Tuesday, November 24, 2020, 2:42 PM ET|Posted by Will Richmond
The U.S. pay-TV business performed better than expected in Q3 ’20, with top providers “only” losing around 120K subscribers, according to data compiled by Leichtman Research Group. The results would have been even stronger if a portion of YouTube TV’s one million subscriber additions in 2020 are attributed to Q3 specifically.
Google didn’t break out how many of YouTube TV’s additions came in Q3, but given the return of major sports during the quarter, it’s probably fair to assume at least 500K-600K. Add those to Hulu + Live TV’s 700K additions in Q3 and just these two virtual pay-TV providers may have accounted for 1.2 to 1.3 million additions. That would be enough to more than offset the approximately 1.15 million subscriber losses that the largest cable, satellite and telco pay-TV providers incurred.
Hulu + Live TV had 4.1 million subscribers at the end of Q3 ’20 and YouTube TV had 3 million. Given their growth relative to the industry and their size, Hulu + Live TV and YouTube TV are clearly taking on much greater importance in the pay-TV industry.
Yet both virtual pay-TV services have existed for less than four years. Both have morphed considerably in that time - adding lots of TV networks and raising their prices. They’ve both moved far from their “skinny bundle” roots and value propositions. Meanwhile, underlying programming costs have continued to soar, cutting into all pay-TV providers’ profitability. And of course linear TV viewing continues to decline as the pandemic has driven new levels of both SVOD and AVOD viewership.
With their growing importance, it’s fair to ask how committed Hulu + Live TV’s and YouTube TV’s parent companies - Disney and Google, respectively - are to pay-TV’s multichannel bundle, especially as most major media companies ramp up their streaming initiatives?
Google has a history of entering and exiting businesses, but YouTube TV seems highly strategic. YouTube has been eagerly courting TV ad buyers for years, especially by carving out and offering them the most popular, brand safe content in YouTube, now under the banner of YouTube Select. YouTube TV gives Google more access to high quality TV inventory, which it can marry with its user data for better targeting to drive higher prices. As TV ad spending shifts to connected TV, YouTube TV is in a strong position to benefit.
On the surface Disney seems like less of a candidate to be in the multichannel TV business. It has spent much of the past three years focusing on and then launching the direct-to-consumer Disney+ brand. Executives continually emphasize the importance of streaming. Hulu’s SVOD service fits nicely with Disney+ and ESPN+ in a bundle. So where does Hulu + Live TV fit in?
For one it gives Disney another service to upsell to its DTC subscribers. With the latest $10 per month Hulu + Live TV rate increase, these subscribers will likely generate over $80 per month in average revenue and are at least marginally profitable for Disney. Hulu + Live TV also gives Disney a little more control over influencing the “cord-cutting” debate - as with Q3’s results, Hulu + Live TV is now big enough that a positive performance can impact the entire industry. As pay-TV becomes more oriented to sports fans, Disney should be motivated by its desire to buttress ESPN, still a key revenue generator.
Still, it’s a bit of a guessing game how committed Disney and Google will remain as the market’s dynamics shift. Elsewhere in the virtual pay-TV industry, Sony pulled the plug on PlayStation Vue and AT&T re-branded DirecTV Now and reduced investment. T-Mobile is closing its TVision Home pay-TV service. All these moves highlight how corporate strategies change. Disney and Google are now important players in the pay-TV industry, and as Q3’s results show, their continued investment is vital to the industry’s stability.