Tag: DirecTV Now

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Regulation - What is it Good For?

Is OTT Service Effective Competition for Cable TV?

The FCC made an interesting ruling recently that signals the end of regulation of basic cable TV. Charter Communications had petitioned the FCC for properties in Massachusetts claiming that the properties have ‘effective competition’ for cable TV due to competition from OTT providers – in this case, due to AT&T DirecTV Now, a service that offers a full range of local and traditional cable channels.

The term effective communications is a very specific regulatory term and once a market reaches that status a cable company can change rates at will for basic cable. – the tiers that include local network stations.

The FCC agreed with Charter and said that the markets are competitive and granted Charter the deregulated status. This designation in the past has been granted in markets that have a high concentration of satellite TV or else that have a lot of alternative TV offered by a fiber or DSL overbuilder that has gained a significant share of the market.

In making this ruling the FCC effectively deregulated cable everywhere since there is no market today that doesn’t have a substantial amount of OTT content competing with cable companies. Cable providers will still have to go through the process of asking to deregulate specific markets, but it’s hard to think that after this ruling that the FCC can say no to any other petition.

From a regulatory perspective, this is probably the right ruling. Traditional cable is getting clobbered and it looks like the industry as a whole might lose 5-6 full percentage of market share this year and end up under a 65% national penetration rate. While we are in only the third year where cord cutting became a measurable trend, the cable industry customer losses are nearly identical to the market losses for landline telephone at the peak of that market decline.

There are two consequences for consumers in a market that is declared to be effectively competitive. First, it frees cable companies from the last vestiges of basic cable rate regulation. This is not a huge benefit because cable companies have been free for years to raise rates in higher tiers of service. In a competitive market, a cable provider is also no longer required to carry local network channels in the basic tier – although very few cable systems have elected this option.

I’ve seen several articles discussing this ruling that assume that this will result in an instant rate increase in these markets – and they might be right. It’s a headscratcher watching cable companies raising rates lately when higher rates are driving households to become cord cutters. But cable executives don’t seem to be able to resist the ability to raise rates, and each time they do, the overall revenue of a cable system increases locally, even with customer defections.

It’s possible that this ruling represents nothing more than the current FCC’s desire to deregulate as many things as possible. One interesting aspect of this ruling is that the FCC has never declared OTT services like SlingTV or DirecTV Now to be MVDPs (multichannel video program distributors) – a ruling that would pull these services into the cable TV regulatory regime. From a purely regulatory viewpoint, it’s hard to see how a non-MVDP service can meet the technical requirements of effective competition. However, from a practical perspective, it’s not hard to perceive the competition.

Interestingly, customers are not leaving traditional cable TV and flocking to the OTT services that emulate regular cable TV service. Those services have recently grown to become expensive and most households seem to be happy cobbling together packages of content from OTT providers like Netflix and Amazon Prime that don’t carry a full range of traditional channels. From that market perspective, one has to wonder how much of a competitor DirecTV Now was in the specific markets, or even how Charter was able to quantify the level of competition from a specific OTT service.

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The Industry

Is AT&T the 800-pound Gorilla?

For years it’s been understood in the industry that Comcast is the hardest incumbent to compete against. However, they are still a cable company and many people dislike cable companies – but Comcast has been the most formidable competitor. The company is reported to have the highest gross margins on cable TV and might be one of the few companies still making a significant profit on cable. Much of that is due to their extensive programming holdings – it’s easier to make money on cable when you buy your own programming. Comcast has also been the best in the industry in creating bundles to lock in customers – bundling things like smart home and more recently cellular service.

But the new 800-pound Gorilla in the industry might be AT&T. The company seems to be finally shaking out of the transition period from integrating their purchase of Time Warner. It can be argued that the programming that came from that merger – things like HBO, CNN, and blockbuster movies – will make AT&T a more formidable competitor than Comcast.

AT&T will be launching its new streaming service, AT&T TV, next month. The company already has one of the largest streaming services with DirecTV Now. It’s been rumored that the streaming service will start at a price around $18 per month – an amazingly low price considering that HBO retails for $15 online today. The company is trying to coax more money out of the millions of current HBO subscribers. This pricing also will lure customers to drop HBO bought from cable companies and instead purchase it online.

