It’s too soon to know whether 2019 will be remembered as the turning point year for the pay-TV industry - when all of the negative trends coalesced into a perfect storm that permanently diminished the industry’s place in American homes. But I’d say the odds are likely that 10-20 years from now, 2019 will likely be the top candidate for “turning point year.”
For evidence, consider new data from Leichtman Research Group, finding that major pay-TV providers which account for 95% of the market, lost 4.9 million subscribers in 2019. If 100% of providers had been counted, the losses would have been 5 million or more.
Not that long ago, regional sports networks (RSNs) were the beachfront property of the pay-TV industry. RSNs had exclusive rights to air local sports teams’ games in their markets and rabid fans willing to pay virtually any price to watch (especially if the local team was having a winning season). But the icing on the cake was that even non-fans were often paying for pricey RSNs, because their fees cleverly became inseparable from the most popular TV packages. In short, RSNs practically had a license to print money.
But few things last forever, and RSNs have become the latest example of the Internet’s disruption. Yesterday, the NY Post reported that AT&T’s auction of four of its RSNs, in Denver, Houston, Pittsburgh and Seattle, has drawn meager interest. AT&T was looking to sell the group for around $1 billion, but the bids have come in “around or below $500 million.” A big red flag was the four RSNs’ financial performance - an expected drop in earnings from $115 million in 2019 to just $55 million in 2020.
I’m pleased to present the 499th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
Earlier this week AT&T reported its Q4 ’19 earnings. There was plenty of lousy news, and as Colin and I discuss, at the top of the list was a loss of over 1.1 million pay-TV subscribers in the quarter, compared with 658K subs lost in Q4 ’18. For the full year, AT&T lost 4.1 million, more than 5x the 750K it lost in 2018. The combined 4.8 million subs that AT&T has lost in the past 2 years is nearly 20% of what it started with back on Dec. 31, 2017.
There is arguably no bigger influence on the pay-TV industry’s overall cord-cutting rate than AT&T because of its sheer size and outlier loss level. All of that - and lots of other factors - lead us to believe that the rate of cord-cutting is actually going to accelerate in 2020. Colin has crunched the numbers and believes when all the Q4 results are reported, the traditional industry (not including vMVPDs’ gains) will probably lose around 6.5-7 million subs in 2019. He sees that escalating to around 8.5 million in 2020.
We dig deeply into all of this on the podcast. We all have a front row seat to an industry in complete transformation. As it has in countless other industries, we are watching the Internet massively disrupt the pay-TV and TV industries.
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AT&T reported its Q4 ’19 earnings this morning and in the “Entertainment Group," it was U-G-L-Y. The top line numbers are mind-boggling: 945K “premium video” subscribers (DirecTV and U-verse) lost and 219K “OTT video” subscribers (DirecTV Now and AT&T TV) lost for a total of 1.164 million lost. In Q4 ’18, AT&T lost 391K premium subs and 267K OTT subs for a total of 658K subs lost. So the Q4 ’19 sub loss was 77% higher than the Q4 ’18 sub loss - although in the category of “cold comfort,” it was 14% lower sequentially vs. Q3 ’19 when AT&T lost 1.36 million combined video subscribers.
But broaden the lens to consider full year 2019 vs. full year 2018 and things look even worse. In 2018 AT&T lost a total of 750K subscribers (a result that was helped enormously by the addition of 654K total DTV Now subscribers in first half of the year, more on that below). In 2019 AT&T lost 4.1 million subscribers or more than five times the prior year.
Verizon and Disney announced a promotional deal this morning which will give a free year of Disney+ to Verizon’s new and existing 4G LTE and 5G unlimited wireless subscribers and new Fios and 5G Home Internet subscribers. Some back of the envelope calculations show the promotion could quickly yield millions of new Disney Plus subscribers.
At the end of Q2 ’19, Verizon reported a total of around 94 million wireless retail connections. Verizon has been promoting new unlimited plans, and CFO Matt Ellis said on the Q2 ’19 earnings call that “less than 50% of our customer account base are on unlimited plans.” If say 35% are on unlimited, then around 33 million wireless subscribers would be currently eligible for the Disney+ free offer. If even 10% took advantage, that’s around 3 million new Disney+ subscribers.
AT&T is moving further away from the low-cost virtual MVPD (“skinny bundle”) model it helped pioneer with DirecTV Now back when it launched in 2016. Per multiple reports on Friday, AT&T will increase the monthly price of its “Plus” tier by $15 (to $65 per month) and its “Max” tier by $10 (to $80 per month) in November.
This past summer AT&T rebranded DirecTV Now as AT&T TV Now. DirecTV Now had already imposed a $10 per month price hike back in March and consolidated DirecTV Now’s original 3 tiers into the 2 current tiers and included HBO with both of them. If you were to back out the $15 per month that a standalone HBO Now subscription would cost, then the “Plus” and “Max” tiers would be $50 per month and $70 per month, respectively.
