TV distribution goes topsy-turvy as traditional service providers encourage cord-cutting while the digital upstarts start bundling.
It used to be so simple.
On one side were the guys who sell you the cord — the telecommunications giants. You know, the cable operators like Comcast, Charter and Cox; satellite TV providers like DirecTV and Dish Network; and wireless companies such as AT&T and Verizon.
These monoliths — collectively known as the pay-TV industry — deliver video via their proprietary networks to homes with pricey, leased set-tops. A van and a technician are almost always involved. These firms charge a lot for their services and are generally not popular with consumers.
On the other side, came the scrappy disrupters — the guys who help you cut the cord to that overpriced bundle of cable channels (most of which you don’t watch anyway). For a reasonable fee, Netflix, Amazon, Hulu, YouTube and a range of other internet companies deliver movies and TV shows “over the top” of the traditional pay-TV services.
But a new set of so-called virtual pay-TV platforms — that live-stream your favorite networks to just about any device — is sending the bundle itself over the top, blurring the line between the cord providers and cord cutters.
These next-generation services are turning the TV distribution business upside down. Imagine: some of the biggest traditional pay-TV operators are now encouraging you to cut the cord, while some upstart streamers like Sony, Hulu and YouTube want to sell you a big bundle of channels.
How did we get so turned around? Well, streaming pay-tv services have been on the scene for a couple of years now, with Dish’s Sling TV and Sony’s Playstation Vue both launching in 2015. But buzz started building around the concept only recently.
Just after Thanksgiving, AT&T — which paid $49 billion two years ago to acquire DirecTV — launched its much-anticipated DirecTV Now virtual service. For $35 a month, DirecTV Now customers can live-stream ESPN, AMC, TNT, USA, CNN, Fox News and about 60 other well-watched cable channels on almost any device they want.
Consumers opting for the top of the four available tiers get more than 100 channels for $70 a month; the lineup includes broadcast networks ABC, Fox and NBC in select big markets, as well as channels from premium cable provider Starz Encore. AT&T is even producing some original programming for its streaming platform, which includes Taylor Swift concerts and original shows from Reese Witherspoon’s production company, Hello Sunshine.
Customers can sign up for a free seven-day trial: no technician comes to the house, and there’s no electrical-power-gobbling set-top box to lease. The service can be canceled at any time, without having to make a phone call or ever being placed on hold. Customers who change their minds can sign right back up, just as they do with Netflix. With a prepayment of three months’ service, AT&T will throw in a current-generation Apple TV streaming box for free.
Another perk: perhaps because AT&T is trying to purchase HBO parent Time Warner Inc. for $85.4 billion, DirecTV Now is streaming HBO for a super-low $5 a month.
DirecTV Now is aimed at a niche market of consumers who don’t already subscribe to a traditional pay-TV service. “We believe there’s a market of approximately 20 million households,” explains Tony Goncalves, senior vice-president of strategy and business development for AT&T Entertainment Group.
“It’s not only younger consumers. We’re looking to attract both cord-nevers and cord-cutters — those who want more choice and flexibility to access a premium-content bundle more tailored to their lifestyle.” In background conversations, however, AT&T executives quietly predict that DirecTV Now will become the company’s primary pay-TV platform by 2020, displacing the traditional DirecTV satellite service, as well as AT&T’s legacy pay-TV platform, U-verse.
To get there, DirecTV will have to overcome a lot of competition.
Its satellite TV rival, Dish Network, was actually the first company to launch a virtual service, introducing its $20-a-month Sling TV platform in February 2015. Since then, Sling TV has steadily grown and evolved, adding major cable and broadcast networks, lots of sports channels and nifty features like cloud DVR.
Sony closely followed Sling TV into the market in 2015, with the debut of PlayStation Vue. Its four product tiers range from $40 to $65 a month; the premium level offers more than 90 channels, including CBS in about half the country, a major broadcast channel that is not available on either DirecTV Now or Sling TV.
Sony is just the first company from outside the pay-TV ecosystem to package a live-streamed bundle of channels. The coming months will see the launch of Hulu’s live-streaming service, as well as Google’s entry into virtual pay-TV: YouTube Unplugged. Additional lower-profile entries, such as Vidgo, are also expected.
Sling TV has emerged as the most economical of the three major virtual services to launch so far, offering its base “orange” package — more than 30 major channels, including ESPN, CNN and TNT — for $20 a month, but allowing streaming to only one device in the home at a time.
The major selling feature of nearly all of the virtual pay-TV services is skinny bundling — not forcing subscribers to take gobs of channels they don’t want, thus staying well below the $100-a-month price point that many traditional pay-TV services are now exceeding.
Dish emphasizes flexibility and choice in its bundling strategy, allowing Sling TV subscribers to add to the basic tier with $5- and $10-a-month “extra” packages.
If you like sports but don’t want to load up on a lot of other channels, you can pay an additional $10 for “Sports Extra,” which will add smaller ESPN channels such as ESPNU, ESPNews and ESPN Buzzer Beater to the flagship ESPN network already available in the core service. Regional sports channels like Pac-12 Network and SEC Network are also thrown in.
Broadcast channels are harder to come by. Sling TV offers NBC and Fox through its $25-a-month “Blue” platform, which allows multiple users in a home to stream simultaneously. But only users in select big markets like the New York, Los Angeles and Chicago metro areas — basically, where the networks own and operate their own stations — can receive live local feeds of NBC and Fox. For residents outside those areas, Sling TV offers network shows on demand.
