August 28, 2018

5G Is On The Way, And It’s Bringing Company

Though large-scale 5G deployments are still a couple years out, there is no doubt that the high-speed mobile service will be combined with virtual pay-TV bundles.

• AT&T is launching 5G, and presently has two virtual pay-TV services, DirecTV Now and WatchTV, both of which are currently bundled with 4G mobile plans.
• Verizon is launching 5G, and just announced plans to package YouTube TV and Apple TV devices with its new 5G fixed-wireless service.
• Both T-Mobile and Sprint are launching 5G and, post-merger, the new company will have its own vMVPD, which T-Mobile has been working on. This will mean a third mobile superpower armed with a broadband pay-TV service.
• Dish Networks has publicly stated its intent to move to 5G and TV-as-an-app, and has the resources and spectrum to cover the nation with cell sites quickly, bundling 5G and Sling TV.

So what’s really going on here?

The Rise of 5G
As noted, by 2021 the US will have at least four nationwide 5G providers that also offer a pay-TV service, a combination will prove quite compelling to consumers. In turn, this will further disrupt the pay-TV industry. In particular, traditional multi-service operators (MSOs that bundle broadband and pay-TV) are likely to be on the losing end of this next wave of disruption. So argues WideOpenWest Senior VP of Video Programming, Roger Seiken. The rise of 5G, he says, will devastate his company, the sixth-largest US cable operator. “It will force us out of the business.”

Why such a negative view of the company’s future? Because Seiken grasps the fact that smaller pay-TV operators do not have the luxury of vertically integrating like Comcast and AT&T. Even Comcast is rightly concerned about what 5G means to its future as a residential operator, as xFinity Voice is completely tied to a residential broadband subscription. If traditional MSOs fail to match the value and service range of new 5G-based bundles, they can expect continued subscriber loses, with many smaller MSOs treading water until they are acquired (thus further fueling the wave of consolidation we are now seeing).

5G Bundles & the Future of Pay-TV
As TDG has long argued, data-first bundles, whether mobile or residential, inherently devalue pay-TV. Today, a growing number of MSOs are willing to throw pay-TV in for free if a consumer spends enough money on a high-margin cash-cow service like mobile data or home broadband. In these schemes, pay-TV is repositioned to serve as either bait to attract data subscribers, or as an upgrade to entice existing data subscribers to spend more. Either way, the inherent value of pay-TV is forever diminished.

This concern is not new, as traditional MSOs long ago reduced pay-TV to secondary status behind home broadband and have spent the last several years reinforcing this perception among subscribers. Today’s mobile providers are doing the same, but with mobile data instead of home broadband serving as the cash cow. Either way, for both MSOs and consumers, pay-TV is increasingly seen as a secondary service.

Hastening the Demise of the Fat Bundle
As you might suspect, a data-first, pay-TV-as-inducement bundle disfavors bloated 500-channel live TV services in favor of thinner channel packages with lower prices. And this is precisely the direction in which things are headed.

The appearance of skinny bundles at first fueled a ‘race to the bottom’ among virtual operators, with ever-thinner channel packages at ever-lower prices. As TDG warned, that strategy has largely proven untenable, with many vMVPDs adding channels and raising prices. Others like Sling TV and Philo have so far resisted this temptation, doubling down on super-skinny bundles at super-low prices ($20 and $16/month respectively). You can add AT&T’s WatchTV service to this list, with ~30 channels for $15/month.

Unlike Sling TV and Philo, however, AT&T has a cash-cow mobile service to help subsidize its broadband pay-TV services, which gives it a much larger toolset for building, marketing, and distributing video content. It can go as skinny and inexpensive as market conditions require, and survive much longer on poor margins than its competitors.

So What Does This Tell Us?
5G will be disruptive on a number of levels, some more immediate, others the stuff of science fiction. In terms of the former, traditional MSOs that bundle broadband and pay-TV are rightly threatened by 5G’s viability as a replacement for wired residential broadband services. Verizon is quite keen on this notion, recently announcing that its 5G home internet service will launch later this year in Houston, Indianapolis, Los Angeles, and Sacramento, with new subscribers able to choose from a few free months of YouTube TV or an Apple TV 4K streaming box as incentive. Imagine all of this tied to a single data service that serves both residential and mobile, and you begin to get the picture as to the extent of disruption that 5G could bring.

Of course, this view is contingent upon the extent to which 5G operators play the fixed-wireless residential card. Their first priority is mobile, of course, but Verizon’s recent move is an early sign of how significant residential 5G will be, not just in rural or underserved areas but in major metros, as well. Undoubtedly Dish sees the same future, as its DBS business continues to decline.

Stick with TDG and stay ahead of the curve.

Since founding TDG in 2004, Michael Greeson has designed and fielded over 40 quantitative consumer research projects and authored/co-authored more than 50 reports on multi-screen/multi-platform video and the connected consumer. He serves as President and Director of Research at TDG and lives in Fort Collins, CO with his lab, Zoe.

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