MoffettNathanson Research said a sharp decline in pay TV subscribers last quarter “raises the possibility of a rapid death spiral for the entire category” in a searing report released Friday that describes COVID-19 accelerating trends toward SVOD and AVOD.

“It has been often observed these past few months that crises don’t change technology trends so much as they accelerate them. The cord-cutting trend was obviously well underway long before the current COVID-19 crisis. But the rate of change is being unmistakably sped up. One can point to transitory (hopefully) accelerants like the lack of sports, but does anyone think that when sports come back those customers will return to pay TV (either traditional or vMVPD)? We doubt it. The underlying causes for the defections are not transitory. The transitory factors are just pulling forward the defections,” wrote MoffettNathanson’s cable and entertainment analysts.

With most quarterly earnings in for the sector, the tally is that traditional pay TV subscriptions fell by 1.8 million in the first three months of the year – the worst quarterly result on record – bringing the annual rate of decline to 7.6%, also a record, the report said.. Things were particularly bad for satellite TV, where subscriptions plunged by over 1 million for the third quarter in a row. The analysts estimate that there are now just over 79 million remaining traditional pay TV households — meaning penetration of occupied households in the U.S. has fallen to about 63%, a level previously around 1995.

Equally key, the vMVPD category, which initially emerged as a cheap alternative to traditional cable bundles, has collapsed, they said, estimating losses of around 341,000 subscribers last quarter. Generally, on a net basis, none of the 2 million or so traditional distributor losses landed with vMVPDs.

Price is a factor. It’s been rising for these services from unsustainably low levels at launch. But MoffettNathanson suggested that, “A whole generation of customers likely viewed vMVPDs quizzically, as a solution to a problem they didn’t have. The real issue was the grid. Not the user interface grid, by the way, but instead the very idea of a schedule. Why would anyone want to view entertainment content on a schedule, much less someone else’s schedule?” Holding video penetration constant, an incremental 30 million households have either cut the cord or never adopted it since 2010. Of those, only about 9.6 million have been recaptured by vMVPDs. The rest – fully 20 million households – are now unserved by the traditional cable network model.

Among vMVPDs, Sony’s PlayStation Vue service shut down at the end of January, MoffattNathanson calcualted that AT&T TV Now (formerly DirecTV Now), Sling TV, and fuboTV all lost subscribers and that Disney’s Hulu Live TV may have hit a wall, with the rate of growth slowing last quarter. YouTube TV, the fastest growing, “couldn’t pick up all the slack,” the report said.

The need and opportunity for SVOD and AVOD is clear from the data – thus the streaming wars. The report calls new streaming sevices – from Disney Plus to Comcast’s Peacock to WarnerMedia’s upcoming HBO Max – direct-to-consumer lifeboats. They are rapidly gaining traction and media companies will inevitably direct their best content to their SVOD and AVOD lifeboats, accelerating the shift.

“It is increasingly clear that as consumers climb into these lifeboats, they are leaving the (sinking) motherships behind. [But] we doubt the DTC lifeboats will ever come close to matching the profitability of the business they are ostensibly designed to replace.”

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