LOS ANGELES, CA - JUNE 15: After nearly five years, Sony is shutting down its virtual MVPD service ... [+]
The number of streaming video offerings to consumers has been proliferating. According to Park Associates, there are now 271 online video services offering a wide array of content, and more are on the way. All this streaming content may very well have an impact on the subscriber growth of virtual MVPDs, which have been marketed as replacement cable/satellite systems.
Background: Virtual Multichannel Video Programming Distributors (vMVPDs) are an over-the-top (OTT) service that provides viewers with content from broadcast and cable networks as well as streaming providers. The five largest vMVPDs have been Sling TV, PlayStation Vue, YouTube TV, Hulu With Live TV and AT&T Now. All five are subsidiaries of larger and deep-pocketed companies. Additionally, there are a few smaller vMVPDs including fuboTV and PhiloTV.
The vMVPDs offer “skinny bundles” to subscribers which providing fewer channels at a lower monthly rate than offered by traditional cable/satellite providers. Initially, vMVPDs charged consumers monthly fees of $30 to $40, significantly lower than cable/ satellite companies whose average monthly cost is over $100 (although cable companies have begun offering their own “skinny bundles”).
Similar to other streaming services, vMVPDs represent a relatively new industry. In January 2015, the DISH Network launched Sling TV, the first prominent vMVPD. Also, in January 2015, fuboTV began its streaming service focusing on sports content. Two months later, Sony launched Playstation Vue. In November 2016, AT&T launched DirecTV Now (since rebranded as AT&T TV Now). In February 2017, Alphabet launched YouTube TV. In May 2017, the now Disney-controlled Hulu, launched Hulu with Live TV. In November 2017, Philo TV launched a new vMVPD service.
Cord Cutting Is Not Slowing: The emergence of vMVPDs coincided with cord cutting. Consumers who cancelled their cable/satellite and opted for other video sources have been increasing. In third quarter 2019 alone, both Kagan and Leichtman reported nearly two million subscribers had dropped their traditional pay TV service, with AT&T accounting for over half of the defections. In 2018, there were 2.9 million cancellations of cable/satellite subscribers.
Although customers are cancelling their cable subscriptions in record numbers, they are not necessarily signing up for a vMVPD provider. In its most recent quarterly “Cord Cutting Monitor,” MoffettNathanson estimates that vMVPDs saw an increase in subscribers of 584,000 in third quarter 2019. Hence, about 40% of consumers who dropped their subscription signed up for a vMVPD service.
As the streaming video industry gets more crowded, Warren Schlichting, Executive Vice President and Group President, Sling TV says, “with so many different options to stream content, consumers are confused and unsure of what service is the right fit for them, or if there are legitimate alternatives to cable out there. As the space continues to become more segmented and difficult to navigate, Sling is a great option for consumers who are dipping their toes into streaming, due to the ease and flexibility of the service. Our services complement the many on-demand services in the market and allow consumers to watch their live news, sports and must-see events, all in a personalized manner.”
Sony Is Shutting Down PlayStation Vue: In October 2019, Sony announced that Playstation Vue would be shutting down on January 30, 2020. It will be the first prominent vMVPD to cease operations. John Kodera, the deputy president of Sony Interactive Entertainment, cited “the rising cost of content deals” among other factors for shutting down Playstation Vue. Sony will remain focused on its “core gaming business.” Industry sources estimated that PlayStation Vue had surpassed 800,000 subscribers earlier this year, but growth had been slowing. Michael Nathanson, a Founding Partner Senior Research Analyst at MoffettNathanson says, “it’ll be interesting to see who gains the most subs from the shutdown of Sony”.
vMVPD Subscriber Growth: In the wake of Sony Playstation shutting down, AT&T, in its most recent earnings report for third quarter 2019, reported a net loss of 137,000 subscribers for AT&T TV Now. As a result, AT&T TV Now has 1.15 million vMVPD subscribers, down from 1.86 million one year ago, a drop of 37%. AT&T plans to launch its Subscription Video on Demand (SVOD) service, HBO Max, in May 2020.
According to estimates by MoffettNathanson, in the first nine months of 2019, vMVPD providers had added 1.55 million net new subscribers, compared to 2.06 million from the previous year, a decline of 25%. Hulu with Live TV and Sling TV are the largest with around 2.7 million subscribers each, followed by YouTube TV with about 1.6 million subscribers.
Subscriber Fees Are Rising As vMVPDs Add More Channels: Lower monthly fees have been an important factor with vMVPD subscribers, but costs have been rising. According to MoffettNathanson, the costs for low end packages have increased by about 50% over the past 18 months.
The soon to be defunct Playstation Vue had been steadily increasing its monthly fee to subscribers. In July 2019, Sony increased the cost of Playstation Vue for its basic monthly plan from $45 to $50. This was the third time Sony had increased the basic monthly rate of Playstation Vue since its launch in 2015. Previously, the vMVPD had increased the basic rate from $30 to $40 in 2017, and by an additional $5 in 2018. The primary reason cited for the price increases was Playstation Vue having to negotiate renewals with several prominent content providers.
Other vMVPDs have also increased the monthly fees as the cost of programming continues to grow. In November 2019, Hulu With Live TV, which includes 60+ channels, announced it would increase its basic monthly fee to $55 effective the following month. This marks the second increase of the year for the vMVPD; in January, the monthly fee grew from $40 to $45.
In March 2019, AT&T increased the price for its vMVPD while cutting back on the number of tiers from four to two. The basic monthly package had increased to $50, more than rivals, but included the AT&T owned HBO. The cost for high end tier was $70. Subscribers who wanted to keep the older bundles saw a monthly increase of $10. AT&T CEO Randall Stephenson said the goal was to make AT&T Now profitable.
In April 2019, YouTube TV increased its monthly fee by $10, bringing its base service cost up to $50. The vMVPD added channels from Discovery Communications and local broadcast TV stations. In January 2019, fuboTV had increased its cost to legacy subscribers from $35 to $45 per month. In March 2019, fuboTV then increased its cost for all tiers by another $10. The vMVPD also added non-sports networks from Discovery and Viacom to its lineup.
Sling TV also increased its cost to subscribers. In June 2018, the monthly base price grew from $20 to $25. Sling TV’s Warren Schlichting said of the price increase, “programming fees go in only one direction and that’s up!” Sling TV remains among the least costly among vMVPDs. As Schlichting adds, “with the high costs of local programming, unlike our competitors, Sling TV doesn’t make customers pay for local channels, allowing them access to live local programming for free with an HD over-the-air antenna. We’ve even taken it to the next level and have seamlessly integrated local channels into the Sling TV interface for all-in-one access through our AirTV devices”.
It’s Getting Crowded: Heading into 2020, the streaming video marketplace is continuing to evolve, becoming more and more crowded with new entries. Consumers can choose to subscribe to SVOD providers (e.g., Netflix, Disney+), a la carte services (e.g., CBS All Access, Food Network Kitchen), streaming sports suppliers (e.g., MLB.TV, ESPN+) and news providers (e.g., Cheddar and NBC News Now). With consumers wary of rising costs for content, and studies that point out the average customer is willing to pay for between three to five streaming providers, the future success of some vMVPDs may be challenging.
Michael Nathanson expects vMVPDs will be, “headed for much slower growth in the years ahead as prices are raised and discounting is discouraged”. Nathanson adds, “as sustainable as any video platform, will need to really drive advertising and lift RPUs (without incurring churn) to offset continually higher content inflation”.