AT&T has also been building fiber for the last four years and says that they now pass 20 million homes and businesses. They recently announced the end of the big fiber push and will likely now concentrate on selling to customers in that big footprint. The company is one of the more aggressive marketers and has sent somebody to my door several times in the last year. That’s a sign of a company that is working hard to gain broadband subscribers.

The one area where AT&T is still missing the boat is in not bundling broadband and cellular service. AT&T is still number one in the country with cellular customers, with almost 160 million customers at the end of the recently ended second quarter. For some reason, they have never tried to create bundles into that large customer base.

AT&T has most recently been having a customer purge at DirecTV. For years that business bought market share by offering low-prices significantly below landline cable TV. Over the last, year the company has been refusing to renew promotional pricing deals and is willing to let customers walk. In the first quarter of this year alone the company lost nearly one million customers. The company says they are not unhappy to see these customers leave since they weren’t contributing to the bottom line. This is a sign of a company that is strengthening its position by stripping away the cost of dealing with unprofitable customers.

AT&T has also pushed a few net neutrality issues further than other incumbents. As a whole, the industry seems to be keeping a low profile with issues that are identified as net neutrality violations. There is speculation that the industry doesn’t want to stir up public ire on the topic and invite a regulatory backlash if there is a change in administration.

AT&T widely advertised to its cellular customers earlier this year that the company would not count DirecTV Now usage against cellular or landline data caps. The same will likely be true for AT&T TV. Favoring one’s own service over the competition is clearly one of the things that net neutrality was intended to stop. Since there are data caps on both cellular and AT&T landline products, the move puts Netflix and other streaming services at a competitive disadvantage. That disadvantage will grow over time as more landline customers hit the AT&T data caps.

AT&T has made big mistakes in the past. For instance, they poured a fortune into promoting 50 Gbps DSL instead of pushing for fiber a decade sooner. They launched their cable TV product just as that market peaked. The company seemed to lose sight of all landline and fiber-based products for a decade when everything the company did was for cellular – I remember a decade ago having trouble even finding mention of the broadband business in the AT&T annual report.

We’ll have to wait a few years to see if a company like AT&T can reinvent itself as a media giant. For now, it looks like they are making all of the right moves to take advantage of their huge resources. But the company is still managed by the same folks who were managing it a decade ago, so we’ll have to see if they can change enough to make a difference.

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The Industry

Reality Pricing Coming for Online Video

I’ve been a cord cutter for many years and over the last few years, I’ve tried the various vMVPDs that offer channel line-ups that somewhat mimic traditional cable TV. I’ve tried Sling TV, DirecTV Now and Playstation Vue. In every case I’ve always scratched my head wondering how these products could offer prices that are lower than the wholesale price of the content from programmers. There are only two possibilities – either these companies have been setting low prices to gain market share or they had been able to negotiate far better deals for content than the rest of the industry.

Of course, the answer is that they’ve been subsidizing these products. And Wall Street is now pressuring these companies to end the subsidies and become profitable. There is probably no better example of this than AT&T’s DirecTV Now service. When DirecTV Now launched it carried a price tag of $35 per month for about a hundred channels of programming. The low price was clearly set as a reaction to a similarly low price from Sling TV which was the first big successful vMVPD.

Both companies offered line-ups including the channels that most households watch. This included the high-price programming from ESPN and numerous other quality networks. The initial pricing was crazy – a similar package on traditional cable was priced at $60 – $70.

The low pricing has worked for DirectTV Now. They are getting close to surpassing the Sling TV in subscribers. AT&T has featured DirecTV Now in its advertising and has been shuttling customers from the satellite-based DirecTV to the online product.

But AT&T company just got realistic with the product. They have collapsed from four options down to two options now priced at $50 and $70 per month. The company got ready for this shift by eliminating special promotional prices in the fourth quarter of last year. They had roughly half a million customers who were paying even less than their published low prices. When AT&T raised the rates they immediately lost over half of those promotional customers.

Not only are prices rising, but the company has significantly trimmed the channel counts. The new $50 package will have only about 40 channels while the $70 package will have 50 channels. It’s worth noting that both packages now include HBO, which is the flagship AT&T product. HBO is by far the most expensive programming in the industry and AT&T has now reconfigured DirecTV Now to be HBO plus other premium channels.

