The acceleration toward online TV and away from traditional pay TV will continue in 2019. However, all will not be plain sailing as there will be some high-profile online TV failures this year too.
Acceleration in cable, satellite, telco TV subscriber loses
The stresses on the pay TV industry became more apparent in 2018 than in previous years. The consumer value proposition worsened as subscription prices continued to rise. As well, fights between pay TV operators and their key suppliers increased. For example, Dish Network subscribers lost access to WarnerMedia’s HBO in early November and the year finished with no progress in negotiations.
Expect the stresses on the pay TV model to increase in 2019. Key pay TV content partners such as Disney and WarnerMedia are developing an independent path to consumers via direct-to-consumer services. They will increasingly prefer viewers to use those DTC services rather than pay TV to watch their content. That means they have no incentive to contain their demands for price increases from pay TV.
Online TV adoption deepens rather than broadens
Penetration of SVOD services may already exceed 70% in the U.S. However, the growth in penetration is slowing. For example, SVOD penetration increased by 4.4% in 2017, 12.8% over two years, and 22.9% over four years.
However, signs are people are using their online TV services more. The average Netflix home is streaming 1 hour and 15 minutes per day and the average Roku active user is streaming 2 hours and 50 minutes per day. Online TV sources are now so firmly embraced by viewers that 36% of pay TV customers say the main way they watch TV and movies is via online services.
The average SVOD subscriber in the U.S. had 2.6 services at the beginning of 2018, according to Ampere Analysis. New soon-to-be-released data from nScreenMedia shows that number has already exceeded 3. The data suggests that as viewers spend more time watching online TV, they encounter and adopt other video services.
Disney+ spectacular launch not sustained in 2020
Disney’s huge trove of popular movies will make it an essential component of many people’s holiday entertainment in 2019. The company will also hold nothing back in promoting the service. Given the promised sub-Netflix introductory price, watch for a huge surge in registrations in the fourth quarter.
However, in 2020 the growth rate will slow dramatically. The lack of depth in the catalog will result in usage far below competitors. Those that find the big budget fare served up by Disney less appealing will not come. As well, the service could suffer high churn as subscribers binge over the holidays and cancel in the New Year.
First vMVPD failure
Many vMVPD services are marginally profitable at best and decidedly unprofitable at worst. They are already adjusting their prices and packages to try and improve the bottom line.
Last year, four of the top vMVPDs have announced $5 price increases. Sling TV moved first, increasing its entry-level “Orange” tier from $20 to $25 a month (25% increase.) AT&T added $5 a month to all its packages. Finally, Sony boosted the two PlayStation Vue packages by $5-a-month to $44.99 (up 12%) and $84.99 (up 6%.) Earlier in the year, YouTube TV increased its bundle cost by $5-a-month to $40.
As well, DirecTV and Hulu have booth reduced the number of channels in their base packages.
The adjustments will help but do not address the underlying problem: escalating channel license fees. These fees will continue to rise faster than inflation eroding the effectiveness of the adjustments vMVPDs are making. vMVPD providers that do not have other services or strategies to support their live TV services may not survive the year. Standalone services PlayStation Vue and FuboTV could be most vulnerable in 2019.
 Ampere Analysis, Navigating Content Chaos – A Roadmap for Pay TV operators, TiVo, Q3 2018, p3