Gains by OTT-TV providers in Q4 2018 again were not enough to offset the huge losses being absorbed by traditional pay-TV providers.

According to MoffettNathanson's latest "Cord-Cutting Monitor" report, the US pay-TV industry lost 248,000 subscribers in Q4 -- 985,000 losses among the traditional providers (cable, telco and satellite) against 737,000 sub gains by the virtual MVPD market.

On the traditional side, satellite (DirecTV and Dish Network) lost a whopping 784,000 subs, compared to a more modest loss of 115,000 among cable ops and a loss of 86,000 for the telco TV crowd.

MoffettNathanson analyst Craig Moffett noted that while traditional pay-TV losses are nothing new, the infection point reached by vMVPD subscriptions is new, as the latter group, up until two quarters ago, was growing fast enough to offset the declines for the legacy pay-TV providers.

Moffett previously has warned that the 1:1 "conversion rate" of traditional pay-TV and virtual MVPD subs wasn't sustainable, and the recent numbers are proving that out. "This quarter, the conversion rate fell off the table," he wrote.

In fact, the virtual MVPD sub growth was down -- 740,000 adds in Q4 2018, versus 900,000 adds in Q4 2017 -- and the rate of growth among services is changing.

Sling TV's growth has slowed and DirecTV Now lost subscribers as many peeled off when a period of deep discounts ended. Moffett said there appears to be a "mix-shift" in the virtual MVPD market. After Sling TV and DirecTV Now got the lion's share early on, YouTube TV and Hulu Live TV are picking up steam. Moffett estimates that YouTube TV added 400,000 subs in Q4, for a total of 1 million-plus, while Hulu Live TV added about 500,000, for a total of 1.7 million.

Notably, the overall growth of the virtual MVPD sector slowed despite a larger pool coming way of a more rapid decline among traditional providers, which lost 985,000 subs in Q4 2018, compared to 616,000 in Q4 2017. Smaller players in the group -- like fuboTV and Philo  are "starting to matter" on an aggregate basis but aren't growing fast enough to make up for declines elsewhere, he added.

Moffett acknowledged that part of the growth slowdown among vMVPDs is rooted to a price increase last summer along with the wash-out of promotional DirecTV Now subs. But he also attributes that in part to the effects of password sharing and the notion of a possibly bigger issue, as some consumers cobble together their own packages with standalone, subscription OTT services that are not virtual MVPDs -- Netflix, HBO Now, CBS All Access and ESPN+, among others.

Cord-cutting trend could clip programmers

While the impact of cord-cutting on distributors is apparent, Moffett's quarterly report is starting to put more emphasis on cord-cutting's effects on programmers, which, he points out, are not as easy to measure.

Virtual MVPDs, he said, have been a "godsend" for some programmers --even if customers leave a traditional pay-TV provider, a programmer stands a chance to pick them back up if they go to a virtual MVPD. And it's more likely that the rate a virtual MVPD pays for that programming is more than what they are getting from a traditional provider that has more subs and, therefore, more bargaining power when carriage deals are hammered out.

The rub is that not all programmers are offered on all virtual MVPDs. Networks from Turner (now part of AT&T/Warner Media) are included in YouTube TV and Hulu Live TV, but AMC Networks has carriage with YouTube TV, but not Hulu Live TV. Discovery Networks has some networks on Hulu, but none on YouTube TV. "We worry the most about Viacom in this lens, as its networks remain excluded from both packages," Moffett said.

At the same time, programmers are also starting to hitch their wagons to alternative models, including direct-to-consumer services. That could have a negative impact for them when they renew with distributors such as Comcast, Charter Communications and Dish Network, Moffett suggested.

"It may not be an overstatement to say that the Pay TV business as we know it is beginning to unravel," he concluded.

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— Jeff Baumgartner, Senior Editor, Light Reading