Over-the-top TV services are pursuing cord-cutters with lower-priced, slimmed-down programming packages, but even they are not immune to rising programming costs that are cutting deeply into already-thin product margins.
Bowing to the same pressures faced by traditional pay-TV providers, three OTT services -- Sling TV , DirecTV Now, and Sony's PlayStation Vue -- have jacked the price on their respective bundles:
- Sony Corp. (NYSE: SNE)'s PlayStation Vue announced Monday (July 2) that it will raise the monthly rate of all its pay-TV plans -- Access, Core, Elite and Ultra -- starting July 24 for new customers, and after July 31 for existing subs.
- DirecTV Now, AT&T Inc. (NYSE: T)'s OTT TV service, is raising the price on most of its packages by $5 per month starting July 26.
- Sling TV, the Dish Network LLC (Nasdaq: DISH)-owned service, said last week that it has increased the price of its baseline, single-stream Orange tier that offers more than 30 channels by $5, to $25 per month.
Despite efforts to trim down the costs of pay-TV by leaning on smaller, contract-free programming packages alongside the use of retail streaming devices that remove pricey operator-supplied set-top boxes from the mix, these new OTT-delivered services have been unable to sidestep the hard truths of annual programming rate increases.
"Our team works hard to negotiate fair programming deals, with the goal of keeping your price as low as possible. Programming fees, however, only go one direction and that's up!," Warren Schlichting, president of Sling TV, lamented in a blog post about the price bump.
"Unfortunately, we must increase the price of our multichannel plans to keep pace with rising business costs and enable us to continue offering a better way to watch the best in live sports, entertainment, and news," Dwayne Benefield, VP and head of PlayStation Vue, noted in another blog.
Those rate increases are also coming even as these relatively new services start to accumulate some semblance of subscriber scale. Sling TV ended the first quarter of 2018 with 2.3 million subscribers subs while DirecTV Now ended the period with nearly 1.5 million.
They are likewise trying to counter higher content costs and thinning margins with premium cloud DVR services and options that provide subscribers with access to additional streams.
That scenario also speaks to why major distributors are also placing bigger bets on content, as Comcast looks to complement NBCUniversal via its chase for Fox, and AT&T's recently completed acquisition of Time Warner.
This exposure to rising programming costs seemingly represents a major hurdle for T-Mobile to overcome as it moves ahead with plans to launch a national OTT TV service that was spawned by its acquisition of Layer3 TV, a Denver-based pay-TV provider that sells an in-home, big-bundle TV service in a handful of markets that starts at a lofty $89 per month.
T-Mobile has claimed that what it brings to market will disrupt the pay-TV industry, though it hasn't shed much light on how it will price and package a coming, national OTT TV service that will tie into coming 5G networks.
But it's already clear that T-Mobile is keenly aware that rising content costs will make that task difficult to accomplish.
As part of a public interest statement tied to its proposed merger with Sprint, T-Mobile estimated that Layer3 TV's content acquisition costs are roughly 20% to 30% higher than what larger pay-TV providers are paying.
T-Mobile argued that the increased scale it can achieve through a Sprint combination will give it more bargaining power with programmers and help it develop a competitive service that matches up not only with other OTT providers but traditional pay-TV players as well.
But how much bargaining power with programmers T-Mobile could gain in the near term is questionable considering that Sling TV and DirecTV Now have been forced to raise their prices despite being owned, respectively, by two giants of the pay-TV industry -- Dish Network and AT&T.
— Jeff Baumgartner, Senior Editor, Light Reading