The new prices are realistic and also include a profit margin. It will be interesting to see how the DirecTV Now customer base reacts to such a drastic change. I’m sure many of them will flee to cheaper alternatives. But the company may also attract customers that subscribe directly to HBO to upgrade.

The big question is if there will be cheaper alternatives? The online industry has been around long enough that it is now out of its infancy and investors are starting to expect profits from any company in this space. The new realistic pricing by AT&T is likely to drive the other online programmers to also get more realistic.

These price increases have ramifications for cord-cutting. It’s been easy to justify cutting the cord when you could ditch a $70 per month traditional cable product for a $35 online one that has the channels you most watch. But there is less allure from going online when the alternative choice is just as expensive as the traditional one. There is always going to be some savings from jumping online – if nothing else customers can escape the exorbitant fees for renting a settop box.

It’s clear that AT&T is counting on HBO as the allure for its online offering. That product is available in a number of places on the web for a monthly rate of $15, so including that in the $50 and $70 product still distinguishes DirecTV Now from the other vMVPD providers.

What is clear by this move is that we are approaching the time when companies are willing to eat huge losses to gain online market share. That market share is worthless if customers leave in droves when there is a rate increase. These big companies don’t seem to have fully grasped that there is zero customer loyalty online. Viewers don’t really care who the underlying company is that is carrying their favorite programming – it’s the content they care about. The big cable companies have to break their long history of making decisions like near-monopolies.

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The Industry

Can Skinny Bundles Remain Viable?

It seems like the industry has accepted the new paradigm that households are cutting the cord and getting programming online. Those going online have a few options. The option that gets the most press are skinny bundles – those online services that offered a smaller version of traditional cable programming. Another alternative is for households to abandon the traditional content found on cable and to seek different content from providers like Netflix and Amazon Prime.

At the end of June there were about 6 million households that have purchased the online skinny bundles. That number is still small compared with the 90 million or so homes that still buy traditional cable programming from cable or satellite providers, but it represents a 75% growth just since October of 2017.

Current estimates of customers of the largest services include Sling TV at 2.3 million, DirecTV Now at 1.5 million, Hulu Live at 1 million, YouTube TV at 800,000 PlayStation View at 500,000.

Skinny bundles providers are attracting customers by offering a suite of the most-watched cable channels at a lower price than the cable company. They also get rid of all of the hassle of dealing with a cable company and customers can come and go easily without having to deal with cable company customer service.

I have to wonder how sustainable these businesses are. Every analyst I’ve been reading speculates that these businesses are all losing money and are using low prices to gain market share. But that means they lose more money with each customer added and it’s hard to see the end game for this industry segment.

One article I read speculated that YouTube TV is paying more for programming than the consumer price being charged. It’s unlikely that anybody but a few insiders really know the cost of programming, but the analyst estimated that YouTube TV was paying $49 per month for content to support its $40 consumer product. They speculated that YouTube might also be making $15 per month from advertising. That would mean only a tiny margin before considering any of the costs of operating the business. Obviously this is a concern for the skinny bundle providers, and YouTube TV and Sling TV each recently raised monthly rates by $5 per month.

The biggest issue for the skinny bundle companies is that they are still operating in a world where the programmers control their costs. Programmers have little incentive to offer big discounts to skinny bundle providers, which would provide incentives for more customers to cut the cord.

The big programmers all have interesting pricing that penalizes skinny bundle providers. They tend to charge a lot for their most popular channels and very little for the many other channels that they provide to cable companies. For the skinny bundle provider this means that they might spend as much to buy the one or two most popular Discovery channels or MTV channels and still pay as much for programming as the cable companies that get a whole large suit of channels for almost the same cost. Programming has been sold that way for years and I always assumed it was so that the programmers could extract full price out of smaller cable systems that can’t physically handle the 200-channel line-ups. But this pricing seems tailored-made as a way for programmers to minimize losses from selling to the skinny bundle providers.

