CenturyLink is viewing its IPTV service, Prism TV, through a different, much less favorable prism.
CenturyLink Inc. (NYSE: CTL), the third-largest US telco by subscribers, is "now de-emphasizing" its full-fledged IPTV service because of rising content costs in favor of a new, leaner OTT video service that it plans to launch later this year. With the carrier now conducting trials of the planned OTT service in four (undisclosed) markets, it intends to launch commercial service in those markets early this spring and then expand its reach throughout the rest of the year.
In their fourth-quarter earnings call earlier this week, CenturyLink executives said they are also exploring the idea of licensing the new DirecTV Now OTT service from AT&T Inc. (NYSE: T). That not-so-skinny streaming service, launched at the end of November, netted more than 200,000 video subscribers in its first month despite some technical glitches and less-than-rave reviews from early users. (See AT&T Swears by DirecTV Now .)
"We're looking at every option," said CenturyLink President and CEO Glen Post in answer to an analyst's question, according to a Seeking Alpha transcript of the company's earnings call. "If we can get a better deal or we can get some of our content costs down and get the same type of service available with a DirecTV Now, we'll certainly take a look at that. We are talking to all of our service providers, looking at every possibility there."
CenturyLink's embrace of OTT video, following a lengthy incubation period, comes even as Prism TV continues to make steady subscriber gains for the carrier. The telco reported picking up 7,000 IPTV subscribers in the fourth quarter and 40,000 subs over the entire year, boosting its total to 325,000.
But those new pay-TV subscribers are increasingly coming at a hefty price. On the earnings call, CenturyLink executives lamented that surging video programming costs are cutting deeply into their profit margins and turning Prism TV into more of a loss leader than a profit center for the company.
Content costs for Prism TV "have really gone out of sight the last couple of years," Post said. "If you look at the margins, sometimes actually negative margins… We have to make a truck roll and the cost of provisioning really makes it difficult from a returns standpoint for really driving the kind of returns we need."
Indeed, CenturyLink reported that its operating expenses for its consumer business segment climbed $15 million on a year-over-year basis in the fall quarter, or 2.4%, largely due to higher programming costs for Prism TV. Over the same period, the company's consumer strategic revenues rose $11 million, or 1.4%, primarily because of Prism TV.
Our sister publication, Telco Transformation, has more today on CenturyLink's switch in video emphasis and what the implications could be for both the carrier and content providers. (See CenturyLink's TV Future Likely to Be Skinny .)
— Alan Breznick, Cable/Video Practice Leader, Light Reading