Fitch sees little financial impact from cord cutting


Corporate credit ratings company Fitch Ratings has been looking at the emergence of over-the-top (OTT) television platforms. But its analysts conclude that OTT will not result in a widespread increase in cable subscription cancellations (“cord cutting”), and will not impact the credit ratings of the US content providers.

Fitch estimates that only 10-20% of the overall US population is at risk of cutting the cord in favor of alternative platforms. This ‘high-risk’ segment is likely comprised of households that are: 1) middle-income, 2) low in TV consumption, 3) single-person, 4) technology-savvy, and 5) young.

Even within this high risk population, there are several mitigants, including a currently less compelling line up of content, the OTT viewing experience, sports programming, DVRs, and initiatives taken by pay TV distributors, the ratings agency said.

Fitch believes that cord cutting will not be material to the media conglomerates’ free cash flow generation or credit profiles, despite some modest demand reduction for content delivered via traditional methods over the intermediate term. Fitch estimates that subscriber losses would have to exceed 4% annually for ratings to be affected.

“Consumer demand for high-quality and expensively produced programming will remain,” said Melissa Link-Cohen, Director, Fitch Ratings. “The large, well-capitalized content providers are crucial to the industry and will remain so. We expect them to remain rational players and not sign deals that reduce the long-term value of their content.”

The analysis said Fitch believes the best-positioned sectors in an OTT world are film and TV studios, as the content creators and license holders.

Cable networks, particularly premium cable and networks that rely largely on buying syndicated content, face elevated risk of lower audiences and potential business model interruption. Also likely to be negatively affected is the home entertainment segment, it added.