Ultimately something has to give for skinny bundles to become a viable alternative to traditional TV. One alternative is for the prices to rise to be similar to traditional cable with the value proposition being that customers can easily come and go with a provider without the hassle. However, numerous surveys have shown that the primary reason for cutting the cord is to save money, and so skinny bundles likely can never charge as much as traditional cable. In the long-run skinny bundle providers can’t keep losing money, and it’s hard to see this same industry being around five years from now.

Skinny bundle providers share some of the same concerns as traditional cable companies. Many cord cutters seem willing to give up on watching many of the networks they have been accustomed to watching. This is what my household has done. We mostly watch the content on Amazon Prime and Netflix, including buying the occasional seasons of specific shows from other networks. That means that we no longer watch content from Discovery, MTV, the Comedy Channel and the many other traditional cable networks – we’re satisfied with the wide array of alternative programming.

Surveys from Nielsen show that people become loyal to the content they watch, but that means that they are also able to forget about and not care about content that they no longer watch. If price is the main driver for consumers to choose programming, then traditional cable TV and skinny bundles both are battling a losing battle if their must charge a lot to cover the high cost of programming.

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The Industry

The Crowded MVPD Market

The virtual MVPD (Multichannel Video Programming Distributor) market is already full of providers and is going to become even more crowded this year. Already today there is a marketing war developing between DirecTV Now, Playstation Vue, Sling TV, Hulu Live, YouTube TV, CBS All Access, fuboTV and Layer3 TV. There are also now a lot of ad-supported networks offering free movies and programming such as Crackle and TubiTV. All of these services tout themselves as an alternative to traditional cable TV.

This year will see some new competitors in the market. ESPN is getting ready to launch its sports-oriented MVPD offering. The network has been steadily losing subscribers from cord cutting and cord shaving. While the company is gaining some customers from other MVPD platforms they believe they have a strong enough brand name to go it alone.

The ESPN offering is likely to eventually be augmented by the announcement that Disney, the ESPN parent company, is buying 21st Century Fox programming assets, including 22 regional sports networks. But this purchase won’t be implemented in time to influence the initial ESPN launch.

Another big player entering the game this year is Verizon which is going to launch a service to compete with the offerings of competitors like DirecTV Now and Sling TV. This product launch has been rumored since 2015 but the company now seems poised to finally launch. Speculation is the company will use the platform much like AT&T uses DirecTV Now – as an alternative to customers who want to cut the cord as well as a way to add new customers outside the traditional footprint.

There was also announcement last quarter by T-Mobile CEO John Legere that the company will be launching an MVPD product in early 2018. While aimed at video customers the product will be also marketed to cord cutters. The T-Mobile announcement has puzzled many industry analysts who are wondering if there is any room for a new provider in the now-crowded MVPD market. The MVPD market as a whole added almost a million customers in the third quarter of 2017. But the majority of those new customers went to a few of the largest providers and the big question now is if this market is already oversaturated.

On top of the proliferation of MVPD providers there are the other big players in the online industry to consider. Netflix has announced it is spending an astronomical $8 billion on new programming during the next year. While Amazon doesn’t announce their specific plans they are also spending a few billion dollars per year. Netflix alone now has more customers than the entire traditional US cable industry.

I would imagine that we haven’t seen the end of new entrants. Now that the programmers have accepted the idea of streaming their content online, anybody with deep enough pockets to work through the launch can become an MVPD. There have already been a few early failures in the field and we’ve seen Seeso and Fullscreen bow out of the market. The big question now is if all of the players in the crowded field can survive the competition. Everything I’ve read suggests that margins are tight for this sector as the providers hold down prices to build market share.

I have already tried a number of the services including Sling TV, fuboTV, DirecTV Now and Playstation Vue. There honestly is not that much noticeable difference between the platforms. None of them have yet developed an easy-to-use channel guide and they feel like the way cable felt a decade ago. But each keeps adding features that is making them easier to use over time. While each has a slightly different channel line-up, there are many common networks carried on most of the platforms. I’m likely to try the other platforms during the coming year and it will be interesting to see if one of them finds a way to distinguish themselves from the pack.

This proliferation of online options spells increased pressure for traditional cable providers. With the normal January price increases now hitting there will be millions of homes considering the shift to online.

