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T-Mobile's TVision competitive, not disruptive – analysts

TVision, a new OTT-TV service from T-Mobile that has been met with pushback from some major programmers, is generating a gross margin of about 30%, according to a new economic analysis by Evercore ISI.

TVision launched on November 1 with packages that include TVision Vibe, an entertainment-focused service with 30-plus channels for $10 per month, and TVision Live, a batch of offerings that add news and sports content starting at $40 per month. There's also TVision Channels, which sells premium services from Starz, Epix and Showtime on an ŕ la carte basis.

TVision on an iPad.
TVision on an iPad.

Evercore ISI estimates that Vibe makes a 31% gross margin, compared to Live TV (26%), Live TV+ (30%) and Live TV Zone (31%).

Content/price comparisons

TVision Vibe is most comparable to Philo. According to Evercore ISI's analysis, TVision Live best compares with Sling TV's Orange+Blue bundle, Live TV+ pairs up with Hulu Live (but doesn't include CBS, giving Hulu a content advantage), and Live TV Zone fits somewhere between YouTube TV and Hulu Live in terms of price point (Hulu just confirmed it is raising the cost of its live TV service by $10, to $64.99 per month, starting December 18).

T-Mobile is initially offering TVision to its postpaid sub base, with plans to extend that to Sprint customers later this month. TVision will be extended to prepaid and non-T-Mobile wireless subscribers sometime next year, but the company has not announced how or if service pricing and packaging will change for those groups.

Evercore ISI doesn't see TVision as the pay-TV game-changer that T-Mobile touts it to be.

"Our initial reaction to the offering was that it was interesting, but unlikely to be materially disruptive to the vMVPD [virtual multichannel video programming distributor] market," the analysts concluded in a research note issued Sunday.

What is interesting, they point out, is that there's no overlap between the Vibe package and TVision's Live TV tiers from a channel and content provider perspective. For example, Vibe includes channels from Discovery, AMC and ViacomCBS (Viacom networks, not CBS), while Live TV features fare from NBCUniversal, Disney, Fox and Warner Media.

"It appears that T-Mobile is treating Vibe and Live TV as entirely separate products, with separate sets of contracts; we're not surprised that this is generating pushback from content providers," the report points out.

It's not yet clear if T-Mobile will be forced to change TVision's packaging in the wake of direct and reported objections from two major programmers – Discovery Communications and NBCUniversal – that the new offering violates programming contracts.

T-Mobile has held that TVision falls within the scope of its contracts. Speaking on T-Mobile's Q3 call earlier this month, CEO Mike Sievert contended that TVision is "complying with all of our media contracts," but added that the company is "open minded" about TVision's programming situation and allowed that it's possible that changes could occur.

At last check, there's been no change to TVision's launch packages and pricing for T-Mobile postpaid subs.

T-Mobile's pay-TV strategy plays well even at break-even

Including the Vibe package channels would no doubt drive up the cost of TVision's higher-priced tiers, and could drive gross margins on the Live TV services down 11-17 percentage points, the analysts estimate. And the addition of channels such as TNT and USA, which are part of the Live TV tiers, could make Vibe's $10 price point "likely unsustainable," they added.

Even if T-Mobile is forced to adjust TVision Vibe in a way that alters the price or the service's margins, the analysts at Evercore ISI also believe that the new streaming TV service plays well as a value-add for T-Mobile, even if it only breaks even. That seems to be the case when TVision is bundled with the company's mobile service, and could play well economically when T-Mobile starts to bundle TVision with its fixed wireless home broadband service. TVision as a completely standalone offering likely will tell a different economic story.

"It's important to remember that TMUS doesn't actually need TVision to generate any material profits for the project to be worth doing," the analysts explained. "If a customer takes TVision as their source for pay TV, that itself serves to make the overall TMUS offering stickier, as it raises the hassle factor associated with switching."

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— Jeff Baumgartner, Senior Editor, Light Reading

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