The way Americans watch TV is going to change in a big way in the
next few years, according to analysts at UBS led by John Hodulik.
The catalyst of this change will be new live-streaming TV
packages like DirecTV Now, Sling TV, and YouTube TV, UBS analysts
wrote in a recent note to clients.
The concept of these emerging services is pretty simple: You pay
for a package of channels like you would in a cable or satellite
TV bundle, but those channels are delivered over the internet to
your smart TV, laptop, smartphone, and so on. The thinking is
that these flexible packages will lure younger people into the
And UBS thinks it will work. The analysts wrote that over 15
million people will subscribe to streaming TV services by 2020,
as players like Hulu (confirmed), Amazon (rumored), and Apple
(very murky), jump into the market. That would mean about 13% of
all US homes.
Here’s a chart that shows how UBS thinks the market will grow
over the next few years:
But here’s a question: If these services will find such a huge
audience in a few years, why haven’t they taken off immediately?
UBS chalks it up to three factors limiting growth:
- Quality of live-streaming. This has been the
real weak spot for entrants like Sling TV and DirecTV Now,
which give great value in terms of number of channels (per
dollar spent), but have under-delivered when it comes to
performance. And it’s a big problem, since a spotty service is
an especially hard sell if you are dealing with people who are
used to cable TV. They expect their TV to just work every time
they turn it on. The reputation that streaming services are
unreliable might be set to change, however. YouTube and Hulu
have both emphasized their prowess with handling massive
amounts of video online, but we’ve yet to see how their live-TV
products perform in the wild. UBS is optimistic. “Given their
streaming backgrounds and strong brands, we expect upcoming
offerings from Google and Hulu in 2Q17 and Amazon (2018?) to
solve many of the quality issues that have plagued early
offerings while driving awareness of the streaming TV market,”
- Channel availability. This is a double-edged
sword for these streaming TV services. Part of the appeal of
the category has been that many of the services have offered
“skinny bundles,” which give you a smaller package of channels
for a price point of around $35-$40. For younger folks who balk
at a $100-plus cable bill, that is attractive. But it also
means trade-offs. YouTube TV, for instance, costs just $35
dollars a month,
but doesn’t have channels like CNN, TBS, TNT, History, AMC,
A&E, Comedy Central, and HBO.
- Consumer awareness. This will change if the
popularity of these services starts to ramp up.
Selling you data
If this streaming-TV sea change does come, what will happen to
the companies selling you pay-TV packages?
One big difference is that because of how aggressively these
services are priced, the margins are razor-thin, especially
compared to the fat margins of normal pay TV. That means if
someone swaps a cable package for a streaming one, the cable
company is going to lose some revenue — sometimes a lot. UBS says
that cable companies will be able to offset some of that
financial impact by charging customers for the data they are
using to stream TV, since many are delivering internet too.
“These [streaming TV subscribers] will often come in at less than
half the price of traditional service, but … cable’s broadband
business will see upside given the broadband surcharge and
potential speed migrations,” UBS wrote. “In summary, while
investors are concerned about the potential impact from new
streaming TV services, we believe the financial impact on cable
[companies] is manageable.”
But that issue isn’t so rosy for satellite TV providers, which
UBS described as “challenged.” There might be a potential escape
valve for at least one: AT&T, which owns satellite provider
DirecTV, plans to weather the storm by pushing for its upcoming
5G network to become a vehicle for delivering TV wireless. In
that case, it would have the same data fee advantage cable
companies have. But it’s way too early to tell whether 5G will
become the wireless TV juggernaut of AT&T’s dreams.