$20 Sling TV by Dish Network Will Test Theories about Potential Streaming Markets

Dish Network, at long last, is launching a $20-a-month TV streaming service that notably includes ESPN and 11 other channels.

Sling TV is the first stand-alone streaming service that does not require a prior subscription to a linear video service, and importantly will include ESPN. That matters because, up to this point, live sports programming has been known as a “firewall” against greater cord cutting. Pre-recorded video is available from the major streaming services and from some of the networks directly.

But live sports have been unavailable in a streaming service. So ESPN will provide a major test of live sports exclusivity on linear subscription services, and the ability of live sports to glue subscribers to linear video.

Sling TV will offer live feeds of sports, news and scripted shows on TVs, computers and mobile devices, with programming  from ESPN, ESPN2, TNT, ABC Family, Food Network, HGTV and Travel Channel as part of the 12-channel package.

But, so far, no broadcast TV networks or the most-watched cable news channel, Fox News, are part of the package.

The $20 Sling TV base package features add-on packs with additional kids and news programming, available for $5 each.

Most observers would say a package including the major local TV networks plus sports and perhaps HBO is the likeliest candidate for a winning, but stripped-down, streaming package. So the Sling TV will not be a full test of that thesis.

Still, the availability of ESPN is a big deal, as it attacks the “live sports firewall” that most believe props up demand for linear TV services.

Dish is betting that Sling TV will prove attractive to Millennial consumers not interested in traditional linear video packages. But the package also might appeal to families with children.

To be sure, some studies suggest Millennials actually buy linear video subscriptions at a higher rate than often assumed. Some 62 percent to 65 percent of Millennials surveyed by Deloitte in 2012 reported they bought subscription TV services and had no plans to change.

Other studies suggest a significant minority of Millennials do not buy linear TV services, though.

Sling TV will test the theory that “skinny” packages of programming will satisfy some consumers unhappy with the traditional linear packages, unwilling to spend so much on linear video and more willing to watch streaming content, especially when consumers can receive over the air programming directly on their TVs.

How Many Linear Video Subs Did Dish Network Lose in Recent Quarter?

Parsing numbers sometimes is a challenge when looking at subscriber gains and losses in the consumer telecom business.

An illustration: how many subscribers did Dish Network gain or lose in its second quarter of 2015? And did HBO lose linear video subs when it launched HBO Now, the stand-alone streaming service?

Dish Network reported losing 81,000 video subs in the quarter, about double the loss of 44,000 subs in the same period of 2014.

But its actual loss of satellite TV customers may have been more like 151,000, according to MoffettNathanson.

The reason is that Dish Network included gains from the over the top Sling TV service in its basic subscriber count.

Dish Network gained 70,000 Sling accounts in the quarter.

When we launched Sling TV, Dish Network expected to get subscribers from three categories, cord-nevers (people who never have bought any subscription video product), cord-cutters (former linear video subscribers) and supplementers who buy linear video and also Sling TV.

“The vast, vast majority of the subscribersthat we take on do not currently have Pay-TV at the time they subscribe to Sling TV,” said Roger Lynch, Sling TV CEO.

That suggests most of the Sling TV net adds are not coming from the ranks of linear video subscribers. But the combined figures also obscure the extent of Dish Network linear video subscriber losses.

HBO says less than one percent of HBO NOW subscribers are former HBO linear subscribers who dropped the linear service to subscribe to HBO Now.

As with Dish Network's Sling TV service, it appears that new subscribers to the over the top subscribers are not cord cutters. 

They are, as Dish Network hoped would be the case,  “cord nevers,” those who never have purchased cable TV.

A broader shift from linear to streaming still is coming. But, at the moment, the linear providers seem to be succeeding at attracting brand new consumers to their OTT services. 

Full Video Cord Cutting Remains Relatively Rare, So Far

Just 55 percent of Millennials use TVs as their primary video entertainment viewing platform, according to a research study sponsored by NATPE and Consumer Electronics Association.

On the other hand, only about 2.7 percent of U.S. households (across every age group) actually do not buy a linear video subscription service, but do buy high speed access, considered to be an indication those households are reliant solely on streaming video services.

As you might expect, Millennials (in this case defined as those 13 to 34) are significantly more likely to consume full-length TV programs from a streaming source (84 percent streamed in the past six months) than live TV programming at its original air time (54 percent), or recorded content from a DVR (33 percent).

