Traditional pay-TV operators accounting for around 95% of the market lost 305K subscribers in Q1 ’18, compared to 515K in Q1 ’17 according to Leichtman Research Group. The loss is net of 405K Sling TV and DirecTV Now skinny bundle subscribers gained in the quarter by Dish and DirecTV, compared to 265K added in Q1 ’17. Backing out the skinny bundle gains, traditional pay-TV lost 710K subscribers in Q1 ’18 vs. a loss of 710K in Q1 ’17.

Within the traditional market, performance varied for cable, satellite and telco operators. The 6 biggest cable operators lost 285K subscribers vs. 115K a year ago. Dish and DirecTV lost 373K vs. 340K in Q1 ’17. The telcos were the star performers, with the 3 biggest, Verizon, AT&T and Frontier losing 49K compared to 325K last year. That was the best result since Q3 ’15. AT&T’s U-verse was even, which was its best performance since Q1 ’15.

It’s not clear what accounted for U-verse’s stellar quarter, but what is clear is that DirecTV Now is playing a critical role in mitigating AT&T’s traditional video losses. The 312K DirecTV Now subscribers added in Q1 offset the loss of 188K DirecTV satellite subscribers, leaving the company with a gain of 124K video subscribers for the quarter. However, DirecTV Now subscribers are far less profitable for AT&T, which has used the skinny bundle mainly as an added value service to support its wireless business.

Last week, MoffettNathanson wrote about this so-called “conversion rate,” the extent to which skinny bundle subscriptions offset losses in traditional multichannel pay-TV, noting that for TV networks that are paid on a per-subscriber basis, this is a key metric to watch. Related, TDG research from February that found 54% of skinny bundle subscribers were cord-cutters and another 37% are current pay-TV subscribers, many of whom are no doubt testing out a skinny bundle with an eye toward dropping their multichannel service.

All of this points to a substitution effect that’s going on, where a percentage of existing multichannel subscribers are rotating into skinny bundles. While it’s an overall positive to keep these households in the ecosystem, skinny bundles tight (if non-existent) profit margins and higher churn rates mean their ultimate standalone value is questionable.

Rather it’s their broader strategic value that should be the focus. In this respect, AT&T is clearly leading the pack, using its DirecTV Now service to bolster its wireless business. YouTube TV recently set down a marker for how it will leverage YouTube TV, planning to sell its ad inventory as part of Google Preferred, helping nose its way into the TV ad business. Hulu also sees the larger ad play and supporting its SVOD service as priorities. For the other skinny bundles, larger strategic value is still ambiguous.

Overall, the Q1 dynamic may be the norm going forward with moderating overall losses due to skinny bundle uptake. It will worth watching closely.