I’m pleased to present the 476th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
AT&T had a tough Q2 in video, with a losses of 778K traditional subscribers (DirecTV plus U-verse) and 168K DirecTV Now subscribers. In today’s podcast we discuss AT&T’s road forward from here in video which rests on 3 pillars: traditional DirecTV and AT&T TV and HBO Max, neither of which has launched yet. In the podcast we discuss the pros and cons of each and what impact they’ll likely have in the market.
In short, AT&T has lots of strong video assets but it’s not quite clear how the puzzle pieces will be put together to create competitive differentiation. What is certain though is that with loss of nearly a million video subscribers in Q2 and a huge debt load to reduce, there is significant urgency for AT&T to figure it all out.
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I’m pleased to present the 456th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
On this week’s podcast we cover 3 different topics. First, AT&T had a busy week - its deal for Time Warner was finally cleared after the DOJ’s appeal was rejected, both HBO CEO Richard Plepler and Turner president David Levy resigned, and a Variety report has Disney interested in buying AT&T’s 10% stake in Hulu. Colin and I discuss all of these and their implications.
Next, Colin weighs in on the new collaboration between the BBC and ITV to launch a version of BritBox in the U.K. and why it matters. Finally, another week, another YouTube content malefactor(s), leading to an advertiser pullback. We discuss how YouTube is playing whack-a-mole but that at the end of the day advertisers need YouTube and are unlikely to leave altogether.
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Click here to listen to the podcast (24 minutes, 47 seconds)
Virtual pay-TV operator DirecTV Now lost 267K subscribers in Q4, ’18, per its parent AT&T’s earnings report this morning. DTV Now’s loss contributed to an overall loss of 658K video subscribers (including DirecTV satellite and U-verse) that AT&T sustained in Q4, the biggest in at least 3 years. DTV Now had approximately 1.6 million subscribers at the end of 2018, down from 1.86 million at the end of Q3 '18.
More noteworthy than the overall AT&T video loss is DTV Now’s strikingly quick reversal of fortune. Just one year ago, in Q4’ 17, DTV Now gained 368K subscribers, meaning its Q4 swing was a whopping 635K. Two years ago, in Q4 ’16, DTV Now gained 267K subscribers. For all of 2018 DTV Now gained just 436K subscribers, compared to the 888K subscribers it added in all of 2017. And to put the 2018 additions in perspective, they were mostly all front-loaded, with DTV Now gaining 654K subscribers combined in Q1 and Q2, then dropping to 49K in Q3 and then the loss of 267K in Q4.
I’m pleased to present the 445th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
On this week’s podcast Colin and I explore the pay-TV industry’s record high video subscriber losses sustained in Q3 ’18 (more here and here). The two big satellite services, DirecTV and Dish Network were major contributors. But perhaps more important was a dramatic slowdown in subscriber additions for the two biggest virtual pay-TV operators, Sling TV and DirecTV Now.
As we discuss, with these virtual services in flux and not stanching the bleeding of traditional multichannel TV, the critical underlying trends of cord-cutting and cord-nevering burst onto full display in Q3. Meanwhile, the strategies and success of virtual services like YouTube TV, Hulu Live and others is murky at best. All of this shows how unstable the pay-TV industry as a whole currently is.
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I’m pleased to present the 435th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
Escalating programming costs for pay-TV operators are a chronic issue. In the age of cord-cutting and proliferation of SVOD, offsetting these costs with rate increases is no longer an option. One new solution being proposed by AT&T Communications’ CEO John Donovan is “engagement pricing,” whereby TV networks would be paid based on viewers’ actual consumption.
As Colin explains, it’s a break from industry norms, and even with AT&T leveraging Warner Media’s networks, it will be very difficult to persuade other networks to follow suit. Why get paid on viewership when you’re already getting paid regardless of how many people watched?
We then shift to CBS Sports’ decision this week to stream Super Bowl LIII to mobile devices without requiring a pay-TV subscription. It’s another nudge toward opening up sports to non-subscribers, though Colin and I agree the vast majority of marquee sports will remain locked behind pay-TV subscriptions.
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I’m pleased to present the 432nd edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
Colin is eating some crow on this week’s podcast, because he’s finally (!) come around to understanding the value of video downloading, which I’ve been promoting for nearly 6 years. Colin has a new white paper out in which he cites his research finding 55% of U.S. and 58% of U.K. viewers saying downloading functionality is very important to them. We discuss all aspects of downloading’s value proposition.
Then we segue to talking about Verizon’s announcement this week that when it rolls out 5G to 4 U.S. cities later this year it will include an Apple TV and discounted YouTube TV (exact terms weren’t released). Noting the caveat that we haven’t seen 5G perform, we both believe it has a ton of potential to disrupt the wired broadband business which cable TV operators have dominated. As Verizon’s announcement shows, it also presents interesting opportunities to bundle pay-TV with 5G and wireless service.
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Late yesterday Verizon announced that Indianapolis will be the fourth city to get 5G residential service in the second half of 2018. The other 3 initial cities are Houston, Los Angeles and Sacramento. Potentially the biggest news from Verizon yesterday was that it would include both Apple TV and YouTube TV in the initial 5G offering for subscribers in all 4 cities.
