For U.S. telecoms, OTT video beckons

Comcast’s recent arrangement to make Sling TV available over Comcast’s Flex platform dovetails with a widening embrace of over-the-top video among multiple U.S. telecommunications providers.

The willingness to light up the Sling TV app over Flex, a streaming video platform targeted to Internet subscribers, is the latest and most meaningful example of the migration among telecom companies toward third-party, OTT video services.

Few onlookers would have taken a bet even a year ago that the nation’s largest cableco would willfully provide a berth for a video service that by all rights competes with traditional cable bundles. But for all its gravity, the arrangement is not unique. Other providers have been pursuing a similar-looking path as they rethink longstanding truisms about the importance of homegrown, branded pay television services. The examples below show instances where providers appear to be prepping to make a graceful retreat from their own pay TV services and hand off the task to Internet-enabled outsiders.

  • Verizon: In April 2019 Verizon made YouTube TV available to its unlimited wireless, Fios Internet and 5G Home customers, offering one month free. In Feb. 2020 Verizon began offering 12 months of Disney+ free for new unlimited wireless customers, Fios Internet and 5G Home accounts. This month (July 2020) Verizon did the same with Hulu, making it available for six or 12 months, depending on the account.
  • Windstream: Added YouTube TV in Feb. 2020, giving Windstream an alternative video path should it decide to shutter the Kinetic TV managed video service.
  • Cincinnati Bell: Also added YouTube TV in concert with a drop in video revenue, to $48.7 million in Q1 2020 from $51.7 million a year earlier.
  • CenturyLink. A June 2020 steep rate increase for the PrismTV managed video service, the second in less than two years, appears designed to spur disconnects.
  • AT&T: In February the large telco halted marketing of its U-verse TV service as it pivots to the OTT successor, AT&T TV.
  • WideOpenWest: A pilot program in Charleston, SC lets WOW test the appeal of third-party OTT video services (fuboTV, Philo, Sling TV and YouTube TV) as alternatives to the company’s own IPTV service, WOT TV+. 

The two main motivations here have to do with consumer market trends and internal economics:

  1. The market is shrinking, not growing. By now it’s obvious that the widespread “cord cutting” movement has taken some steam out of the traditional pay television category, leaving participants battling over a fading sector. Since early 2018 we’ve seen major U.S. pay TV providers reel from the loss of more than 8 million customers, with the carnage likely worsening in 2020. Thus, anybody in the business (Sling TV included) effectively is now pursuing a shrinking market.
  2. Providers want out of a negative P&L equation. Expenses tied to licensing content, rolling trucks, and managing intricate customer care obligations have made pay TV a marginally profitable or, in some cases, unprofitable exercise. This point has been made repeatedly by senior management of various telecom companies, including CenturyLink, which two years ago began to unravel its Prism TV service by imposing the first of two steep rate increases designed to drive away subscribers.

    Next? There is still an argument to be made that playing a role in video helps other parts of the business, mainly high-speed Internet delivery, by discouraging defections and reducing churn. But now, providers reckon they can still enjoy those advantages without having to undertake and manage complex video businesses. Thus, the onset of a new era is here, whereby providers form business alliances with up-and-coming video brands, such as YouTube TV, Sling TV, Hulu and others. Most of these are brokerage arrangements, with telecoms collecting a bounty for subscriptions they generate.
    By planting Sling TV within the Flex application environment, Comcast is signaling that it, too, has come to some of the same conclusions other telecom providers have intuited. The business of the future, margin-wise, growth-wise, and value-wise, is Internet connectivity, not old-school cable TV.
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