Penthera leaderboard - 3-10-20
  • YouTube TV Posts Surprisingly Strong Growth to Reach 3 Million Subscribers

    Alphabet announced strong Q3 ’20 results last week, which included several YouTube metrics: $5 billion in quarterly revenue (up 32% vs. a year ago), 30 million music and premium paid subscribers, and 3 million paid YouTube TV subscribers. For YouTube TV, that’s a  jump of 50% from the 2 million subscriber level that Alphabet reported earlier this year in February.

    That’s surprisingly growth from my perspective for a number of reasons. First, YouTube TV raised its rate to $65 per month in June, an aggressive 30% hike from $50 per month. The primary justification YouTube TV offered for the increase was the addition of 8 ViacomCBS cable TV networks, BET, CMT, Comedy Central, MTV, Nickelodeon, Paramount Network, TV Land and VH1. But of the group, only Nickelodeon was among the top 25 most viewed networks in 2019 and it was number 25.

    As expected the move received a lot of negative reaction online and seemed like YouTube TV was running the same playbook cable TV providers used in the pre-SVOD era when marginal channels were added and consumers had little choice. Moving well past its original “skinny bundle” message, YouTube TV now boasts 85+ channels.

    At the new $65 per month, the cost savings value proposition of YouTube TV vs. traditional pay-TV further weakened. Though YouTube TV and other virtual pay-TV operators offer the benefit of no set-top boxes, no in-home appointments and no extra taxes and fees, the key benefit has always been saving money (YouTube TV’s home page still prominently features the message “Cut the cord and save $500/year." New subscribers also get a free Chromecast currently.)

    Meanwhile, due to Covid, for much of 2020 there’s been limited live sports, which is the main reason to subscribe to pay-TV in the first place. The lack of sports has driven up cord-cutting and shifted more viewership from linear TV to both SVOD and AVOD options, contributing to growth of services including Netflix, Peacock, Tubi, etc. (Also noteworthy, when I turned on YouTube TV over the weekend I was greeted with the message that NESN, the regional sports network that carries the Boston Red Sox and Bruins, has been dropped, which will impact YouTube TV's growth in New England in Q4 and beyond.)

    Despite these headwinds, YouTube TV was able to grow, and it is now the second-biggest virtual pay-TV operator behind Hulu Live which had 3.4 million subscribers when Disney reported its Q2 ’20 results. I was an early YouTube TV subscriber and have always thought the experience was top notch, especially the DVR feature. I’ve also been impressed with how aggressively YouTube TV has been promoted, especially though marquee sports events like the World Series, NBA championship and Super Bowl.

    But I’m still surprised by its subscriber growth in 2020. With 3 million subscribers paying $65 per month, YouTube TV is nearing a $2.5 billion per year in revenues, a big accomplishment in a pretty short time. Beyond the subscription revenue, YouTube TV is helping Google better access to brand advertisers’ budgets earmarked for TV. When combined with the scale that YouTube consumption on connected TVs has created, Google is in a prime position to benefit from viewership changes. It will be interesting to see how long YouTube TV’s strong subscriber growth can continue.

     
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