Direct-to-consumer video offerings are bad news for pay-TV, according to a new report from MoffettNathanson Research. Direct-to-consumer, or DTC, offerings include services such as Disney+ that involve a content provider offering content directly to consumers on a subscription basis over a broadband connection, rather than providing content to pay-TV providers who in turn offer the content as part of a broader channel lineup.

Pay-TV in this context includes traditional cable and telco video offerings, as well as vMVPD (virtual multichannel programming distributor) offerings. vMVPD offerings such as YouTube TV, Hulu Live and AT&T TV Now offer a range of channels delivered over a broadband connection and, although the offerings were intended to be a less costly alternative to traditional pay-TV, prices have climbed, as the researchers note.

Traditional pay-TV subscriptions have been in decline for several years, and vMVPD offerings are not seeing commensurate increases. The researchers estimate that the vMVPD industry added just under 400,000 subscribers in the second quarter of 2020, while about two million subscribers canceled traditional pay-TV.

Direct-to-Consumer Video Report
Meanwhile, the authors note, Wall Street bases the value of DTC assets on “stupendous revenue multiples,” driving content providers to shift their best content to their DTC platforms and away from both types of pay-TV, further decreasing the appeal of pay-TV to consumers. They note, for example, that just last week, Disney, ViacomCBS and Discovery all announced or teased plans to improve or launch DTC services.

The authors clearly aren’t on board with the Wall Street community that is embracing DTC, however. They note, for example, that the content providers behind the DTC offerings also gain a significant portion of their revenues from pay-TV providers, who are still under existing contracts but who will likely be less eager to pay top dollar when those contracts expire.

Other key points from the MoffettNathanson direct-to-consumer video report:

  • YouTube TV and Hulu Live now dominate the vMVPD category but Hulu is growing only slowly and YouTube’s growth has slowed. Meanwhile, according to the researchers, AT&T has “all but abandoned” its vMVPD offering for its DTC offering HBO Max.
  • A HarrisX survey found that almost 60% of video cord cutters who use Netflix, Amazon or Hulu subscription video on demand (SVOD) offerings say they switched because “subscription TV is too expensive” or “I don’t watch enough TV to pay for it.”
  • A recent financial filing from vMVPD fuboTV shows that the company’s margin is less than 3% on an average subscription and the company’s churn rate appears to have averaged over 13% per month in the first quarter of 2020.

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