Since 2012, the number of U.S. households who subscribe to bundled TV services like Comcast and DirecTV has declined by 1.1 million, which isn’t a lot when you consider that there are 118 million U.S. households who watch TV.

So is the cord-cutter hysteria overblown, or are these losses of 1.1 million households the tip of the iceberg?

That’s the $104 billion dollar question for the U.S. pay TV industry, which is undergoing a seismic change — monster growth of video on broadband and smartphones, Netflix getting to nearly half of U.S. households, premium cable channels like HBO and Starz launching apps that don’t require cable service — of a magnitude not seen since the rise of cable in the 1980s.

If current broadband and bundled-service trends continue, the U.S. market will hit a point in the next two years when there will be more broadband households than bundled-service households for the first time ever. If you consider the 10 percent of Americans who use a smartphone but don’t have broadband access at home, we’re already at that point.

“Netflix and other streaming services aren’t significantly impacting the number of subscribers or the total spending on pay TV,” says media analyst Bruce Leichtman of Leichtman Research Group, “but they’re having a tremendous impact on viewership.”

To get a sense of how the industry is changing and how the pieces fit together, Leichtman sat down with Decider to talk about what’s causing ESPN and MTV’s current woes, how new streaming bundles like Sling TV and Playstation Vue fit into the picture, and who those 1.1 million cord-cutters are.

DECIDER: Total subscribers for cable, satellite and other pay TV providers peaked around 2011 or 2012. Do you have a theory of why that happened when it did?

BRUCE LEICHTMAN: Subscriptions peaked in the first quarter of 2012, and the industry actually stopped keeping pace with housing growth in 2010. Household penetration leveled off in the early 2000s at about 80 percent. When News Corp. bought DirecTV [in 2003], they increased the subscriber base from the low 80s to the 80s, but those new customers were the most tentative customers. And Dish Network followed with lower prices. In 2006, the telcos started entering the market and had significant growth through around 2010.

When you say telcos, that’s primarily Verizon FIOS and AT&T U-verse, right?

Right, today FIOS and U-verse are available to about 42 million households, and 30 million of that was built between 2006 and 2010. So those two things — satellite and telcos — helped increase penetration. Then you have a third factor, the digital transition that started in 2009 brought in the last group of consumers came in when you started seeing more services bundled with phone and internet.

Once that household penetration got to 85 percent, what started eating away at that?

It was never going to reach 100 percent. Remember, it had essentially leveled off at 80 percent before the satellite companies started going to more downscale consumers and telcos entered the market. That was well before Netflix. Household penetration levels off in the mid-2000s and starts declining in 2012.

Did it start declining in any particular way — younger consumers or lower household income?

It’s like accounting — last in, first out. The last consumers who came into the market were generally lower-income and younger, and they were the first ones out.

I was looking this morning at Nielsen ratings across the top 30 cable networks, which were down less than 1 percent year to date, but the MTV Video Music Awards were down 35 percent. Comedy Central is way down. I assume that’s because younger viewers are leaving cable.

It’s two things, and people tend to conflate the two. You’re seeing fragmentation of viewership, and you’re seeing cord-cutting. There’s far more fragmentation of viewership than cord-cutting. The impact of Netflix and other streaming video is much stronger than the impact of the decline in pay TV. Those are not the same thing. It also doesn’t track spending. Netflix has about $4 billion in U.S. revenue compared to about $104 billion for the pay TV industry. Netflix and other streaming services aren’t significantly impacting the number of subscribers or the total spending on pay TV, but they’re having a tremendous impact on viewership.

Why have ESPN’s subscriber numbers declined faster than the industry overall? Were cable systems dropping ESPN?

Every year, there are 20 million to 24 million gross additions to the pay TV industry, which could be people moving from 2 Elm Street to 10 Elm Street. When they restart service, it may not be the same package. FIOS is a great example of using custom bundles to create lower price points to lower their programming costs.

What do you think about the idea that sports channels have been free-riding on the cable subscriptions of people who don’t watch sports and that cable networks will defensively turn ESPN into an add-on service?

Sports is the biggest cost, but it’s also the biggest glue. You can only get the regional sports networks if you subscribe to a pay TV package. There’s a huge difference between people with one TV and people with two or more TVs; they make very different decisions about programming. A one-person household may not want sports, but a bigger households wants more programming in the bundle. The declines in pay TV haven’t been in the bigger households; it has been in the one-TV households.

FIOS and U-verse have declined quite a bit as a percentage of overall subscribers. What’s causing that?

Much of what is happening in the industry is a function of decisions the companies are making. AT&T U-verse has had the two worst quarters of any pay TV provider ever. It’s not because consumers have suddenly decided that U-verse is a bad product. It’s because AT&T bought DirecTV and is emphasizing DirecTV at the expense of U-verse. That’s a strategic decision by AT&T, which has better margins on DirecTV than on U-verse. AT&T’s programming costs are lower on DirecTV because DirecTV is so much bigger.

