Deeper Dive—What can be done to resuscitate the vMVPD market?


MVPDs had a rough go of it this quarter, and virtual MVPDs don’t seem to be picking up the slack as well as they had before. Can anything be done to reinvigorate the streaming TV market?

To be fair, a complete picture of the vMVPD market isn’t available since only two of the major services disclose subscriber numbers. But those two—Sling TV and DirecTV Now—saw a subscriber growth slump.

Dish Network’s Sling TV added just 26,000 new subscribers one quarter after adding only 41,000. For DirecTV Now, adding only 49,000 new subscribers this quarter was a letdown after the service brought in 342,000 new subscribers in the previous quarter.

FuboTV also disclosed subscriber numbers during the quarter, revealing in October that it has nearly 250,000 paying customers, and said that it added 30,000 subscribers during the third quarter.

By MoffettNathanson’s estimates, Google’s YouTube TV, Sony’s PlayStation Vue and Hulu Live added a combined 325,000 subscriber during the quarter. And while the firm said it didn’t have much conviction about its vMVPD subscriber estimates due to the lack of clear data, it said it’s still reasonable to think that vMVPD additions are lower than where they were in the previous quarter.

That slowdown could have something to do with price increases for vMVPDs like DirecTV Now and YouTube TV. And pricing is clearly something that’s on the mind of vMVPD owners.

Disney CEO Bob Iger mentioned at least twice during Thursday’s earnings call that his company—which will own 60% of Hulu after its $71.3 billion acquisition of 21st Century Fox—sees an opportunity to raise prices for Hulu.

Dish Network Chairman Charlie Ergen didn’t directly address raising prices for Sling TV, but he did say that vMVPDs aren’t currently profitable.

“Most people probably aren’t making money in the business today based on their programming cost. At some point, someone is going to get profitable and they’ll lead the pack,” Ergen said.

When asked if Sling TV was profitable, Ergen said it “depends on how you look at it. But under Charlie Ergen’s definition of profitability I think I’d like to make a little more money than we’re making today.”

AT&T CFO John Stephens said his company is focusing on improving profitability for DirecTV Now by scaling back promotions and special offers and shifting toward market pricing in the quarter.

“We expected net adds to be impacted by these actions, and they were. But subscriber growth in the quarter exceeded our expectations,” Stephens said.

AT&T is also looking at realigning its channel lineups with DirecTV Now so it can offer skinnier, less expensive packages.

“It’s also about what customers want, and many want smaller, value-based video packages,” Stephens said.

Raising prices, shifting focus toward more engaged consumers and reconfiguring channel packages are all potential ways vMPVDs can either reignite subscriber growth or get to profitability. But those moves get more complicated as more competitors enter the space.

Ergen echoed that by saying that the vMVPD market is accelerating but that competition is increasing faster than the market can likely support long-term.

“You’re going to see a lot of people in the category and at some point there will be too many and there will be a consolidation,” Ergen said.

It’s unclear what kind of consolidation Ergen is referring to. vMVPDs consolidating would make little sense since they wouldn’t necessarily gain scale or efficiency by combining and would likely cannibalize one another. But perhaps is thinking is that a company like Verizon with a connectivity business would be better suited absorb the costs of running a business like Sling TV or FuboTV.

Regardless, it’s clear from comments during the quarter that vMVPDs are at something of a crossroads and will likely need to undergo some changes to continue the growth trajectory that made them a threat to traditional pay TV.