Next Round of Direct-to-Consumer Streaming Services to Further Pressure Pay TV, Say Analysts
Industry watchers see the new wave of direct-to-consumer (DTC) video streaming services as further pain for the pay-TV market, with AppleTV Plus having launched Friday, Disney Plus set to launch next week, AT&T’s HBO Now due in May and NBC Universal's Peacock service expected in April, ad-supported and free.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Losses from cord cutting have been well-documented: Leichtman Research Group reported in August (see 1908120002) the top pay-TV providers’ Q2 subscriber losses widened to about 5 million vs. a loss of about 1 million a year earlier. Virtual MVPDs, too, have had growth slow and in some cases decline; Kagan reported industry vMVPD subscriber growth slowed from 11.8 percent in Q4 2017 to 5.8 percent in Q4 2018, (see 1905240040).
The current wave of high-profile streaming video launches -- dubbed “streaming wars” by Pivotal Research Group analyst Jeffrey Wlodarczak -- will accelerate subscriber losses for pay-TV players while driving their costs higher, wrote Wlodarczak in a Monday investor report. Media companies are rushing “from the previous fat, happy and easy (for them) traditional PayTV market position to a cutthroat likely brutally competitive” direct-to-consumer world, he said. The situation is forced largely by Netflix and the companies’ own “arrogance and resistance to change from traditional media companies over the last 10-15 years,” he said.
How media companies handle the DTC transition will be key for media stocks going forward with Disney leading the pack; that's ironic, said Wlodarczak, since Disney has “by far the most to lose from an increasingly bad broad Pay-TV environment.” Pivotal estimates Disney generates $20 in high margin revenue per month per U.S. pay TV subscriber, before advertising.
Motley Fool contributor Daniel Kline sees AT&T’s move with premium streaming service HBO Max a “defensive offense.” With the direct service, AT&T is creating competition for itself -- and “may accelerate cable’s demise” -- said Kline, but it could gain distribution for its programming through existing and maybe new subscribers, it said: “AT&T is hurting one business (cable) because it can't be saved, so it makes sense to monetize and protect another business (content).” There’s no guarantee HBO Max will succeed in an increasingly crowded space, but Kline sees cable continuing to shrink; “another high-quality streaming service could hasten that.”
Meanwhile, Disney’s diving “hyper-aggressively” into DTC ($6.99 per month, $69 per year) has “major ramifications for the balance of media players,” said Wlodarczak. He cited an estimated $1 billion content spend by Apple for its $4.99-per-month service, which he called “quite expensive for what they are giving you,” with the potential for Apple to spend “dramatically more over time”; NBC’s Peacock, seeing it as a likely free, ad-based alternative; and AT&T’s HBO Max DTC service, calling it “fundamentally flawed at $15 as they are hamstrung by millions of cable/satellite/telco subscribers (with no to little margin for the distributor) that they cannot re-price downward.”
Wlodarczak called Google’s YouTube the “potential 800 pound gorilla” to watch in the professionally curated content space, noting that’s a safer space from advertisers’ perspective.
Commenting on Disney in its current state of transition, Wlodarczak said the company has the best chance of being as successful as Netflix “but it comes at the expense of likely helping to torch their core PayTV business.” DTC is “a dramatically more difficult business than PayTV, where they could lever sports and antiquated retransmission regulations to force through massive price increases (and chuckle as cable/satellite companies took all the blame).”