About half of Millennials say they watch TV programming on a laptop, and for 19 percent, it’s their preferred TV viewing screen.  About 28 percent watch television on a tablet and 22 percent on a smartphone.  

While 90 percent of all TV viewers say they watch on a television set, about 85 percent of Millennials say they do so. But some would argue full video cord cutting remains relatively rare.

But challenges keep coming.

Dish Network, at long last, is launching a $20-a-month TV streaming service that notably includes ESPN and 11 other channels.

Sling TV is the first stand-alone streaming service that does not require a prior subscription to a linear video service, and importantly will include ESPN. That matters because, up to this point, live sports programming has been known as a “firewall” against greater cord cutting. Pre-recorded video is available from the major streaming services and from some of the networks directly.

But live sports have been unavailable in a streaming service. So ESPN will provide a major test of live sports exclusivity on linear subscription services, and the ability of live sports to glue subscribers to linear video.

Sling TV will offer live feeds of sports, news and scripted shows on TVs, computers and mobile devices, with programming  from ESPN, ESPN2, TNT, ABC Family, Food Network, HGTV and Travel Channel as part of the 12-channel package.

But, so far, no broadcast TV networks or the most-watched cable news channel, Fox News, are part of the package.

The $20 Sling TV base package features add-on packs with additional kids and news programming, available for $5 each.

Most observers would say a package including the major local TV networks plus sports and perhaps HBO is the likeliest candidate for a winning, but stripped-down, streaming package. So the Sling TV will not be a full test of that thesis.

So far, linear video, as a business, has only plateaued, and begun what looks like the declining part of its life cycle. The real shift is yet to arrive.

Consumers Might Find Bundles A Good Deal, Eventually

Precisely what is happening in the linear video and over the top subscription businesses is unclear, even if most observers would agree the business clearly is in slow decline.

Paradoxically, consumers might eventually find that video bundles--even mostly linear--provide more value than a la carte streaming "channels" and services.

To be sure, strains in linear video are growing. In fact, by about 2020, smaller U.S. cable TV companies are going to experience zero profit margins on their linear video programming businesses, according to the American Cable Association.

Some would argue Verizon Communications likewise will have a hard time earning a profit on its own widespread investment in fiber to home networks, at least in part because revenue from new services has been less than anticipated.

Meanwhile, profit margins for linear video, in particular, have been rather low, Verizon now maintains, though in the past Verizon has claimed it earned good margins on video entertainment.

It would be going too far to argue video service providers are aggressively taking the bundle apart. It would be fair to say they are taking unprecedented steps to control costs, either by shrinking bundles or replacing expensive networks with cheaper apps.

Nor is the linear video business declining fast. 

The biggest U.S. linear video subscription providers lost about 125,000 subscribers in 2014, on a net basis. Within the category, AT&T and Verizon gained about a million customers, while cable TV operators lost about 1.2 million accounts, on a net basis.

On an installed base of 95 million accounts, that barely registers, a tenth of one percent over a year’s time.

Of course, it is worth noting, the number of accounts does not speak to average revenue per account, or account profit margin, higher retention and acquisition costs, or other measures of segment health.

Presumably, those metrics are under pressure.

With the upcoming launch of HBO Now and Sling TV, we might see some indication of whether the rate of change--in terms of abandonment of linear subscriptions for over the top subscriptions--is about to increase.

But we might eventually find that cord cutting has demand more limited than many suppose. The reason is that cord cutting might not save most consumers money, and that arguably is the key attraction.

Some consumers buy a linear video subscription, plus Amazon Prime and Netflix. In other words, monthly spending is at about the $100 a month level. By switching to Sling TV and HBO Now, and keeping the other services, a consumer might replace an $80 linear subscription with an alternative $20 Sling TV subscription plus $15 a month for HBO Now, a savings of possibly $45 a month.

But that assumes the buyer is content to lose lots of channels. And the thing about linear video consumers is that each of us tends to watch only about a dozen channels, and perhaps only about seven on a regular basis.

Each consumer will evaluate how many of those "most watched" seven are sacrificed, to get lower recurring prices. If not, the consumer has to calculate the cost of obtaining them on a streaming basis. At a hypothetical cost of $10 per channel, those seven represent $70 a month in costs.