 

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The Industry

Some Unexpected News

In an attempt to stop the massive bleeding of traditional cable TV customers AT&T has cut the prices for cable on both the DirecTV and U-verse platforms. The company lost almost 400,000 linear TV customers in the recent third quarter.

As an example, DirecTV’s ‘Select’ bundle of 150 channels will now be priced for a two-year contract at $35 for the first year and $76 for the second year, compared to the recent prices of $50 for the first and $90 for the second. All of the other packages have similar drops of $10 to $15 in the first year and lower second year prices.

I call this unexpected news because it goes against every trend in the rest of the industry. The average monthly revenue for the 2-year Select contract just fell from $70 per month to $55.50 per month – more than a 20% discount. From what I know about programming prices it’s hard to think that AT&T has any margin at the new prices and they are clearly under water for the first year, spending more for programming than what they will collect in revenue.

This price reduction brings a couple of different ideas to mind. First, it’s clear that AT&T still wants to have traditional linear cable TV customers. Even at little or no margin they see value in that, although I honestly can’t see what that benefit might be. Certainly, one benefit might be to prop up DirecTV through sheer volumes of customers. I think AT&T envisions the future of cable TV to be more in line with the smaller on-line packages being sold as DirecTV Now. But the general public largely is not yet ready to make the shirt to totally online and so perhaps AT&T wants to keep people using its products until that is a more likely shift.

But this price drop also talks about the market elasticity of cable TV. We’ve known for years that customers that cut the cord almost all say they are leaving traditional cable TV because of the cost. That was already happening before the plethora of new on-line alternatives like Sling TV and Playstation Vue. These new alternatives products have created what is called in economic terms as a substitute. Over 900,000 households changed to one of these online cable products in the most recent third quarter, and so it’s obvious that many people now view a skinny bundle like Sling TV to be a reasonable substitute for the big cable packages.

And this makes sense. We know that most households don’t watch many different channels even on a 200-channel cable offering, and so as long as a smaller lineup has channels a household is comfortable with then skinny bundles become economic substitutes for the traditional big cable bundle.

And of course, all of this is compounded by OTT providers like Netflix, Hulu and Amazon prime that provide a huge array of online content that is another competitor to cable TV. I can tell you personally that I am far happier with having one skinny bundle (currently Playstation Vue) and access to OTT content than I ever was with the big cable bundle. I remember channel surfing through the big cable packages at 3:00 in the morning (a time I am often awake) and finding nothing but bad programming and infomercials. The choice from online programming are far better for my tastes and style of watching TV.

This change makes me wonder if we aren’t seeing the end of the tolerance of the public towards costly cable TV products. If the idea that traditional cable TV packages are no longer worth the price we could be seeing a watershed moment in the industry – one where a huge cable provider makes a last stab to keep customers.

It will be interesting to see if any of the other cable providers react the same way. This is a bold move by AT&T and one would think that those seeking a cheaper alternative might be attracted to these new bundles. But of course, every customer that takes one of these packages will probably be bailing on a traditional package from one of the cable companies. This is going to be an interesting battle to watch.

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The Industry What Customers Want

The Rush to vMVPDs

To those of you not familiar with the industry lingo, a vMVPD is a virtual multichannel video programming distributor, or virtual cable company. This term is being used to describe OTT providers that offer a version of the same channels offered by cable companies. This sector includes Sling TV, DirecTV Now, Playstation Vue, Hulu Live, YouTube TV and a few others. These providers stream networks on the same linear schedule as is shown on cable TV. Providers of alternate programming like Netflix or Amazon Prime are not considered as vMVPDs.

Industry analysts say that the vMVPDs as a group gained over 900,000 customers in the recently ended third quarter. That is a startling number and represents almost one percent of the whole traditional cable TV market, all captured in just one quarter. We’ll have to wait a bit to see how the whole cable market performed. But we already know that Comcast lost over 150,000 cable customers for the quarter. Since they had been hanging onto cable customers better than the other cable companies I think we can expect a bloodbath.

This kind of explosive growth is perhaps the best harbinger for the slow death knell for traditional cable TV. This new industry is still less than three years old with Sling TV having launched in February 2015. The industry started slowly and had only a few hundred thousand customers at most by the end of 2015.

