Rise of Online Television

Rise of Online TV

Online-only television packages are getting pricier to the point that they’re approaching the same fees paid for traditional cable.

For the last two years, online television services have lured millions of traditional cable subscribers and younger viewers whom have never subscribed to cable television.

Currently, the number of subscribers to live television online-only packages in the U.S. stands around 10 million. The number is expected to reach 24 million by 2022 according to estimates from UBS.

However, when polled the number one reason for switching from traditional to online television was pricing. But, as pricing for the services start to converge, the decision to switch is now a tossup. 

Rise of Online Television

Many cord-cutters and cord-nevers flocked to online television packages attracted by cheaper monthly prices and nearly comparable content. 

However, live television streaming services such as Sling TV, YouTube TV, DirecTV Now, PlayStation Vue, and Hulu, which have signed millions of new subscribers recently, have all increased fees for their live television offerings in the last year. 

U.S. television households with PayTV services fell to 78% last year, from the high of 87% in 2008. However, the amount paid per household is still the same. According to a survey of 1,100 households in 2018, the average amount paid for PayTV is $107 per month. 

These online-only services were crafted to replace traditional cable subscriptions, but as prices draw closer to the services they were designed to replace, the benefits to consumers are waning.

Pricing Convergence

AT&T revised its four-tier packaging strategy for DirecTV Now. Currently, the company only provides its virtual MVPD service in two options priced at $50 and $70 a month. Less than a year ago, its lowest package was only $35 per month before being raised the fee last summer to $40. 

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AT&T recognized that raising prices for DirecTV Now would lead to subscribers fleeing, but they went ahead in an effort to make the service profitable after its expensive acquisition of the company in 2016.

The skinny bundle market leader, SlingTV, owned by Dish Network, increased its pricing last summer from $20 to $25 per month because of rising programming costs.

YouTube TV, which launched two years ago, have steadily raised prices for their live television alternative. The company is yet again increasing its monthly subscription by $10 to reach $50 per month.

YouTube TV now costs 43% more than when it first launched.

YouTube claimed to want to disrupt cable television, but in actuality they want to become big cable in all but name.

In January, Hulu reduced its monthly fee by $2 for its library streaming service, but raised its live television package that includes 60 channels by $5 to reach $45 per month.

Hulu and YouTube have tried to wrest control of live television away from the networks by launching skinny bundles. But offering live television, which is subsidized by advertising, is the only attribute keeping traditional media enterprises afloat.

Traditional media conglomerates will do everything in their power to prevent being supplanted by internet platforms not owned by them.

Programming Controls Pricing

Programmers continue to raise the fees they demand from Hulu and YouTube TV for their channels, which is why skinny bundle fees are approaching the same cost as traditional television. 

However, after years of only increasing, programming fees are starting to fall as more advertisers move online. AT&T just forced Viacom to reduce the rates it charges for channels like Comedy Central and BET. Overall primetime viewership for Viacom channels since 2016 is down by 27%. 

By no means is AT&T passing on these savings onto its viewers. Prices for its DirecTV and U-verse services haven’t declined as result of its negotiations with Viacom. 

FilmTake Away

Online television is still cheaper than traditional cable and satellite services, but the gap is narrowing. The main cost savings comes from the lack of services fees, taxes, and equipment rental charges that are added to traditional packages. 

Since online television still requires an internet connection, those companies that provide cable and internet combined can offer discounts, which highly favors AT&T and Comcast.