If you want ABC, you have to pay $5 a month for the “Broadcast Extra” add-on package, which will also give you Univision and UniMás. But again, ABC is viewable only to Sling customers in owned-and-operated markets like New York, L.A., Chicago, San Francisco, Houston and Philadelphia.
DirecTV Now has similar limitations in its broadcast reach. And the situation will stay that way for both companies until they sign a complex array of broadcast retransmission licensing deals with the affiliate station groups of their respective network partners. It’s a challenge that has already discouraged big virtual pay-TV aspirants like Apple.
Meanwhile, just because a network’s live feed is available in a particular market doesn’t mean the channel has streaming rights to all programming, as subscribers to DirecTV Now, Sling TV and PlayStation Vue found out when they were blacked out from the Golden Globe telecast in January. (NBCUniversal hadn’t yet carved out streaming rights with show producer Dick Clark Productions.)
So, how can a consumer size up the services?
In terms of price, Sling presents a clear advantage over traditional pay-TV, as well as its virtual competitors. Its $40-a-month package incorporates all of the channels it has licensed, which includes popular outlets like AMC, NFL Network and NFL Redzone.
Its bundling strategy — with color-coded platforms and add-on modules — can be confusing, but the company’s ability to offer essential channels at an affordable price has caught on. Dish hasn’t released much subscriber data, but most analysts peg the Sling TV customer count at around 1 million, which is impressive.
In channel offerings, Sony’s PlayStation Vue has the most straightforward bundling model of the top three. Its four tiers start at $40 a month, but each includes robust access to the Big Four networks. For example, Vue currently has coverage of CBS in nearly half the country. By the end of 2017, 75 percent of Vue’s national footprint will have access to CBS, according to the network.
Vue’s other advantage: it has offered a full-blown cloud DVR since it launched two years ago. Sling TV is only in the testing phase with its version, which is available to Roku users. AT&T says it has plans to add the service later on.
Vue’s price structure, however, presents an existential conundrum. The premium tier features more than 90 channels, including HBO and Showtime. But at $75 a month, users might find better value — and more reliability — with traditional pay-TV services, something cable executives often point out.
Reliability has been a problem for the more widely used Sling TV, which was plagued by technical problems from the start. Early on, the service suffered full-fledged meltdowns during popular live events like the final four of the NCAA men’s basketball tournament in April 2015 and, that same month, the season-five premiere of HBO’s Game of Thrones.
Service interruptions are occurring less often at Sling TV these days, but issues remain. Frequent users have found that the service streams fairly well on PCs and devices like Roku. But until a recent software upgrade, it tended to buffer and crash on devices like Xbox One.
“The problem is the way Sling TV approaches their product and the way they stream into the market,” says video market analyst Dan Rayburn, who curates the Streaming Media blog. “They have a different way of approaching their video ecosystem.”
As for DirecTV Now, AT&T chief technology officer Enrique Rodriguez acknowledged at January’s Consumer Electronics Show that the platform has endured some early bugs and crashes. “The problems were not as big as I expected,” he added.
But if their platforms aren’t as reliable as traditional pay-TV, the operators of DirecTV Now and Dish insist they’re not trying to replace those services.
Sling TV CEO Roger Lynch maintains Sling is merely a “complementary” service, not a substitute for traditional pay-TV, and is meant to be packaged with the likes of Netflix and broadcast TV antennas. “Our objective was never to be the one service that meets all your viewing needs.”
In January, Dish confirmed that approach with a hardware launch dubbed AirTV. The $99 device (which comes with a $50 credit toward Sling TV) includes a digital TV tuner that can pick up live feeds from local stations; consumers can also use it to stream SVOD services like Netflix.
But in marketing their services, Dish and AT&T strike a very different tone — one of disrupters trying to free consumers from the monthly shackles of cable.
Consider Sling TV’s “Take Back TV” campaign featuring tattooed tough guy Danny Trejo (“People say I’m scary.… Boo!” he says, laughing. “I say scary is finding out your cable bill just doubled to over a hundred bucks a month!”) Meanwhile, in his announcement of DirecTV Now, AT&T CEO Randall Stephens also noted the opportunity to take market share away from the big, bad cable companies.
It’s a questionable approach, given that AT&T is just as big, also scores badly in customer satisfaction surveys and offers pretty much the same products — TV, internet, phone and wireless — as cable giants Comcast and Charter.
But the TV universe keeps changing. With programming costs continuing to rise, cable companies are finding that providing broadband is more profitable. And smaller operators, like Phoenix-based Cable One, are pulling back from pay-TV.
Comcast isn’t doing that yet — in fact, it’s made major investments in its advanced X1 video delivery system. But Comcast recently signed deals to let its X1 users stream both Sling TV and Netflix, with the services integrated into X1. Television is still profitable for Comcast, but in a not-too-distant future the company may let others do the program bundling and just focus on providing internet service.
Meanwhile, Hulu and YouTube — which until recently were encouraging consumers to ditch their bundles — are about to announce robust live- streamed selections of channels.
And so it goes. You may never have to lease a cable set-top box again. But that doesn’t mean the TV distribution business has gotten any less bewildering.
This article originally appeared in emmy magazine, Issue No. 1, 2017