YouTube and YouTube TV, they also reflect there’s still life in pay TV. “It’s done a good job in slowing the decline, but it’s not going to be enough to offset it,” Robson said.

Looking ahead, this next chapter of cable will be all about managing decline as companies wait for streaming to fully take off. At least for now, the margin for pay TV is still better than it is for streaming. “It can be in the 20 to 40% range, depending on who you are, but even that is a heck of a lot better margin than many services,” Leichtman said.

“At least in the next five years, we’re not going to see all the sports go over to streaming,” Lumley said. “That will keep the glue and the cable ecosystem together, at least for a few years longer.”

There’s always the possibility that the major studios sell off their linear assets. Amid discussions of more cost cutting to pay down its $14.6 billion in debt, Paramount recently renewed its talks to sell BET . There’s also FAST channels to consider, such as Paramount’s recent move to put MTV shows on Pluto TV.

“It’s a transition period right now,” Robson said. “Eventually we’re going to have a situation where streaming really looks very similar to what cable has always looked like.”

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