OTT-TV Succumbs to Pricing Pressures
After hitting the market with relatively cheap pricing, more virtual MVPDs are hiking prices or adjusting their packaging options to boost their profit margins and otherwise attempt to create something that resembles a sustainable business.
The latest cases in point are recent moves by Sony's PlayStation Vue and Dish Network-owned Sling TV. While PS Vue has moved ahead with a ham-handed price hike, Sling TV has taken a more nuanced approach with a new channel bundle that seeks to play the value card.
PS Vue announced this week that pricing will rise by $5 per month, mirroring an increase that was introduced about a year ago. The culprit, unsurprisingly, is the inexorable rise in costs for programming, particularly for sports fare -- an unavoidable issue for traditional and virtual MVPDs alike.
Video streaming industry expert Dan Rayburn summed up the situation on Twitter, noting that OTT delivery isn't some sort of magic elixir that soothes rising content costs:
Sony raises prices for PlayStation Vue by $5 per month, with cheapest bundle now $50 a month. The economics of live streaming does not work for these live linear services. Content costs vs. what consumers will pay are stunting their adoption. https://t.co/9hvEAS1Vff— Dan Rayburn (@DanRayburn) July 2, 2019
Meanwhile, Sling TV, a service that has seen subscriber growth slow to a crawl in recent quarters (it added just 7,000 subs in Q1 2019), took a value-added approach to solving the dilemma of increasing overall revenues and the average revenue per user (ARPU). Rather than focusing on core packages teamed with a multitude of small, add-on packages, Sling TV is effectively rebundling its various programming package options.
Sling TV's new Total TV Deal combines its core Orange or Blue pay-TV packages with seven sports-free "Extras" packages, plus 50 hours of cloud DVR storage, for an extra $20 a month (those add-on packages would typically cost $45 more if they were purchased separately, Sling TV said). The new offering effectively turns the skinny-bundle Sling Orange package into a fuller-freight package with the addition of nearly 80 channels.
Meanwhile, Sling TV is raising the price of its Sports Extra package to $10 per month for Sling Orange (up from $5 per month), matching the cost for that add-on for customers who take the Sling Blue package.
Time will tell if this is a long-term move for Sling TV, though I'd expect it to stick around for a while if Sling TV has some success getting subs to upgrade. A Sling TV official said there's currently no end date for the new Total TV Deal, but acknowledged that the offer is subject to change. "We are constantly evaluating our current customer offers and testing new marketing promotions," the spokesperson explained in an email.
Colin Dixon, chief analyst and founder of nScreenMedia, believes that Sling TV is making a smart move by combining its various add-on packages and beefing up its bundle.
"It's a value play" that will drive up margins and ARPU for Sling TV, Dixon said, noting that Total TV includes a wide range of popular networks without weighing down the package with pricey sports channels. Bundling in the cloud DVR is a "nice little bonus," he added.
What's still missing from the equation is access to local broadcast channels. However, Sling TV does present some options. Among them, Dish's Android TV-powered Air TV Player integrates OTT content (including the Sling TV service) with over-the-air TV. Dish also has an integration agreement with Locast, the not-for-profit company that streams local broadcast TV channels in select major US markets.
Prices rising for all
Of course, PS Vue and Sling TV aren't alone in facing the harsh realities of pay-TV economics. Other virtual MVPDs -- including YouTube TV, fuboTV, DirecTV, Hulu and Philo -- have been forced to raise or otherwise adjust their pricing to keep surging programming costs in check or to accommodate line-up enhancements that tack on certain must-have channels.
And while these OTT-TV options have helped to pick up some of the losses coming the way of cable, satellite and other traditional pay-TV providers, they have not proven to be one-for-one replacements. In fact, growth among virtual MVPDs has shown signs of slowing down amid a fluctuation in pricing. For example, MoffettNathanson's analysis in May found that virtual MVPDs added about 563,000 subs in Q1 2019, compared to a gain of 722,000 a year prior.
And as virtual MVPDs grapple with the rate of subscriber growth and price hikes that aim to bring more dollars and sense to their business models, it's been brighter days of late for free, ad-supported OTT video services like Tubi, Pluto TV and The Roku Channel, which continue to see surges in both consumer adoption and programming mix.
- Locast's Scorecard: 250,000+ People Registered, 0 Lawsuits
- Viacom Seeks Free OTT Payoff on Pluto TV
- US Pay-TV Subs Erode at Record Pace in Q1
- Pluto TV Launches Dedicated Latino Offering
- Viacom Seeks Free OTT Payoff on Pluto TV
- Tubi Touts Passing 20M Active Users, Records for Revenues, Hours Streamed
— Jeff Baumgartner, Senior Editor, Light Reading