Pay-TV operators took a drubbing in Q3 ’18 as the boost the industry has gotten from consumers migrating to virtual MVPDs or “skinny bundles” mostly evaporated. According to Leichtman Research Group, the industry as a whole lost about 975K traditional subscribers (its worst ever). Subtracting estimated gains for skinny bundles the Q3 loss would have topped a million.

Going back just one quarter to Q2 ’18, the industry as a whole (both traditional pay-TV and skinny bundles) may have actually eked out a net subscriber gain, as traditional subscribers “cord-shifted” to skinny bundles. But in Q3 that short trend came to screeching halt, as both DirecTV Now and Sling TV additions slid dramatically. In Q3 ’18 the services combined to add just 75K subscribers, down from 536K a year earlier (and that’s on top of escalating subscriber losses at the core satellite services). It’s not clear how other skinny bundles performed in Q3 as they don’t publicly report their numbers.

Regarding the swing, on their recent earnings call, John Stephens, CFO of  AT&T, which owns DirecTV Now, said the company was now “focusing on improving profitability” and that in the quarter it “scaled back our promotions and special offers” adding that “we expected net adds to be impacted by these actions and they were.”

Dish executives were less transparent in explaining Sling TV’s Q3 decrease on their earnings call, citing “competition is just tougher” and not disclosing whether the core issue was fewer gross additions or higher churn (the answer is likely both).

Sling TV was an early skinny bundle leader, but the category has moved on. Sling TV still does not offer a comprehensive package of broadcast channels as part of their main service tiers as others do. It’s “Blue” and “Orange” tiers, which separate many popular channels, is confusing compared to YouTube TV and Hulu Live for example.

The major swing by DirecTV and Sling TV illustrate just how precarious it is for the pay-TV industry to look to these lower cost bundles to preserve itself. As has been widely written, purely on the basis of programming costs alone, given current retail pricing, most are likely at or below breakeven profitability.

Recently I wrote how Google, AT&T and Disney are now the most important players in pay-TV via their ownership of DirecTV Now, YouTube TV and Hulu, respectively. If they choose to continue emphasizing their skinny bundles, cord-shifting may allow the industry to gracefully shrink at a manageable pace. But as we see from AT&T’s change in strategy in Q3, any pullback can cause a big headache throughout the industry.

Earlier this year, TDG released fascinating research that 54% of skinny bundle subscribers are cord-cutters and another 37% are current pay-TV users subscribing to skinny bundles in parallel (likely testing out before cord-shifting, exactly as I did). Just 9% were cord-nevers. All of this underscores how critical skinny bundles are as a “safety net” for the industry to retain and re-attract pay-TV users.

Take that safety net away (as it partially was in Q3 ’18) and it’s “look out below!” for the industry.