Supplying further testimony that the current virtual MVPD market is very, very volatile, nScreenMedia analyst Colin Dixon took at look at YouTube TV economics and determined the new virtual service is losing quite a bit of money.
By Dixon’s tally, YouTube is paying about $35.72 for each $35 YouTube TV subscription in content cost alone.
For his analysis, Dixon priced the 48 channels in YouTube TV’s basic tier based on 2014 data from SNL Kagan. He then settled on 35% premium to reflect average current-day content-licensing price increases. The analyst also referenced What You Pay for Sports for current licensing costs for sports networks.
Based on his formula, Dixon concluded that the 48 networks combined priced out to $33.97.
“However, YouTube is likely paying more than big operators like Comcast,” Dixon concluded. Bob Iger, Disney’s CEO, mentioned that the license fees he sees from vMVPDs like YouTube TV are slightly higher than for regular operators.
For his part, NBCUniversal CEO Steve Burke made largely the same assertion.
How much more YouTube TV paying for channels “is anyone’s guess,” the analyst conceded, “but even a 5% premium means YouTube is” paying more in license fees than it is receiving in subscriptions.
Adding a 5% premium to $33.97 renders a tally of $35.72.
The fact that a video giant like YouTube has entered the pay-TV market with a loss-leader product is, of course, of significant concern to cable companies and other linear pay-TV operators, who are also under pressure to market skinny bundles at low monthly prices.
“Most of these [vMVPD] businesses are at best break-even or money losers,” said Craig Moffett, an analyst at MoffettNathanson LLC, to Bloomberg last month. “This is shaping up to be a truly lousy business.”