Over-the-top video increased its reach in the third quarter, with pioneer Sling TV nearing the 1 million-subscriber mark, just weeks before AT&T’s DirecTV Now offering is expected to hit an increasingly crowded market.
Sling TV was the first multichannel OTT service from a major pay TV distributor when it burst on the scene in 2015 with a 25-channel package for $20 per month. Since then the offering has been expanded a bit and others like Sony, Amazon and Hulu have entered the market. Individual networks also have launched or are exploring their own direct-to-consumer offerings, including Home Box Office, Showtime, Starz, ESPN and Discovery Communications.
Sling TV has managed to hold its own, though. MoffettNathanson principal and senior analyst Craig Moffett estimated it added about 204,000 new customers in the third quarter, getting closer to the 1 million-subscriber threshold with about 911,000 customers.
DISRUPTION COMING
Moffett noted the DirecTV Now product seems to cut to the heart of Sling TV’s subscriber base — generally cost-conscious families — and could be a major disruptor.
“We’ve always speculated that Sling TV subscribers are likely more price-sensitive than average, and therefore more inclined to churn if a better deal comes along,” Moffett wrote. “We’re about to find out if we were right.”
So far, though, AT&T has been sketchy with details concerning the DirecTV Now product. While it has said it will provide new customers with a free Apple TV or Roku box, it hasn’t said which channels the service provides. As of press time, AT&T was still claiming more than 100 channels of live streaming and on-demand programming, but some reports have said it won’t have all of the broadcast networks — it hasn’t yet signed a carriage deal with CBS — which could dampen its appeal.
While DirecTV Now seems to be taking aim at cable as well as Sling TV, it hasn’t discouraged other entrants to the game. Hulu, jointly owned by 21st Century Fox, The Walt Disney Co., Time Warner and NBCUniversal, still plans to offer its live streaming service next year.
In another kind of evolution, Sony’s PlayStation Vue OTT service as of Nov. 11 dropped 24 Viacom networks (while adding content such as BBC America and NBA TV) to try to keep costs down.
The OTT space has become increasingly crowded in the past two years, as HBO Now, Showtime Anytime and Starz OTT have joined incumbent services CBS All Access, SVOD pioneer Netflix and Amazon to tap into cost-conscious customers.
The field is expected to get even more populated next year when Disney’s ESPN is expected to launch its own OTT service using sports rights it hasn’t been able to monetize on its linear network.
Discovery Communications has launched a direct-to-consumer product for its Eurosport European sports network, which is expected to gain in popularity once European Olympic Games rights kick in during 2018.
Liberty Media could be the next to the direct-to-consumer game, with CEO Greg Maffei saying he was open to creating an OTT product for Liberty’s Formula One auto racing unit. Liberty is in the process of purchasing Formula 1 for $4.4 billion.
On a conference call with analysts to discuss third-quarter results, Maffei said a Formula One OTT product would make sense, given the sport’s passionate fans and global reach.
“We do have some things to work through on rights,” Maffei said on the call, adding that he didn’t think they were “insurmountable.”
On the Dish Network earnings call, chairman and CEO Charlie Ergen likened OTT to the direct-broadcast satellite business, adding that it will likely evolve even further as time passes.
“I think that OTT in general has the potential to be as big or bigger than the DBS business,” Ergen said. “It’s the next way to watch live TV.”
ERGEN SEES MOMENTUM
Ergen cited the factors favoring OTT becoming a huge segment: customers can easily get service through apps to avoid installation hassles; there’s greater flexibility to watch on different and multiple devices; and targeted advertising could present bigger revenue streams for distributors and be more meaningful and relevant for viewers.
“The danger is that the ecosystem ends up so chopped up that it’s truly an à la carte experience,” Ergen said. “The barriers to entry are not great, so pretty much anybody could enter the marketplace.”
Ease of installation and the absence of long-term contracts could also encourage customers to drop service after a favored show runs its course — for example, buying HBO for six weeks to watch Game of Thrones.
Ergen noted that Dish is no novice to the OTT business and has put things in place to maintain flexibility and stay positioned for whichever way the wind blows.
“There’s some momentum in the business,” Ergen said. “I would expect that with DirecTV coming in, the momentum at least for the segment will grow. And we’ll see what happens.”
