A long coming shift in the TV industry is underway as smaller service providers pivot away from traditional video packages to instead offer streaming options. And they're deemphasizing costly pay TV businesses and turning their attention to higher-value connectivity services.
This trend was most recently seen with telco WOW!, which in May disclosed plans to stop selling traditional video services and make YouTube TV its dedicated TV product. That followed a similar move by Frontier Communications in March, which expanded its relationship with YouTube TV to include integrated billing. Frontier also said it planned to focus on its fiber internet product.
The moves come as the pay TV industry continues to decline. In Q1 2023 top pay TV providers across cable, satellite and telco (not including vMVPDs) collectively lost around 1.82 million subscribers, according Leichtman Research Group.
As of the end of Q1 2023, Frontier had 288,000 pay TV subscribers, after losing 18,000 in the period. And while not entirely forgoing pay TV businesses, major cable operators such as Comcast and Charter both continue to shed subscribers, losing 614,000 and 241,000, respectively, in the first quarter. Aside from NBCU’s own streaming efforts with the Peacock SVOD service, together they’ve formed a streaming joint venture under the Xumo brand.
However, in the U.S. there are many smaller operators that also are seeking alternatives to traditional video. MyBundle is one company working to aggregate streaming services for broadband partners. The company has touted traction, last year inking deals with the NCTC and NRTC and counting 150 broadband service provider partners at the start of 2023 – including Frontier.
A zero-margin business
So why are telcos like WOW! and Frontier pivoting out of traditional video? Industry analysts boiled it down to a case of economics: traditional pay TV is a costly business that doesn’t offer many growth opportunities. It also brings its fair share of headaches.
“Traditional linear pay-TV services are not a growth business, and they are expensive to maintain. Therefore, some telcos and smaller cable operators have opted to pivot away from offering them,” said Tammy Parker, principal analyst for Global Telecom Consumer Services at GlobalData, to StreamTV Insider. “Telcos and cable operators increasingly consider broadband to be at the heart of their core competency, which steers them to offer streaming entertainment as a natural complement, provided they want to keep offering a video option.”
Along the same lines, Recon Analytics founder and analyst Roger Entner said the shift away from traditional video to streaming options is something everyone is doing.
“Video has become a zero-margin business,” Entner told StreamTV. “And the content providers are continuing to squeeze their distributors.”
With media companies seeking their own paths to profitability the price to distributors to carry programming continues to rise, even as traditional pay TV viewership declines. Distributors then typically pass on increased programming costs to consumers through rate hikes.
To Entner, providers’ rationale goes something along the lines of “why am I incurring the wrath of my customers when I’m not making any money off of this?”
Entner noted that very few people sign up for linear television anymore, but when a telco like Frontier strikes a deal with the likes of YouTube TV and migrates customers over, it not only gets a commission, but also kicks the proverbial can of customer distaste for price hikes over to the streaming provider.
Since providers aren’t pulling in big bucks from traditional video, “the heartburn and the hatred that they get [from consumers], it’s just not worth it. Let somebody else be the bad guy,” Entner said.
But maintaining some type of video option could be a good move, at least for now, according to Parker.
Parker pointed out that some customers still look to their internet provider for video service out of habit, even if they’re not interested in a traditional pay TV subscription. “So a carrier might be wise to have something to offer them, and if it can get some revenue share from that, so much the better,” she said.
“However, time will tell if offering streaming service options ends up being a stopgap measure as more carriers may eventually decide to abandon video altogether,” Parker continued.
As to why telcos aren’t just opting to get out of video entirely, Parker said it’s mainly to drive engagement through an additional customer touch point and offer a service bundle that increases customer retention.
MyBundle CEO Jason Cohen in an earlier interview with StreamTV said the company was seeing a pickup in those who traditionally offered video but are now looking for different options. Streaming services provide a way to offer a less costly TV choice while retaining those higher ARPU broadband customers that operators want to fill their high-speed networks.
It doesn't mean all providers are ditching traditional TV - at least not yet. For those that aren't, Parker said a provider that has a small base might choose to continue offering traditional video if they aren't losing much money.
"For example, a carrier may stick with offering traditional pay-TV if it has an older base of customers, perhaps in a more rural area, who do not have high-speed broadband service for whatever reason and do not want to change their video service," she noted.
Entner, meanwhile, thinks the ongoing change is indicative of the end of traditional video. “This is not a new trend. This has been coming for 10 years. There’s no cable TV provider anymore, they’re all broadband providers,” he said. “What you’re seeing here is the final chapters of video.”
How do streamers benefit?
While YouTube TV was the beneficiary of Frontier and WOW!’s pivot, the shift represents opportunity for a variety of streamers.
Anecdotally, Parker gets the impression that which types of services consumers opt for will break out by age demographic, with older customers more likely to lean towards vMVPDs as a linear pay TV replacement, while FASTs and SVODs have appeal for all age groups.
And telcos offering streaming services can help make billing and signup easier, while providing a pool of subscribers to streamers.
“Anything that removes friction in the signup and billing process is a net positive for streamers at this still early stage of the game,” Parker said. “Enabling customer acquisition through a carrier or an aggregator opens the door to viewers who might not otherwise sign up for a particular streaming service.”
Another company working to serve as a bridge between telcos and subscription services is Bango, which has helped power Verizon’s +play subscription aggregation service that counts Netflix, Paramount+ and other major streamers among its more than 30 subscriptions.
Verizon too has seen its Fios pay TV business continue to shrink, losing 76,000 in Q1. While counting work with major telcos globally, Bango co-founder and CMO Anil Malhotra told StreamTV that it’s also seen interest from smaller and regional operators in the U.S. At this stage, he said they’re typically looking for more generic or the “must-haves” content options.
“That’s what they really want to be able to offer, so that when they put together their home broadband offers, it’s got the content that a consumer might almost expect now,” he said. He also noted that consumers are being trained to expect to get these types of services as part of a package instead of just straight broadband connectivity.