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Virtual providers eye 2019 growth, despite slowdowns from top 2 players

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Virtual providers eye 2019 growth, despite slowdowns from top 2 players

Despite a recent slowdown in new subscribers at two of the largest U.S. virtual multichannel video programming distributors, a number of media companies are expected to debut new streaming offerings in 2019 — and consumer awareness of the virtual market is growing.

DISH Network Corp. and AT&T Inc., which operate Sling TV and DIRECTV NOW, have tallied more than 4 million virtual customers between them. However, DIRECTV NOW's subscriber additions slowed to 49,000 in the third quarter, down from 296,000 a year earlier; while DISH's Sling TV added 26,000 net subscribers, down from 236,000 net adds in the same quarter of 2017.

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Craig Moffett, analyst at MoffettNathanson, posited several reasons for the declines at Sling TV and DIRECTV NOW: price increases, retaliation from legacy distributors, or even "exhaustion from consumers disenchanted that virtual MVPDs are not quite what they were cracked up to be."

Despite the slowdowns at the top, Kagan, a media research unit within S&P Global Market Intelligence, estimates that the virtual provider market — which also includes Hulu LLC's live TV offering, Google LLC's YouTube TV, Sony Corp.'s PlayStation Vue, Philo Inc. and fuboTV Inc. — will close 2018 with 7.9 million subscribers, up from 4.8 million in 2017, before counting 10.4 million in 2019.

Company executives at DISH and AT&T remain bullish about the growth potential of virtual growth. AT&T, in fact, is betting even bigger on the virtual market in 2019.

AT&T adjusts virtual game plan

AT&T is gearing up for three-tiered content offering from WarnerMedia that will launch late in 2019, and is trialing a "thin-client" product that will hit the market next year. Combined with complete video offering from DIRECTV aimed at those interested in sports fare and multiroom configurations, a refined and less promotional DIRECTV NOW, and AT&T WatchTV, the mobile-delivered skinny-bundle product that is free to AT&T Wireless customers with unlimited data plans, the company believes it will be able to appeal to a broad customer swath. "We think we have a portfolio that meets virtually every segment of the market," AT&T CEO Randall Stephenson said during AT&T's recent investor day.

Macquarie Research analyst Amy Yong in a note expressed confidence that those strategies will bear fruit for AT&T. But in the short term, she anticipates DIRECTV NOW net adds will decline by 18,000 in the fourth quarter and decrease by 80,000 in 2019.

As to DISH, Yong expects overall sub churn to continue, given the company's ongoing carriage disputes with Univision Communications Inc. and HBO (US). Relative to Sling TV, Macquarie is lowering its net add projections from 252,000 to 208,000, resulting in a 9% gain to 2.42 million overall at the close of 2018.

In its third semiannual survey on the topic, RBC Capital Markets found that awareness for virtual providers has grown significantly, with 72% among those ages 18 to 44 now considering the products, up from 30% from the prior survey. RBC Capital Markets analyst Steven Cahall pointed to heavy marketing by DIRECTV NOW, Hulu, YouTube TV and Sling TV as the reasons behind the increased familiarity.

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Hulu, fuboTV, Discovery gains

Launched in May 2017, Hulu with Live TV reached 1 million subscribers in September. Live TV subscribers also receive access to Hulu's legacy on-demand library for $39.99 a month. Sports-centric fuboTV, which launched in January 2015 as a largely soccer-focused play before broadening its programming, is nearing the 250,000 subscriber threshold.

FuboTV CFO Joel Armijo told attendees at the recent UBS Global Media and Communications Conference 2018 that while fuboTV remains sports-first, its entertainment and news networks hold a broader appeal. The company is taking aim at Comcast Corp., DIRECTV and Charter Communications Inc. customers as a pay-TV replacement service. Armijo believes fuboTV's lineup can attract between 1 million to 2 million subscribers, especially if the company ups its TV ad spending budget.

With anecdotal reports of strong growth from smaller players like fuboTV, Moffett wrote that "there might not be a segment-wide slowdown," but rather a shift from the virtual offerings from the satellite players "to those of the native digital players."

For programmers, virtual providers remain a key component for maintaining/growing subscriber rolls and affiliate fee increases, as the linear universe continues to shrink. For instance, Discovery Inc.'s recent channel launches on Hulu with Live TV and Sling TV are expected to add some 4 million subscribers in 2019 for five or six channels from the company’s expanded portfolio.

Although affiliate revenue is expected to grow 1% in the fourth quarter, Discovery executives said the virtual provider additions should help it reach its projection for a mid-single-digit, domestic affiliate fee gain next year. Discovery is also looking to secure carriage on YouTube TV.