For some consumers, Sling TV represents none of the most-viewed channels. For others, Sling TV will represent a few of the most-watched channels. In other words, it isn't clear that unbundled streaming costs less than bundled linear service.

True, the ability to watch your subscription content “on any Internet-connected device” is valuable. But that probably will stop being a “unique” value at some point, when most content is available from one or more online sources, on an on-demand or subscription basis.

At that the point, the issue is going to be “cost,” compared to value. And it remains exceedingly hard to envision how a full on-demand business case will lead most consumers to pay less. In fact, they almost certainly will face higher costs for an a la carte approach.

Hulu and YouTube TV Might be Among Biggest Streaming Winners

Hulu and YouTube are among the bigger winners in streaming video by 2022, Business Insider predicts. Sling TV and Playstation Vue are among the big losers. We might note that both Hulu and YouTube TV are anchored by their “live TV” (linear)  content.

We sometimes forget that the legacy subscription TV business (cable, telco, satellite TV) is itself an amalgam of “live” and “pre-recorded” content. The paramount examples of “live” content being “sports and news;” the best example of pre-recorded content being movie services.

In the streaming era we will see lots of niches recreated out of legacy content formats, including services that emphasize pre-recorded content; some that emphasize “live content” (sports networks, news) and many that recreate in a streaming format today’s mix of channels.

The “live streaming” segment of the market will include the specialized sports and news venues, plus what we tend to call “skinny bundles” of channels that resemble subscription TV but offer fewer channels.

Some services, including Netflix, might continue to thrive using the pre-recorded content model. Sling TV might be the original skinny bundle supplier. But there is lots of new competition coming in that segment from Hulu, DirecTV Now, YouTube TV and others.

source: Business Insider

2024 is Quite Different from 2002, for U.S. Satellite Video Providers

In the U.S. subscription TV business, the difference between 2024 and 2002 is that half the market has gone away. In 2002, the linear subscription TV business still had not reached its peak. In 2024, the business is universally recognized as being past its peak, and declining. 

That creates a different regulatory context, as DirecTV and Dish now plan to merge, an action that will require antitrust review. Back in 2002, when the firms tried to combine, but the U.S. Department of Justice blocked the deal on antitrust concerns. At the time, the thinking was that preserving competition required the two satellite platforms to continue to compete. 

Today, with the whole market in decline, that insistence on the value of platforms seems misplaced. Customers are deserting linear subscription TV on every platform, in favor of streaming services. And most of those streaming platforms that offer a linear service (virtual) are struggling in 2024, compared to 2020, when most services still were growing. 

Virtual Services	2020 Subscribers	2024 Q1 Subscribers	Change
YouTube TV	3 million	Not reported	N/A
Hulu + Live TV	4.1 million	~4 million**	-2.4%
Sling TV	2.47 million	~2.1 million**	-15.0%
fuboTV	548,000	~1 million**	+82.5%

Nor, as a platform, do satellite services seem likely to challenge cable TV or telco platforms for what remains of the market, as growth is challenged in most segments of the market. 

Provider	Subscribers (Millions)
Cable TV	60-65
Satellite TV (DirectTV, Dish)	15-18
Virtual MVPDs (Hulu Live TV, YouTube TV, fuboTV, etc.)	15-20
Telco TV (AT&T TV, Verizon Fios TV)	5-7

Where there still is some growth comes from sports-themed services such as Fubo, or bundled offers from mobile or fixed wireless ISPs. 

Provider	Net Growth (Millions)
Cable TV	-1.5 to -2.0
Satellite TV	-0.5 to -1.0
Virtual MVPDs	2.0 to 2.5
Telco TV	0.5 to 1.0

Still, the point is that the U.S. linear subscription business is in decline since 2000. The peak appears to have been in 2002 or so. 

Year	Estimated Subscribers (Millions)	Net Decline (Millions)
2000	90-95	baseline
2005	85-90	-5 to -10
2010	75-80	-10 to -15
2015	65-70	-10 to -15
2020	55-60	-10 to -15
2024	50-55	-5 to -10

For such reasons, many observers do not expect an antitrust challenge to the combination of DirecTV and Dish. Where antitrust enforcement might make sense in a growing market, it often does not make any sense in markets that are in decline. 