It’s not clear from Verizon’s press release exactly what these offers will be or how the terms will work for subscribers. The cheapest Apple TV is currently $149 and YouTube TV runs $40 per month. If the promotion follows others we’ve seen from telcos, Verizon will likely require a minimum commitment to qualify for the Apple TV and will offer some type of monthly discount on YouTube TV. It’s also not clear what the monthly rate will be for 5G service itself.
For all the talk about cord-cutting over the years, the most important trend in pay-TV these days isn’t consumers dropping out entirely, but rather shifting from traditional multichannel services to lower-priced virtual MVPDs or “skinny bundles.”
The trend of skinny bundle gains offsetting multichannel losses continued again in Q2 ’18 where, according to Leichtman Research Group, the top traditional services lost approximately 800K subscribers. But just the 2 publicly-reporting skinny bundles, Sling TV and DirecTV Now, gained 383K (with the latter accounting for 342K).
AT&T’s skinny bundle DirecTV Now hit 1.8 million subscribers at the end of June, per AT&T’s Q2 ’18 earnings report, released yesterday. DirecTV Now added 342K subscribers in Q2 ’18, compared with 152K in Q2 ’18 and 312K in Q1 ’18. DirecTV Now’s gains more than offset the 286K traditional DirecTV subscribers lost in the quarter (almost double the 156K loss from a year ago), with U-verse also adding 24K (vs. a loss of 195K a year ago). Overall, AT&T ended the quarter with 25.449 million video subscribers compared with 25.172 million in Q2 ’17.
Verizon reported its Q2 ’18 earnings this morning, which included a whopping $658 million pre-tax charge for shutting down its GO90 mobile video service (previously announced) that it launched less than 3 years ago, in October, 2015. If you combine the Q2 charge with the operating expenses, capital Verizon invested in GO90 plus the OnCue acquisition from Intel, it’s highly likely that the company lost well over $1 billion on the failed initiative.
For a behemoth like Verizon, a $1 billion loss barely registers. However, it’s almost certainly the biggest single investment any company has made to try to start a mobile video service from scratch (though former DreamWorks executive Jeffrey Katzenberg, whose NewTV startup has raised over $800 million could well take the crown from Verizon).
Given the magnitude of Verizon’s loss, it’s worth trying to understand how the GO90 bet went so wrong, so quickly. From my vantage point, there are 3 key lessons to be learned:
I’m pleased to present the 425th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
On this week’s podcast we cover a number of topics, starting with AT&T’s newest skinny bundle offering, WatchTV, which is bonus feature for subscribers to 2 of its new unlimited wireless plans. Colin and discuss the implications for the industry as AT&T reshapes consumers’ perceptions of pay-TV as a standalone premium service to a supporting feature in their wireless plan.
We then turn to the World Cup, which is setting streaming records, even in the early matches. Colin shares the data and his personal experiences on quality, which have been very positive.
Next, we touch on Apple’s latest high-profile content deals, with Oprah Winfrey and Sesame Workshop. Apple’s continuing to spend through the $1 billion it allocated, but we still wonder, how is this A-list content going to be distributed and monetized? Finally we review Instagram’s new long-form video service, IGTV, which was announced this week. We’re both excited about its prospects, particularly relative to Facebook’s other video initiatives, which have been all over the board.
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AT&T officially unveiled its “WatchTV” skinny bundle today, following its preliminary tease of it in late April. Though WatchTV only has 31 networks at launch, it’s a very respectable entertainment-focused group, including the newly acquired Time Warner networks, AMC, A&E, Food and HGTV, with select Viacom networks (BET, Comedy Central, etc) coming soon.
But the specifics of what’s included are a tangential; what’s most important to understand with WatchTV is that it is the latest, and most aggressive, salvo by AT&T to use “video as bait” to support its wireless business. This strategy has significant long-term implications for the TV industry.
I’m pleased to present the 420th edition of the VideoNuze podcast, with my weekly partner Colin Dixon of nScreenMedia.
AT&T is planning to deliver its DirecTV satellite services over broadband at a reduced cost, further demonstrating the company’s commitment to OTT video delivery. With the DirecTV broadband service and its upcoming skinnier bundle “AT&T Watch” for $15/mo, AT&T is pursuing every price point for its different video services. Colin and I discuss why all this helps AT&T with its wireless bundling strategy.
We then transition to new TDG research showing Amazon Channels is driving 55% of all direct-to-consumer streaming subscriptions including 70% and 72% for Starz and Showtime respectively. We’ve both been big fans of Channels since it launched as the Streaming Partners Program in late 2015, and it appears to be paying off really well.
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Traditional pay-TV operators accounting for around 95% of the market lost 305K subscribers in Q1 ’18, compared to 515K in Q1 ’17 according to Leichtman Research Group. The loss is net of 405K Sling TV and DirecTV Now skinny bundle subscribers gained in the quarter by Dish and DirecTV, compared to 265K added in Q1 ’17. Backing out the skinny bundle gains, traditional pay-TV lost 710K subscribers in Q1 ’18 vs. a loss of 710K in Q1 ’17.