Tag: PlayStation Vue

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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

The High Cost of Sports Programming

The web news site Axios reports that sports channels were the top ten most expensive channels in terms of what is charged to cable operators. Not only are sports channels the most expensive programming, but their prices are increasing faster than most other channels, helping to continue to drive up the cost of a cable subscription. They only other channels that are increasing prices at a faster clip are local network affiliates of the big over-the-air networks like ABC, CBS, FOX and NBC.

Axios reports that they received the cost of networks from industry analysts Kagan. The five most monthly cost to cable companies include:  ESPN $7.54; YES $6.05 (Yankees and Nets); SportsNet LA $4.64; Fox Sports AZ $4.63; and Fox Sports Detroit $4.51.

I’ve seen estimates that the average cable subscriber pays about $20 per month to cover sports programming – a huge percentage of a total cable bill. That figure obviously varies by market and by specific cable package, but most expanded basic cable packages include numerous sports channels like ESPN, FS1, the NFL Channel, the NBA Channel, etc.

Sports channels are expensive due to the high costs of obtaining the broadcast rights to various sports teams and leagues. For example, a major percentage of the revenues earned by college football and basketball programs comes from revenue agreements with networks like ESPN.

Another reason that the monthly fees charged for sports networks keep rising is due to cord cutting and the overall loss of cable customers in the industry. It’s been reported that ESPN has already lost over 2 million customers for the year – a number that is line with estimates of cord-cutting. ESPN has lost almost 12 million customers since their peak at the end of 2013.

Subscription fees to cable companies account for more than 60% of ESPN’s revenues (with most of the rest coming from advertising sold during sporting events). It’s also been reported that ESPN accounts for almost 30% of the value of Disney stock, so it has to be alarming to the Disney parent company to continue to watch customers leave the service. ESPN has made up for some of these losses by selling over a million monthly subscriptions at $5 for ESPN+, an online network that offers sports programming not shown on the basic ESPN channels.

Live sports are still one of the major draws for consumers. Numerous surveys have shown that local sports are one of the primary reasons why many customers keep their traditional cable subscriptions. So far, sports programing has not been offered on the Internet except through expensive monthly plans like Sling TV or PlayStation Vue that look a lot like a cable subscription.

There might be a coming shake-up in the sports programming world. Currently Disney is selling 22 regional Fox sports networks, which was one of the government’s requirements for the merger of Disney and 21st Century Fox. One of the bidders for these networks is Amazon, and the speculation is that they might offer much of the content on a streaming basis. That would be a major shake-up of the industry that thrives due to sales only to cable companies. The Fox sports networks own over half of the rights to Major League Baseball, the NBA and the National Hockey League, so it’s a powerful pile of programming rights.

A few things are certain. The model of raising subscriber cable prices by $2 every year to cover increases in sports programming is a model that can’t be sustained forever. Saving money is the number one reason given by cord-cutters for leaving traditional TV. It’s also likely that Amazon or somebody else is going to change the market paradigm and will sell sports content a la carte by the game.

I subscribe to PlayStation Vue mostly to get the sports. I could cut that annual bill in half if I could pay $5 per event to watch those events I really want to watch. A Gallup poll last year showed that 37% of households say they are not sports fans. Rising cable prices are going to drive a lot of these households to find cheaper alternatives, and as dropping ESPN subscribers show they will opt out of paying for sports they don’t watch. Charging each cable household $20 per month to watch sports is not sustainable.

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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 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.

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What Customers Want

Why Isn’t Everybody Cutting the Cord?

Last year at least two million households cut the cord. I’ve seen headlines predicting that as many as 5 million more this year, although that seems too high to me. But both of these numbers are a lot lower than the number of people who say they are going to cut the cord in the coming year. For several years running various national surveys show that 15 million or more households say they want to cut the cord. But year after year they don’t and today’s blog looks at some of the reasons why.

I think one of the primary reasons people keep traditional cable is that they figure out that they won’t save as money with cord cutting as they had hoped. The majority of cord cutters say that saving money is their primary motivation for cutting the cord, and once they look hard at the actual savings they decide it’s not worth the change.

One issue that surprises a lot of potential cord cutters is the impact of losing their bundling discount if they are buying programming from a cable company. Big cable companies penalize customers who break the bundle. As an example, consider a customer who has a $50 broadband product and a $50 cable product, but for which the cable company charges $80. When a customer drops one of the two products the cable company will charge them $50 for the remaining one. That means there is a $20 penalty for cutting the cord and thus not much savings from cutting the cord.

Households also quickly realize that they need to subscribe to a number of OTT services if they want a wide array of programming choices. If you want to watch the most popular OTT shows that means a $10 subscription to Netflix, an $8.25 per month subscription to Amazon and a Hulu package that starts at $8. If you want to watch Game of Thrones you’ll spend $15 for HBO. And while these packages carry a lot of movies, if you really love movies you’ll find yourself buying them on an a la carte basis.

And OTT options are quickly proliferating. If you want to see the new Star Trek series that means another $5.99 per month for CBS All Access. If your household likes Disney programming that new service is rumored to cost at least another $5 per month.

And none of these options bring you all of the shows you might be used to watching on cable TV. One option to get many of these same networks is by subscribing to Sling TV or PlayStation Vue, with packages that start at $20 per month, but which can cost a lot more. If you don’t want to subscribe to these services, then buying whole season of one specific show can easily cost $100.

