Tag Archives: Hulu Live

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.

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.

 

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.