Bloomberg reported this week that Verizon is prepping its own skinny-bundle broadband pay-tv (BPTV) service for a summertime launch. With the Verizon announcement, there are now seven such services either launched or waiting on the launch pad. (Sony PlayStation Vue, Dish’s Sling TV, AT&T’s DirecTV Now, Google’s YouTube TV, and Hulu are the other six.)
The BPTV space is getting crowded even before it gets big. This has major implications for the future of TV for three reasons.
1. Competition Forces Companies To Market Aggressively
The legacy pay-TV (LPTV) industry has a love-hate relationship with BPTV services. On the one hand, people love the idea that BPTV services will defeat cord-cutting and hook future generations on paying for video entertainment. On the other hand, legacy players hate the idea that BPTV will cannibalize their existing (higher price, higher margin) offerings.
The result of this tension in practice has been an obsession with market segmentation. The idea being, of course, that BPTV services can sail between Scylla and Charybdis by narrowly targeting specific sub-segments of millennial cord-nevers and quietly ignoring everyone else.
Competition blows this idea to smithereens. In a battle royal between seven (or more) BPTV services, competitors will have to get their name out there in every way possible. This means ads on the CNN.com home page, Monday Night Football, and the sides of city buses. Narrow targeting? Forget it. The inevitable result is that every household in the US will become aware of BPTV offerings whether legacy MVPDs like it or not. (Just like we can all hum that Nationwide jingle).
2. Competition Forces Companies To Improve Their Offerings
It’s not enough to just market one’s product, of course. Companies in competitive markets must continually work to improve their offerings. Heck, McDonalds just announced it is shifting from frozen to fresh beef in 2018. Does anyone think competition had anything to do with that? Yeah, me too.
In the BPTV space, we are already seeing this impact, and several of the entrants haven’t even gotten to the party yet. PlayStation Vue has already cut prices and added ESPN. Sling TV and DirecTV Now are both scrambling to add cloud DVR capability before YouTube TV (which has promised unlimited cloud DRV capacity) gets to market. Hulu is redesigning its entire user experience and promises to have the best live and on-demand integration of anybody. Seven major BPTV companies all competing on Internet product development cycles will result in a lot of innovation and almost certainly some very good services.
3. Competition Is Going To Result in Greater Cannibalization Of Existing Legacy Pay-TV Subscribers
So far, we’ve argued that competition among BPTV services will result in very aggressive marketing of some really good services. Anyone else see where this is going? The intense competition expected among BPTV services will unfortunately put further pressure on legacy pay-TV subscriptions in the form of cannibalization for incumbents that offer BPTV services, and cord-cutting among incumbents that do not.
Legacy pay-TV services can’t sustainably compete with BPTV services on price –- the cost of the equipment and the truck roll is just too high. They certainly can’t compete on convenience (BPTV doesn’t require a truck roll, to say nothing about the 2-year contract and accompanying credit check). Last but not least, legacy services will have a hard time matching the cloud-based user experience and quantum viewing functionality offered by BPTV services.
Competition is a powerful thing. As additional players like Verizon, YouTube, and Hulu enter the BPTV market in 2017, competitive pressures will rise to a fever pitch. In the ensuing battle to craft the best BPTV service, providers will inevitably surpass legacy offerings. Thus significant losses of legacy subscribers are not a question of if, but when.
Stick with TDG and stay ahead of the curve.
Joel Espelien is a Senior Advisor for TDG and serves as an advisor and Board Member to technology start ups. He lives near Seattle, WA.