But it’s now obvious that a lot of people are deciding that they don’t want to pay the big monthly bill for the giant channel line-up. The analysis from Nielsen shows that most households only watch a handful of channels. While no vMVPD is probably going to give households exactly the channels they most want to watch, they are obviously providing enough channel choices to lure people away from the cable companies.

It’s an interesting transition to watch. To some degree the programmers are contributing to their own demise. When people leave a cable line-up of 200 channels to instead watch an vMVPD line-up of less than 50 channels there are obviously a lot of networks that are no longer collecting customer fees. Practically every network is bleeding customers and this shift to OTT viewing is going to kill off a lot of network channels. I read an interview a few months ago with the head of programming at Fox who believed that his company would shut down the majority of their cable networks within a few years.

Another thing I find interesting about this shift is that the vMVPDs are not particularly easy to use. I’ve now tried four of them – Sling TV, DirecTV Now, Playstation Vue and Fubo TV, and I will get around to trying them all eventually. None of them have the ease of use of a cable settop box. You can’t just surf through channels easily to see what’s on and you have to instead navigate through menus that take several steps compared to a simple ‘channel up’ command on a cable remote.

These four services also have channel guides of a sort, but they are also cumbersome to use. I’ve found that it can easily take three or four minutes to change between two shows, and that’s when you know what you want to watch. The guides on these services are not yet friendly for looking hours or days ahead to see what you might want to watch later. And at least one of the services, Playstation Vue, is so confusing that I often get lost in its menus.

And yet nearly a million people changed to one of these services in the last quarter. The biggest appeal for these services is price along with a total ease to subscribe or unsubscribe. After years of dealing with big cable companies I was apprehensive the first time I tried to unsubscribe to Sling TV – but it took less than a minute to do on-line and was not a hassle. The services differ in features like the number of people who can watch different programming at the same time on an account, but they are all becoming more people friendly over time.

At this point AT&T might be the only company that is getting this right. The company lost 385,000 customers in the third quarter between DirecTV satellite service and U-verse. But they gained 296,000 DirecTV Now customers to make up for a lot of those losses. At this point nobody is talking about the margins on vMVPD service, but it can’t be a whole lot worse than the shrinking margins on traditional cable TV.

I believe we are seeing the future of TV in the vMVPD product. We’ll probably look back five years from now and laugh at these hard-to-use first generation services. I’m sure that over time they will get far easier to use and I’m getting ready to experiment using my Amazon Echo to navigate through Playstation Vue. When it becomes simple to use vMVPDs, then  traditional cable TV might have become passe.

Categories
Regulation - What is it Good For?

FCC Takes Shot at Zero-rating

In perhaps the most futile government decision I’ve ever seen from the FCC, the agency last week ruled last week that AT&T was in violation of net neutrality rules with its zero-rated Sponsored Data plans. AT&T allows customers who buy DirecTV Now the ability to stream the service over cellphones without counting the data against wireless data caps. The agency didn’t take any action against AT&T as a result of the decision, and probably will not.

I call the gesture futile since it’s clear that the new Republican-led FCC is going to either gut or weaken the net neutrality rules. There are even those in Congress talking about disbanding the FCC and spreading its responsibilities elsewhere – something that would require a new Telecommunications Act. So it’s obvious that this decision doesn’t have any teeth.

I guess it’s not hard to understand that the current FCC staff wants to make one last stand for its signature policy. I don’t think there was anything in the history of the agency that got so much positive public feedback. It’s still hard to imagine that over a million people made formal comments in the FCC net neutrality docket.

And yet, as popular as the concept of net neutrality is – the concept of keeping an open internet – there probably is not a worst place to take a stand than zero-rating. This is a practice that the public is going to love. For the first time people will have the ability to watch video on cellphones without worrying about the stingy cellular data caps. I’m probably a bit old and my eyes have a problem enjoying video on a small cellphone screen. But after seeing my daughter watching video on her Apple smartwatch I am positive that this is going to be popular.

But zero-rating is eventually going to lead to exactly what net neutrality was designed to protect against. In this case AT&T is promoting its own programming with DirecTV Now, and perhaps there is nothing wrong with that. But it won’t be long until other content providers are going to be willing to pay AT&T to also carry their video on cellphones outside the data caps. And that will eventually create an environment where only the content of the biggest and richest companies will be sponsored.

