Our Forecast

We expect Comcast Corp.'s rate of cord-cutting to increase modestly in the coming years to 12.5% in 2026 and 13% in 2027 from 12% in both 2024 and 2025. This is largely due to the company's strategic shift toward higher-margin mobile and broadband, while de-emphasizing its video offering. This change does not affect our 'A-' issuer credit rating on Comcast.

In contrast, we forecast Charter Communications Inc. will improve its rate of cord-cutting, reducing the decline to 8% in 2025 and 7% thereafter from 9% in 2024. As we will discuss below, we believe consumers will find Charter's video and streaming bundle attractive, which will help mitigate cord-cutting.

This report updates our U.S. pay-TV video subscriber forecast, which we base on a roll-up of our individual company forecasts, and discusses on how our updated forecast could affect our ratings on those companies within the U.S. pay-TV ecosystem.

We have aggregated small and midsize cable operators in this forecast. The strategic and operational differences are small, the key factor being the availability of compelling mobile services from Comcast and Charter. We expect annual rates of cord cutting of 12%-13% over the next few years for small and midsize operators. These operators face significant challenges due to the lack of a competitive mobile wireless service, which reduces churn, and their limited resources and scale, which hinder their ability to make the substantial investments necessary to enhance their video and streaming capabilities.

Table 1

We expect continued steeper declines in satellite pay-TV operators' and telecom providers' video customer bases than for cable operators.   The ongoing expansion of broadband infrastructure into rural areas, the core markets for satellite operators, provides more consumers with access to reliable internet connections that can enable them to cut the cord. As part of the Broadband Equity, Access, and Deployment program, the U.S. government has allocated $42 billion to increase broadband availability in underserved rural markets, enabling access streaming options that were previously unavailable. This development is particularly detrimental to satellite providers, which have long relied on areas where broadband access is limited.

The growth of fixed wireless access could further accelerate the decline of satellite pay-TV, offering consumers another cost-effective internet access option to enable streaming.

We estimate telecom companies will continue to bleed video subscribers because a lack of scale hurts their ability to offer a competitive, profitable product. Those that do not offer fiber-to-the-home service are at an even greater disadvantage. We expect that pay-TV subscribers who rely on older network infrastructures, such as digital subscriber or copper lines, will continue to decline faster than the overall pay-TV industry. Traditional technology struggles to support the high-quality, bandwidth-intensive services that consumers now demand, leaving these telecom companies more exposed to cord-cutting.

In contrast, we expect virtual multichannel video programming distributors (MVPD) to continue solid growth.   Services such as YouTube TV, Hulu Live, and FuboTV are popular due to their flexibility, affordability (still cheaper than cable companies despite recent price increases), and consumer preference for streaming options over traditional pay-TV. Continued growth of virtual MVPDs highlights a significant shift in consumer behavior, driven by the increasing availability of high-speed internet and more consumers who prefer to tailor their viewing experiences rather than committing to traditional cable or satellite packages.

Charter's Compelling Video Bundle

Charter is pivoting its strategy to reinvigorate video as part of a discounted bundling strategy with broadband, which almost all cable operators abandoned years ago. The company has introduced a new video package, Life Unlimited, which we believe offers the best value for consumers that watch TV across a variety of channels and genres among both virtual and legacy pay-TV providers. Since Charter struck a landmark carriage deal with The Walt Disney Co. in September 2023, which allows it to offer both Disney+ and ESPN+ to selected video subscribers, it has secured similar rights to several other key streaming platforms, including Paramount+, Max, and Peacock. We believe this strategic content expansion could help Charter reduce its rate of video subscriber cord-cutting.

Chart 1

Few Operators Could Follow Charter

No other legacy pay-TV operators have followed Charter's example so far. Our base case is that Comcast will maintain its current strategy. Given declining video margins while mobile and broadband margins improve, the company seems comfortable letting video subscribers go. That said, Comcast has recently secured similar streaming rights from Warner Bros. Discovery Inc. and Paramount. If Charter's video strategy proves successful, we believe Comcast may eventually become more aggressive with its video offering.

While smaller and midsize cable companies such as Altice USA Inc. have expressed an interest in expanding video, we remain skeptical about their prospects. These companies lack the operating scale and bargaining power to secure a competitive video bundle comparable to larger operators'. Smaller operators must pay more, on average, for content, making a competitively priced video offering more challenging. That could also complicate securing streaming rights on the same terms as Charter.

Furthermore, Charter and Comcast still operate a modestly profitable video business that creates more incentive to preserve customer relationships. For example, we estimate that Altice's video gross margins are about 20% compared to Charter's in the mid-30% area.

Virtual MVPDs Are Still Expanding

We expect YouTube TV to continue robust growth and for the service to surpass both Comcast and Charter in total video subscribers by 2026. The service stands out due to its compelling value proposition, offering a broad array of content, as well as an intuitive, user-friendly interface. Additionally, the NFL Sunday Ticket package enhances YouTube TV's appeal, attracting the National Football League's dedicated fan base.

Virtual MVPD subscriber trends indicate seasonal volatility. Factors such as college student moves and summer vacation rentals have historically contributed to increased churn during the second and third quarters. While many consumers once kept cable service for convenience during transitional periods, the absence of contracts and bundled offerings now makes it easier for them to cut the cord temporarily. This is evident with increased sign-ups in August ahead of the NFL season, then cord-cutting picks up again in February after the season ends.

We view the proposed merger between Hulu Live and FuboTV as a positive for virtual MVPD.   This merger would create a much stronger competitive player by combining Hulu Live's larger scale, Disney's extensive advertising sales team, stronger technology capabilities, and significant finance resources with FuboTV's robust live sports offering.

Impact On Credit Ratings On Pay-TV Operators

Our updated cord-cutting projections do not affect any rated entities in the industry. We have taken several negative rating actions over the past year. The factors are primarily related to the cable operators' inability to consistently increase broadband revenue amid heightened competition. We remain cautious on the industry's ability to increase broadband subscribers over the next two years because we expect competition to remain intense through 2026.

A lower rate of cord-cutting that improves broadband churn rates could stabilize our view of cable operators. However, we do not envision significant advancements in the near term.

Related Research

• Full Analysis: Comcast Corp, Dec. 11, 2024
• Charter Communications Inc. Downside Triggers Tightened, Ratings Affirmed; Outlook Stable, May 16, 2024