When a market is in decline, overcapacity often exists, meaning there are too many suppliers for the existing demand. This can result in price wars and lower profit margins for all suppliers. While temporarily favorable for consumers, such conditions also mean weaker competitors must exit the market.

This can lead to higher quality products or services, since the survivors can afford to invest more. 

Also, the remaining suppliers may be able to consolidate their operations, leading to cost savings and economies of scale, which can lead to improved consumer welfare. 

While a reduction in suppliers may lead to higher prices in the short term, it can also result in more stable pricing and reduced price volatility over the longer term. Also, when markets are declining, supplier profitability is normally a big issue. Consolidation tends to help suppliers preserve their profit margins, which in turn allows them to continue to reinvest in the business, to an extent. 

And market power is hard to exercise when markets are in decline. When demand for any product is declining, competitive pressures are applied by the sheer disappearance of demand.

What is the Tipping Point for Linear and Streaming Video?

How much market share loss can linear subscription services take to competitive “live TV streaming” services before the share of market share loss breaks the linear business model? 

It’s an existential question for linear TV service providers without the ability to create their own live TV streaming services. At the moment, in the U.S. market,  that might appear most clear for Fox, which does not have a significant live TV streaming alternative. Disney and Comcast already have significant live TV streaming operations: Disney with Hulu+ and FuboTV; Comcast with Peacock; Paramount with Paramount+.  Warner Brothers Discovery might develop Max as such a venue. 

Disney owns ABC; Comcast owns NBC; Paramount owns CBS. Each of those TV broadcast networks have streaming versions, with limited market share, it can be argued. 

The existential issue hinges on how much more market share erosion linear video subscription services can take before the business case is unworkable. Perhaps we might argue that local broadcasters already have their own distribution (“free” over the air broadcasting). 

The greatest danger lies ahead for networks that have relied on multichannel distributors (cable TV, satellite, telco TV) for distribution. 

Looking only at the 10 or so largest video distributors, it appears that live TV streaming could already have as much as 30-percent market share, principally held by YouTube TV and the combined Hulu+ and FuboTV. 

Company	Brand	Total Subscribers	Technology
Charter Communications	Spectrum	13,000,000	Cable
Comcast	Xfinity	12,800,000	Cable
TPG	DirecTV	11,300,000	Satellite
YouTube (Google/Alphabet Inc.)	YouTube TV	8,000,000	IPTV
EchoStar	Dish Network	5,590,000	Satellite
Disney	Hulu + Live TV	4,500,000	IPTV
Cox Communications	Contour	3,050,000	Cable
Verizon	Fios	2,880,000	Fiber
EchoStar	Sling TV	2,140,000	IPTV
Altice USA	Optimum	2,100,000	Cable
Total subs		65,360,000
Linear subs		47,070,000
Streaming subs		12,500,000
Market Share Linear		72%

Using current market share, we might argue that 30 percent share loss is troublesome and growth destroying, but not an immediate case of unprofitability. The issue is more that stress will accelerate with additional share loss, as both subscription and advertising face revenue shrinkage and undoubtedly profit shrinkage as well. 

Beyond that, it is hard to predict what the tipping point--in terms of market share--will be, even accounting for industry consolidation and other profit-enhancing measures. 

Several decades ago, one might well have made the argument that a rural cable TV provider would be “out of business” if its take rates (a market share proxy) dropped from 90 percent to 70 percent. Recent contract negotiations between Charter Communications and key programming suppliers have seen Charter executives arguing they would abandon the multichannel video business entirely rather than pay the rates key programmers were demanding. 

More recently, small and rural cable TV firms have gotten out of the video subscription business, which has always favored operators with scale. 

And video streaming services are a prime example of the “direct to consumer” trend in video content distribution, much as DTC has been a trend in retailing and other content businesses. 

Industry	Example	Growth Indicator
Content	Netflix, Disney+	Subscriber growth, revenue growth, market capitalization
Retailing	Warby Parker (eyewear), Allbirds (footwear), Glossier (beauty)	Revenue growth, customer base expansion, brand loyalty
Software	Slack (workplace communication), Zoom (video conferencing)	Subscription revenue growth, customer acquisition cost, market share
Food & Beverage	Blue Apron (meal kits), Nespresso (coffee)	Customer subscription growth, repeat purchase rates, brand loyalty