Yesterday Hulu and Discovery announced that 5 additional Discovery-owned TV networks will now be included in Hulu with Live TV, the virtual multichannel video programming distributor (“vMVPD” or “skinny bundle”), bringing the total to 8. In addition, approximately 4,000 episodes of Discovery programming will be added to Hulu’s SVOD library.
The deal further increases the value of Hulu with Live TV to its subscribers. But it also raises the question, yet again, of ballooning vMVPD programming expenses and how these impact profitability. Traditional multichannel pay-TV providers have steadily raised their rates over the years to offset higher programming costs (leading to the lower price opportunity that vMVPDs are trying to capitalize on).
But to retain that low-price positioning, vMVPDs have far less ability to raise their rates. For example, Colin did a great analysis estimating the underlying cost of programming for YouTube TV last year, finding that monthly fees are at least $34 (likely more). That’s probably a good ball park for Hulu with Live TV as well. Add in all the other non-programming costs of running these businesses and it’s clear that at a $40 per month consumer price point, even achieving breakeven is a challenge.
As vMVPDs’ popularity has increased (led by DirecTV Now, Hulu with Live TV and YouTube TV), all TV networks are scrambling to get carriage. But clearly there isn’t room on the boat for everyone. These 3 vMVPDs’ owners - AT&T, Google and soon Disney - are willing to sustain losses to achieve their larger corporate goals. How long this will continue is an open question - and the higher programming costs spiral, the harder it will be for them to hang in there. We’ll see.