The wheels are already falling off the vMVPD model, observe MoffettNathanson researchers in a research note released today. The financial analysts base this statement on third quarter results, which show that, with the exception of sports and news, consumers are becoming increasingly disinterested in what the researchers call “live” programming, and which some others call “linear TV” – in other words, programming that is scheduled to be viewed on a specific day or days of the week at a specific time.
Virtual multi-video program distributors (vMVPDs) are companies that offer linear TV programming but who distribute it over a broadband internet connection rather than a dedicated connection as with traditional cable or satellite TV. Major vMVPD offerings include AT&T TV Now, YouTube TV, Hulu Live and Sling TV.
Although the researchers estimate that the category overall saw subscriber growth of 584,000, they also estimate that only about 40% of people who cancel traditional linear TV convert to a vMVPD service.
Traditional (i.e., non-virtual) MVPD services from cable, satellite and telecom providers saw subscriber losses of 1.8 million subscribers in third quarter, according to MoffettNathanson’s estimate. Despite these losses, though, MoffettNathanson foresees a core group of sports and news viewers remaining with traditional MVPD, also known as pay-TV, offerings. The researchers note that “live viewing of sports and news (especially sports) remains healthy, while viewership for all other programming has declined.”
The researchers go on to note that: “The feedback loop this creates becomes self-fulfilling. As distribution declines, sports networks with fixed cost inputs (in the form of contracts with sports leagues and/or teams) have no choice but to raise prices to offset the declines in distribution. As distributors pass along those increases, the overall price of the bundle spirals higher. That, in turn, triggers even faster defections . . . which, of course, demands even faster price increases. For anyone who isn’t a sports fan, the existing model is simply becoming inhospitable.”
vMVPD Research
MoffettNathanson worked with researchers at Altman Vilandrie & Co. on a survey of 5,000 U.S. respondents that found that 53% of U.S. households consume sports on a regular basis and, of those, 90% continue to subscribe to pay-TV.
In contrast, 14% of U.S. pay-TV households don’t consider themselves regular news or sports viewers, and the researchers believe many of those customers are likely to cancel pay-TV without replacing it with a vMVPD service.
The researchers note that when vMVPD services initially launched, they offered considerable savings over traditional pay-TV, but those savings are being eroded as vMVPDs increase prices, also diminishing the services’ appeal to traditional pay-TV cord cutters.
Supporting MoffettNathanson’s downbeat appraisal of the vMVPD market is Sony’s recent decision to discontinue its Playstation Vue vMVPD offering.
The MoffettNathanson researchers also raise another interesting question. They note that Verizon unlimited wireless subscribers will be getting Disney+ for free, most T-Mobile unlimited wireless subscribers will be getting Netflix for free, at least some AT&T wireless subscribers will be getting HBO Max for free, and a “huge number” of Apple device buyers will get Apple TV+ for free.
“Taken together, that’s something like half of all American families,” the researchers note. They go on to ask, “Will a generation of Americans be trained to expect that (non-sports) entertainment should cost . . . nothing?”
