by Channel, WALL ST. VILLAGE
Positive on Pay TV Subs. Based on further conversations with numerous sector contacts, we reaffirm our view that Hulu and YouTube TV more than made up for shortfalls at DirecTV Now and Sling in 3Q18. In fact, not only did cord cutting not pick up in 3Q18, our revised roll-ups show pay TV subs grew slightly Y/Y in 3Q (+0.2% Y/Y), similar to 2Q18. Our rollup shows a slight moderation to -0.1% in 4Q18 given the disruption with DISH dropping HBO and AT&T pulling DirecTV Now marketing for the full quarter, though Hulu strength continues per its CEO.
Mixed on Advertising. We have updated estimates based on ratings performances QTD, with our overall 4Q national TV ad estimate little changed (now +0.3% Y/Y, with NFL/sports stronger and entertainment softer). Notably, 4Q growth is only in line with 3Q’s 0.0% despite the strong Upfront pricing and volumes. The culprit? Accelerating TV viewing declines. Of note, contacts suggest 1Q19 ad pacings are spotty as macro concerns and tough Olympics comps influence planning, though it feels too early to us to call 1Q TV adv. While Discovery’s 3Q revision to ~2% U.S. ad growth was considered disappointing, it appears they will be the fastest growing cable group in 4Q18.
Positive on HSD. Our updated rollup is showing continued strength in broadband subscriber growth at +2.5% Y/Y, continuing 3Q’s 2.4% pace, including sector net adds improving from 569k in 4Q17 to 659k in 4Q18. We see less scope for any upside to 4Q company estimates as expectations on the Street are already at 3Q’s strong levels. Further, cable’s acceleration in HSD net adds is leveling out (at high levels) as the telco competitors have an improved fiber-to-DSL mix. Importantly, our sector contact suggests the promotional environment is less aggressive than last year and believes the ARPU environment should be improving. Comcast did implement a $20/month single-play promo offer in certain areas recently as it likely tries to round out RGUs for the quarter, though this is still a favorable price comparison to a full quarter of that promotion in 4Q17.
Steady on Wireless. Our wireless estimates are unchanged, with continued postpaid strength (subs +2.4% Y/Y vs. +2.5% in 3Q18). Cable share gains should pick up with Charter’s full quarter aggressive marketing, though our industry contacts do not see outsized traction for Charter. Our discussion with Verizon management suggests that cable share gains still do not come disproportionately from Verizon relative to its marketshare, a positive relative to sentiment. Churn remains low and promotional intensity is steady with 3Q levels, perhaps even improved. 5G is obviously not impacting the marketplace at this point, though Verizon’s recent announcement with Samsung for some period of exclusivity in 1H19 for a 5G phone is intriguing.
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by Channel, WALL ST. VILLAGE