The only video that will be available on cellphones will be from companies with the ability to pay AT&T to carry it. And that eventually means the end of innovation and of new start-ups. It means that Google and Facebook and Netflix will be available because they can afford to pay to sponsor their content, but that the next generations of companies that would naturally have supplanted them, as is inevitable in the tech world, will never get started. You can’t become popular if nobody watches you.

On the flip side, zero-rating is going to point out the hypocrisy of the current cellular data prices. A customer will be able to watch 100 gigabytes of DirecTV Now with no extra fees, but will quickly figure out that watching other video would have cost them $1,000 at the current price of $10 for each gigabyte of extra download. The supposed reason for the high data prices is to protect the cellular network – but it will quickly become clear that the high prices are only about profits. So perhaps this will begin the process of lowering the outrageous cost of cellular data – which is clearly the most expensive data in the world today.

Categories
The Industry What Customers Want

OTT is Not Easy on the Consumer

This article compares the channel line-ups for Sling TV, DirecTV Now and Playstation Vue.  I think it provides the best demonstration I’ve seen yet of how confusing it’s going to be for consumers to choose an OTT option.

The process of choosing an OTT provider is only going to get harder in the future as additional OTT providers enter the market. In the coming year we are going to be seeing Google / YouTube with a similar on-line option. Hulu has announced that they will soon be launching a live-streaming alternative. There is a strong rumor that Amazon is considering an OTT option and has already announced they are pursuing live sports. And various articles I’ve read hint at a few more new OTT providers in 2017.

Comparing OTT channel line-ups is a lot more work than comparing the line-ups of your cable company vs. one of the satellite providers. While satellite providers aren’t required to maintain the same rigidly-defined line-ups as the cable companies, the two sets of line-ups are still reasonably comparable.

Cable company line-ups are defined by the FCC cable rules that require a basic and expanded basic line-up. Contracts between cable companies and programmers has led to uniformity and there are not major difference between cable companies. Cable companies are free to offer additional premium tiers and packages, but even those are largely the same between cable companies. The satellite providers know that their basic package is competing against the expanded basic line-up, so they include roughly the same channels in their 50 – 75 channel packages as the cable companies.

The OTT companies have a different set of challenges. The programmers are not required to sell them any content, and so the OTT companies must negotiate with each programmer individually. These have to be interesting negotiations because the OTT providers want to put together the skinniest bundles they can get while still offering what consumers want. They are then free to bundle channels in any way that the programmer contracts will allow. Since each OTT providers negotiates a unique arrangement with programmers there are going to be major differences between the line-ups from different OTT providers.

The programmers, however, either want to sell multiple channels or else they want a revenue stream that insures them of some decent profits. Programmers understand the math, which is that they are losing money for every customer that moves from traditional TV to a smaller OTT offering. This puts them into an awkward position. It’s obvious that the cord cutting phenomenon is gaining momentum. But if the programmers help to create really attractive OTT packages they are then helping to accelerate cord cutting for consumers.

As I’ve written before, many of the programmers are able to tolerate the growth of OTT since they are selling a lot more new content overseas than they are losing to cord cutting. Many of them acknowledge that there are cable channels that only exist because of the monopoly the handful of programmers have over the industry. They know that the cord cutting phenomenon is going to mean the death of less popular cable networks.

But back to consumers. You can see in the comparison in the link I posted above that between the first three major OTT providers it’s not easy to even visualize what you get in the various packages. The options between the three providers are significantly different, and all of these options have some glaring holes from programmers that have not yet allowed their content into these OTT bundles. It’s hard to imagine how complex this comparison is going to be with 3 – 6 more options by the end of 2017. I think a lot of consumers are going to come to web sites like this and be intimidated by the choices and will delay cutting the cord.

It’s likely that over time the various OTT providers will find niches in the market. Certainly if they all end up with the identical sets of channels there won’t be a lot of difference between them. But I would expect the ones that will be successful in the long-run will find a demographic niche that will give them an advantage. But for now their line-ups are a messy hodgepodge since they are cobbling together line-ups from the channels that they are able to acquire. This is going to make for a number of confusing products for the first few years of this new industry until they all figure it out.

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