Then Again...
TDG's Weekly News Wrap & Commentary
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Discovery Exploring U.S. DTC Service
Précis
– During last week’s Q3 call, Discovery’s CEO, David Zaslav, said that the company is
evaluating a DTC subscription streaming service
which aggregates content from Discovery’s linear channels (e.g., Discovery Network, Sci, Food Network, among others).
TDG – The fact that Discovery has taken so long to launch a DTC service is a bit surprising, but the channel group is taking a measured approach, with legitimate concerns about further watering down viewing of its linear channels. The new service would be targeted at Cord Nils (those living without a pay-TV service). Details of the prospective service were few and far between, but Discovery will be watching Disney+ very closely, as it struggles to achieve a balance between growing reach via streaming while not undermining its pay-TV partners—“
to preserve the existing ecosystem
.
”
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Disney+: “Best $7 I’ve Ever Spent!”
Précis
– While Disney expects global subscribers of between 60 and 90 million by 2024, it already racked up
10 million subscribers
only one day after launch, two million of which signed on to early promotions before the service launched.
TDG – Disney’s marketing prowess has been on full display this week, taking full advantage of the momentum it had built in the months prior to launch, including aggressive discounts for multi-year subscribers. While I’ve yet to sign up, my non-industry friends are signing up in droves. I visited with one of the them the day after he signed up, asking him what he thought about the service. “Best $7 I’ve ever spent,” he said.
He also subscribes to Netflix and a number of sports streaming services, so his perspective is insightful here. Unprompted, he told me that he’s now evaluating whether he needs both Disney+ and Netflix, especially given that (1) his use of Netflix had been declining for some time, and (2) Disney+ has so much great content for such a small price.
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The Quickening of Live TV’s Demise
Précis – A combination of continued cord-cutting and growth in time spent viewing on-demand versus live shows has exposed a very real division between sports and news on one hand, and all other video content on the other.
TDG – We argued long ago that, as a consequence of the on-demand economy, the demise of live TV was inevitable, but that it would take decades, not years, to play out. We’re currently entering the middle phase of this long process, with the partition between live content like sports and news and the vast majority of TV content now manifest. Even focus group participants validated the perceptual demarcation. Regardless of age, they prefer on-demand viewing for all content except for (you guessed it) sports and news, for which consumers still need a live TV service.
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Pay-TV in Q3: Is the Worst Behind Us?
Précis – Reports of Q3 '19 legacy pay-TV losses range from 1.7 million to 1.9 million, making the period “worse than ugly.” For virtual MVPD subscriptions, things improved a bit, with additions of nearly 600K during the quarter.
TDG – Yes, it was an ugly quarter for legacy MVPDs, but we’ll take an unusually moderate tone here. It is important to recognize that AT&T alone accounted for 75% of legacy losses during the quarter. In 2020, we expect the company's bleeding to slow, which will take some steam out of the recent surge in cord-cutting numbers—unless, of course, cable losses ramp up more quickly than they have to date. Second, though legacy losses continue to dwarf virtual pay-TV gains, the latter appears to be experiencing short-term momentum, in particular Hulu with Live TV (now above 2.5 million subs) and Dish Network (now at 2.7 million subs).
Before we start cheerleading for vMVPDs, however, note that
Disney announced
this morning that the price of Hulu with Live TV will jump for a second time in 2019, this time up 22% to $55/month. One step forward, two steps back…
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Pay-TV 3.0: The First Stage of App Bundling Begins
Précis – Disney’s bundling of Disney+, ESPN+, and Hulu for $13 (a savings of $5 from the $18 cost of buying each separately) is an early indicator of what the future of DTC may look like. Importantly, the bundle combines live sports (ESPN+) with the current TV shows (Hulu) and a rich film and TV library (Disney+) into a single offering, thus creating a content bundle that may be a sufficient replacement for pay-TV services.
TDG – While such studio-specific bundling was expected, it is but the first step to Pay-TV 3.0; the stage when “channel stores” like Prime evolve to offer an a la carte bundle where consumers can select apps from different studios in exchange for a small discount. Based on that structure, consumers could literally build their own streaming TV service, with integrated billing and unified search & recommendations. TDG will be releasing a report in late December focused on just this topic, which also includes 5-year forecasts for the sector and individual operators.
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Recent & Upcoming Reports
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Cogitations
“When one person suffers from a delusion, it is called insanity. When many people suffer from a delusion, it is called a Religion.”
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