[DirectTV has 20.5 million U.S. subscribers. U-verse has 4.9 million.]

That’s interesting. I would have guessed that AT&T would be emphasizing U-verse so they can sell you TV and internet.

TV and broadband are two industries at different points in their life cycles. TV is saturated and in slow decline; broadband is mature but still has a little room to grow. AT&T is bundling AT&T broadband with DirecTV and in many cases with AT&T Wireless service.

Is AT&T launching its DirecTV Now streaming service as a hedge against future losses of satellite subscribers?

I don’t think so. They’re launching a service that’s similar to what Dish Network did with Sling TV, which isn’t cannibalizing Dish as much as it’s getting them into a new marketplace. You can’t get an urban single with a satellite dish, but you can’t get them with a skinny bundle. Keep in mind, though, that AT&T is at its core a wireless company. They’re looking first at what will help the wireless business.

When I subscribed to Playstation Vue’s service, I spent two hours adding my login to the various network apps on Roku. If you use the over-the-top apps, that seems like a pretty big deterrent to changing services very often.

It becomes a question of how hard people want to work. In a saturated market, retention becomes very important. It becomes a question of what companies are doing to retain customers — like what Comcast is doing with X1 and Dish is doing with Hopper and DirecTV is doing with Genie. The X1 is very innovative product, and subscribers don’t want to lose those features. For Playstation Vue, it’s that you don’t want to lose those logins.

Going back to 2010, cable providers have had big subscriber gains every year in the first quarter and big subscriber cancellations in the second quarter. What causes that seasonality?

That has been going on for years. It really starts with the second quarter, which is the move quarter — college students, snowbirds, people buying houses — and then the other quarters react to that. One reason why the first quarter is always such a good quarter is that the providers push sales harder in the first quarter to make up for what will happen in the second quarter.

So you think the first quarter bump is more about the providers than the consumers?

Absolutely. People attribute that people are installing new consumer electronics, and that is certainly why Netflix has such a good first quarter. For the pay TV industry, it’s more about the provider’s side. When you look at the dynamics of the industry, it’s not all about consumer behavior. A lot of what has happened is about provider behavior.

How many subscribers do you think Sling TV and Playstation Vue have?

My numbers and most other people have Sling at about 710,000 subscribers, which you can kind of extract from [owner] Dish’s numbers. The only estimate for Playstation Vue is about 100,000 subscribers as of about three months ago. We just did a nationwide survey of 1,200 people, and not a single one mentioned Sony Playstation Vue.

With DirecTV Now coming sometime in the next few months and Hulu’s bundled service coming early next year, what do think the outlook is for subscribers in that category?

It depends on the product. Playstation Vue is not a skinny bundle; it’s closer to a duplication of traditional TV. Intel decided it wasn’t worth getting into that market. Apple decided it wasn’t worth it. Hulu and DirecTV are going to find an audience, but they’re also going to find high churn. I think you’ll see incremental growth in that category.

Do you think millennials are consumers who are forming new households are looking at Netflix, Amazon and Hulu — all around that $10-a-month price point — vs. a bundled plan at $30 and just deciding to skip on the bundle?

Consumers are cobbling together a viewing experience. For that vast majority, that includes a pay TV service. Individual households will cobble together what makes sense for them, and Netflix is at the core of that. Whatever they add to that depends on the individual and how those services fit into their household. Viewership decisions are made at an individual level, but subscription decisions are made at a household level. That’s what makes it complicated.

Your data on net losses of pay TV shows the losses widening slightly year over year. Do you see that going from a 1 percent loss to 1.5 percent to 2 percent, or do you see it leveling off?

That will be driven by both the providers and the consumers. Today, some big companies and small companies — from DirecTV and U-verse to Cable One — may not be chasing subscribers the same way they used to. The degree of losses depends on how much the company wants to chase subscribers who may be less valuable. Cable One, which is a small cable company, has pretty much punted on TV because they don’t like the margins. The biggest cable companies — Comcast and Charter — like the bundle and view it as part of their margins.

Do you see a particular extinction event at some point that would tell ESPN and FX and AMC that now is the time to launch a $5-a-month SVOD service that includes all the content from the cable channel?

Viacom made the decision too early to put its content online and license it to providers like Netflix, which hurt their viewership. The challenge is: What is the danger of being too late vs. what is the danger of being too early? The danger of being too early is far more damaging than the danger of being a tiny bit late, and we’re nowhere near the point where it would be viable for Fox News or ESPN to go directly to consumers.

Scott Porch writes about the streaming-media industry for Decider. He is also a contributing writer for Signature and The Daily Beast. You can follow him on Twitter @ScottPorch.