YouTube TV are fuboTV have raised their prices to help confront the dramatically unprofitable realities of the virtual MVPD market but it will cost them future subscriber growth.
Media analyst firm MoffettNathanson noted in a new research note how the early wave of vMVPDs including Sling TV and AT&T TV Now (formerly DirecTV Now) seemingly stemmed the tide of traditional pay TV subscriber losses by offering live streaming channel bundles at sub-$40/month price points.
“While all the consumer research suggested there was real demand at sub $40 prices, the consolidation of the media sector, which re-created big TV bundles, and the high annual escalation of programming costs worked in tandem to create a massively unprofitable business with increasingly limited consumer demand,” wrote Michael Nathanson. “As prices rise, say good by to those empty calories of vMVPD subscriber growth.”
YouTube TV surprised everyone at the end of June when it raised its monthly rates by $15, from $50/month to $65/month. MoffettNathanson estimates that YouTube TV pays $61 per month wholesale in content costs, meaning that even after its price increase, Google’s streaming TV only pulls in $4 per month in gross profit per subscriber. Earlier this year, Google announced that YouTube TV now has more than 2 million subscribers.
Thanks to fuboTV’s recent financial disclosures, MoffettNathanson was able to put together a fuller picture of that vMVPD’s performance. The firm said that fuboTV generated $147 million in revenues last year but thanks to more than $200 million in subscriber-related expenses, the company posted an operating loss of $172 million. FuboTV generated about $540 per subscriber in revenue last year but had to pay out $740 in per subscriber expenses.
“Facing this math, fuboTV raised prices for their Standard plan by $10 in March 2019 from $44.99 to $54.99 and just raised prices to $59.99 while recently adding Disney and ESPN cable networks to its programming mix,” wrote Nathanson, adding that the opportunity for all vMVPDs is to keep growing their advertising revenues. “FuboTV generated roughly $4 in advertising RPU in 2019, with strong growth to nearly $5 in 1Q 2020. The model essentially is to break even on content costs and make it up in advanced advertising.”
However, MoffettNathanson said continued price hikes at vMVPDs will accelerate consumer shifts toward alternative OTT offerings, meaning fewer cord-cutters will be converted to vMVPD subscribers. The firm said the conversion rate fell below 40% in 2019 after hovering around 76% through 2017 and 2018. The firm projects that the conversion rate will normalize below 30% in 2020 due to no live sports and the impact of AT&T TV Now subscriber losses and PlayStation Vue shutting down.