“We believe that linear TV’s decline in the U.S. is irreversible,” Naveen Sarma, U.S. Media and Entertainment Managing Director for S&P Global Ratings.
Here’s the good news: “There is no immediate cliff,” Sarma said.
As S&P Global Ratings sees it, it expects the decline “will be a steady one that will take years to reach its final conclusion.”
The comments come in the context of “linear TV network spinoffs,” as NBCUniversal Media “intends to spin off much of its domestic linear TV operations” into a separate publicly traded company.
To be clear, these linear TV assets are MVPD-distributed cable TV channels. Sarma also weighs Warner Bros. Discovery’s announced plans to “enhance its strategic flexibility” by reorganizing its corporate structure into two parts: global linear networks and streaming and studios.
Taking both plans into account, S&P Global Ratings finds that over the next two years, the pace of pay TV cord-cutting is expected to abate because of Charter Communications’ video and streaming bundling strategy; it improve toward 5.8% by 2026, lowering from what S&P Global Ratings estimates was 6.7% in 2024.
Sarma also notes that annual affiliate fee increases used to exceed this decline but hasn’t for the past few years.
Additionally, S&P Global Ratings expects affiliate revenue to decline somewhere between 3% and 7%, depending on the network portfolio.
Advertising, the other key revenue stream supporting linear TV, will decline “more precipitously” than affiliate fees.
This presents a bleak portrait for cable TV, in particular, as audience ratings are eroding quicker than the rate of cord-cutting. “This trend is more acute for general entertainment networks, which are on pace for both double-digit audience declines and single-digit price cuts for ad inventory,” Sarma concludes. “We expect revenue from sports-focused networks will hold up better — but still decline — with audience ratings and prices for ad inventory stabilizing or even modestly growing for some sports, particularly the National Football League.”
But, Sarma notes, rising broadcast rights fees “weaken cash flows and depress margins.”
What, then, is the path forward as S&P Global Ratings sees it?
Writing expressly for the network TV business, whether part of a larger, diversified media company or spun off into a separate company, is to simply try to manage the pace of cash flow declines.
Again, it is important to note that Sarma’s commentary largely pertains to cable TV channels, and not over-the-air TV stations and their ownership groups.
