Virtual multichannel video programming distributors (vMVPDs) bounced back in the third quarter as most traditional pay-TV providers took it on the chin.
Charter Communications, a traditional provider that bucked the trend again by adding video subs in Q3, doesn't seem overly concerned that vMVPDs are about to take over the pay-TV world, even as many succumb to the same programming cost pressures that everyone else in the sector is grappling with.
"A lot of virtual products are really just me-too products in the sense that they're the same service as a bundle," Tom Rutledge, Charter's chairman and CEO, said Monday at the UBS Global TMT Virtual Conference.
"Most of them have raised prices – and they have to – because their cost structures are imposed by the content companies."
YouTube TV, fuboTV and Hulu's live TV service are among a group of vMVPDs that have been forced to raise rates in recently weeks and months.
Rutledge thinks the business case for all of them face some challenges that cable operators, which can bundle broadband and other services with video, don't face to the same degree.
"I don't know if that is a very easy business to be successful in from a churn perspective and a cost of marketing perspective," he said of vMVPD services.
"My sense is that the bundle will continue to be sold for some significant period of time until it finally breaks that we have as good a chance of selling it as anybody else."
At the same time, he believes Charter can amplify its role as an aggregator that integrates other types of streaming services onto its own platform as the way people consume TV shows and movies continues to change.
Aggregation and the relationship Charter already has with consumers "is an opportunity for us," he said.
Programmers should consider 'dual content' strategy
But Rutledge also remains wary of programmers, studios and other media companies that continue to develop and launch direct-to-consumer streaming services.
He wonders if this ongoing trend will put Charter in position to drop some services from the pay-TV bundle because consumers can get access to that same content directly, obviating the need for a cable operator to also pay for it.
He suggested that programmers adopt a "dual content strategy" whereby they put one set of premium content on their linear TV service and another on their direct-to-consumer products.
"It's yet to be determined whether the owners of content are going to try to support both worlds or not," Rutledge said.
For the moment, some have footing in both worlds, as they try to preserve a declining pay-TV business while they take advantage of the direct-to-consumer streaming model.
Peacock, NBCUniversal's new streaming service, has been playing all sides, offering an ad-based premium service to Comcast and Sky video subs, along with direct-to-consumer tiers that are ad-based and free along with paid versions that run with no ads or limited ads.
WarnerMedia, meanwhile, sells HBO Max as a standalone service in a bid to be more like Netflix, but has likewise relied heavily on pay-TV distributors to convert existing HBO subs to the new offering.
Disney, meanwhile, has had success selling Disney+ largely as a standalone and through some limited partnership with companies such as Verizon, a strategy that has helped Disney+ quickly ramp up to more than 73 million subs worldwide.
Rutledge also reiterated that Charter's recent bucking of the trend with pay-TV subscribers (Charter added 67,000 in Q3) is a "complicated story."
It was not due to any magical moves with pricing and packaging, but instead a function of natural pull-through from recent, massive broadband subscriber growth.
"Some of that share had satellite customers in it and when they made the conversion to us, they bought video from us," Rutledge said.
The big pay-TV bundle remains expensive and open to cost pressures and is, generally, a "shrinking business," he said, while acknowledging that Charter has developed some OTT products and skinnier pay-TV packages that are allowed by the operator's programming contracts.
However, those same contracts cap the number of subscribers that Charter can put on those services, he points out.
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— Jeff Baumgartner, Senior Editor, Light Reading