And then there is sports. PlayStation Vue looks to have the best basic sports package, but that means buying the service plus add-on packages. A serious sports fan is also going to consider buying Fubo. And fans of specific sports can buy subscriptions to Major League baseball, NBA basketball or NHL hockey.

Then there are the other 100 OTT options. There is a whole range of specialty programmers that carry programming like foreign films, horror movies, British comedies and a wide range of other programming. Most of these range from $3 to $7 per month.

There are also hardware costs to consider. Most people who watch a range of OTT programming get a media streaming device like Roku, Amazon Fire, or Apple TV. Customers that want to record shows shell out a few hundred dollars for an OTT VCR. A good antenna to get local programming costs between $30 and $100.

The other reason that I think people don’t cut the cord is that it’s not easy to navigate between the many OTT options. They all have different menus and log-ins and it can be a pain to navigate between platforms. And it’s not easy to find what you want to watch, particularly if you don’t have a specific show in mind. It’s hard to think that it’s going to get any easier to use the many OTT services since they are in competition with each other. It’s hard to ever see them agreeing on a common interface or easy navigation since each platform wants viewers to stay on their platform once logged in.

Finally, none of these combinations gets you everything that’s on cable TV today. For many people cutting the cord means giving up a favorite show or favorite network.

If anything, OTT watching is getting more complicated over time. And if a household isn’t careful they might spend more than their old cable subscription. I’m a cord cutter and I’m happy with the OTT services I buy. But I can see how this option is not for everybody.

 

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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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The Industry

The Non-boom of OTT Programming

I recently looked back at research I did a year ago, and at that time there was a lot of press talking about how over-the-top video offerings were going to soon flood the market, leading to a boom in cord cutters. But in looking at the OTT offerings on the market today it’s easy to see that the flood of new OTT entrants didn’t materialize.

My look backwards was prompted by an article citing the CEO of CBS who said that his network had gotten requests from Facebook, Apple, and Netflix seeking the right for both TV shows and live broadcasts. Those are certainly some powerful companies, and other than Netflix, a company one would expect to be making such requests, it might portend some new OTT offerings. Many pundits in the industry have been predicting an Apple OTT offering for a number of years to go along with the Apple TV product.

I’m a cord cutter myself and so I’m always interested in new OTT offerings. But for various reasons, mostly associated with price, I am not very interested in most of what is out there today. We subscribe to Netflix, Amazon Prime, and I’ve tried Sling TV twice. But I have not seen any compelling reason to try the other OTT offerings. The list of pay OTT content that’s available is still pretty short, as follows:

  • Showtime: $11 per month with an Apple TV device (which I don’t have).
  • HBO Now: $15 per month with an Apple TV device, and coming soon to Google Play and through Cablevision.
  • CBS All Access: $6 per month but blocks sports content like the NFL.
  • Nickelodeon Noggin: $6 per month.
  • Sling TV: $20 per month. Mix of sports and popular cable networks.
  • PlayStation Vue: Starts at $50 per month. Includes both broadcast and cable networks. This seems like an abbreviated cable line-up, but at cable TV prices.
  • Comcast Stream: $15 per month, only for non-TV devices and must have a Comcast data product. A dozen broadcast networks plus HBO and Streampix.
  • Netflix: $8 per month.
  • Amazon Prime: $99 per year. Includes free or reduced shipping on Amazon purchases and free borrowing of books and music.
  • Hulu Plus: $8 per month with commercials and $12 without commercials. Mostly network TV series.
  • Verizon Go90: Free to certain Verizon wireless customers.

So why hasn’t there been an explosion of other OTT offerings? I think there are several reasons:

  • The standalone networks like CBS and Nickelodeon are basically market tests to see if there is any interest from the public to buy one channel at a time. These channels are being sold at a premium price at $6 per month and it’s hard to think that many households are willing to pay that much for one channel. Most networks want to be very cautious about moving their line-up online and are probably watching these trials closely. One doesn’t have to multiply out the $6 rate very far to see that any household trying to put together a line-up one channel at a time is going to quickly spend more than a traditional expanded basic cable line-up for a lot fewer channels.
  • HBO and Showtime have nothing to lose. The Game of Thrones has been reported as the most pirated show ever and so HBO is probably going to snag some of the cord cutters who have been pirating the show. The prices for these networks are just about the same as what you’d pay for them as part of a cable subscription. But there aren’t many other premium networks out there that can sell this way.
  • One has to think that the major hurdle to anybody putting together a good OTT line-up is getting the programmers to sell them the channels they want at a decent price. The programmers don’t have a major incentive today to help OTT programmers steal away traditional cable subscriptions. Whereas somebody like Sling TV might buy a few channels from a given programmer, that programmer makes more money when cable companies buy their whole lineup. So it’s likely that the programmers are making this hard and expensive for OTT companies. I’ve not seen any rumors about what companies like Sling TV are paying for content, but Sling isn’t like most OTT companies in that it is owned by Dish Networks who is already buying a huge pile of programming. It’s got to be harder for somebody else to put together the same line-up. The dynamics of this might change someday if there a true bleeding of traditional cable customers fleeing cable companies. But for now cord-cutting is only a trickle and most of these networks are still expanding like crazy overseas to make up for any US losses.
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