March 1, 2017

BPTV Is For Real

Earlier this week, YouTube announced its much-awaited YouTube TV ‘skinny bundle.’ The proposed $35/month service has many elements in common with both Sling TV and DirecTV Now, as well as a few new wrinkles.

Will YouTube’s new offerings make waves in the US industry, or just a few ripples? A few thoughts.

1. Broadband Pay-TV (BPTV) Service Offerings are Converging
In the early days of any new service, pioneering companies trail blaze and experiment widely to test new ideas. As competitors arrive, however, the experimentation dies down and the industry tends to coalesce around what works. New smartphones, for example, have become so predictable it’s almost humorous.

Broadband Pay-TV (BPTV) is in the process of exiting the first phase and entering the second. Given that YouTube TV is the brainchild of Google, one might have been forgiven for thinking that some amazing new innovation was in the offing. Not so much. YouTube TV is so mainstream that it’s downright banal. This is actually important, because it signals that companies as different as AT&T, Dish, and Google have all looked at the BPTV market and come up with more or less the same answers. A BPTV service, it seems, needs to be box-less (i.e., TV-as-an-app) and contract-free (i.e., month-to-month with no commitments or cancellation fees), support all popular consumer device platforms, and cost roughly $35-$40 per month. (This is very much what TDG’s primary research has long suggested, so it’s interesting to see the market move solidly in this direction.) With respect to content, BPTV services have to focus on lining up (all) the traditional broadcasters followed by as much news and sports as content costs allow. These are the must-have categories for a live TV service. Everything else is optional.

Individual BPTV services may try to deviate from these emerging standards, but the market will force them back into line. Sling TV, for example, tried to push two alternative channel packages (blue and orange), but the market has pushed back and result is likely to be that their “blue+orange” package (which is a seriously strange name) becomes the standard bearer.

DirecTV Now launched without CBS, but will now (post YouTube’s announcement) have no choice but to add it back in. DirecTV Now has also tried to use ‘promotional pricing’ to open up space for more expensive BPTV packages with more channels (i.e., 100 channels for $70/month). YouTube TV’s announcement, combined with Hulu’s pending launch, is going to make that very difficult. I would expect the higher priced packages to fizzle with DirecTV Now’s base $35/month package quickly becoming the main tier.

YouTube TV, for its part, did a poor job in its launch announcement of addressing the device question. Chromecast is nice but totally insufficient as a connected-TV solution. I would expect YouTube TV to quickly and quietly add support for Roku, Apple TV, Amazon Fire, videogame consoles, and Samsung smart TVs. The consumer will not accept anything less.

The notable exception to this convergence is BPTV’s treatment of on-demand content and cloud DVR capability, which is all over the map, bringing us to our second point.

2. BPTV Catch-Up Viewing is Still a Mess
Everyone knows that BPTV users want the flexibility of watching content whenever they want. Being able to watch a linear feed on a variety of devices (including mobile) is a necessary, but wholly insufficient condition. (The problem is how to get there at a reasonable price in light of US copyright strictures (remember Areo) and content provider demands. So far, each solution has taken a different approach, which strongly suggests that we’re still in experimentation phase with respect to on-demand viewing.

Sling TV deserves credit for getting out early in the BPTV category, but we all know that tech pioneers often end up with arrows in their back. Its approach to catch-up viewing was a classic spork. The service offered neither a ‘true’ DVR nor an extensive on-demand library, but instead offered limited catch-up viewing for 72 hours after broadcast. The problem with this feature is that it does not work across all shows or channels. Most significantly, it doesn’t work on ESPN (or any other Disney channels, for that matter) or on any of the major broadcast networks. In other words, the feature is pretty much worthless. Sling TV has since started very limited beta testing of a 100-hour cloud DVR feature (with ESPN still blocked) that could be offered as add-on.

DirecTV Now decided to try another approach, launching with an on-demand library and no cloud DVR whatsoever. The market was not amused. A prospective user had no way of knowing whether their favorite show is available on-demand. In addition, this meant no time-shifting solution at all for live sports or other live broadcast events (awards shows, political speeches, etc.). To its credit, however, DirecTV Now responded quickly and since added its own 72-hour ‘rewind’ feature. Unfortunately, like Sling TV the feature only works with a small number of channels (i.e., no broadcasters, no ESPN). Not good.

YouTube TV enters this fray claiming to be able to offer unlimited cloud DVR storage of anything you want for up to nine months. There was no mention of ad-skipping or channel lock-outs, which will both have to be addressed later in the fine print. My (strong) prediction is there will be no ad-skipping and certain channels or shows will be blocked. Even so, the lack of a catch-up library will seriously grate on the nerves of millennial viewers. Even the best cloud DVR is useless with respect to a show that I wasn’t aware of until a friend recommends it to me halfway through the first season. Netflix does not make me remember to ‘record’ new episodes of House of Cards in order to enjoy the show, and is happy to permit new viewers to go all the way back to Season 1/Episode 1 and get the whole story.

Bottom Line: on-demand access to full seasons (including previous seasons) remains the elephant in the room that none of the current BPTV offerings (including YouTube TV) want to discuss. These services are never going to reach their true potential until a better solution to this problem is worked out.

Broadband Pay-TV services are here to stay, and seem poised to take over the market for entry-level pay-TV services. We’ve long predicted that the Big 4 (Amazon, Apple, Google, and Microsoft) would use their respective ecosystems to launch video services that take advantage of the long-term shift from legacy to broadband. YouTube TV is fully consistent with this thesis, and looks like a credible new player in the BPTV space.

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.

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