vMVPD opportunity narrower than people think, TDG’s Espelien says

The Diffusion Group's Joel Espelien speaks on Wednesday, May 16, at the Pay TV Show in Denver. (Ben Munson/FierceCable)

DENVER—Virtual MVPDs like Sling TV and DirecTV Now are helping to offset declines in the traditional TV space, but the opportunities with streaming TV are narrower than many expect.

That’s according to Joel Espelien, senior adviser at The Diffusion Group, who kicked off the second day of programming at the Pay TV Show. He pointed toward his firm’s figures that show vMVPDs had 5.1 million subscribers at the end of 2017 and could have as many as 20.1 million combined by 2022.

“That’s really healthy grow for an industry; unfortunately this isn’t just any industry,” Espelien said, adding that pay TV is accustomed to growth and replacing lost MVPD subscribers with new vMVPD subscribers isn’t a sustainable strategy.

“I would consider myself a virtual MVPD skeptic. I think it’s more limited than people think, particularly in terms of addressable markets,” Espelien said.

RELATED: Only 5% of U.S. broadband users subscribe to a vMVPD, research company says

He said there are too many players for the market size and predicted a shakeout is going to happen where the services with deep pockets are going to win.

Espelien also said that vMVPDs fail to address a core issue that kids are watching a lot less linear TV. He compared it to hearing that all young people are becoming vegetarians and then deciding to start selling smaller hamburgers.

He also said that virtual pay TV is still just people trying to wholesale content and that not enough of them are doing originals and raising the value propositions of their services.

Espelien saved some of his harsher critiques of vMVPD for addressing the fundamental economics of the skinny bundle, which he said at the $40 price point are “really bad.” He said the strong content providers don’t discount their stuff for these services, and so MVPDs end up wiping out distribution margins to get to an end-user price point.

“They’re all losing money hand over fist,” Espelien said.

To go with the losses, Espelien predicted there’s going to be a lot of high churn for vMVPDs as satisfaction does not equal loyalty and nonmonogamy with providers is the new normal.

“Once we see the true churn numbers it’s going to be ugly,” Espelien said.

Espelien said the MVPD market is too big to fail but too small to succeed. He predicted strain will continue as legacy services continue to be the target of negative ads from vMVPDs, and as vMVPDs continue losing money on every subscriber. In the meantime, he predicted second-tier channels being shut out of vMVPDs will continue being forced to look for M&A and that a few first-tier channels will continue hanging on for dear life, not really knowing where vMVPDs are heading but still willing to go along for the ride.