Streaming live TV services such as Hulu’s live TV, YouTube TV and DirecTV Now might be able to slow down cord cutting by offering cheaper, skinnier channel packages. But as these services try to keep costs down and turn a profit, many TV network owners will have to confront a new reality: the rates they charge distributors to carry some of those channels, which used to go up like clockwork every year, are probably coming down.
The key hits:
- “Virtual MVPDs” such as Hulu Live TV, YouTUbe TV and DirecTV Now have grown subscribers interested in cheaper, smaller bundles — but these services have operated at a loss.
- In the past year, these services have raised prices as they look to become profitable.
- But it’s important for these services to keep costs (and channel packages) low in an effort to differentiate from the bloat of traditional pay-TV.
- This will begin creating more pressure for cable network programmers to accept reduced rates in their carriage fees — especially if they want to get their channels on the “base” bundles.
- Viacom’s negotiations with AT&T are a great example: Viacom, which makes an estimated $1 billion in carriage fees from AT&T, reportedly accepted a lower rate in exchange to get some of its top channels on AT&T’s base tiers.
- Viacom is also getting more creative with its carriage fee negotiations, including agreeing to us advanced ad products deployed by distributors, co-productions and other elements to land these coveted deals.
The early success of services such as Hulu Live TV, YouTube TV, Sling TV and DirecTV Now — known in the industry as “virtual MVPDs” — has demonstrated that there is still a consumer interest in pay-TV. But instead of spending $100 or more per month for hundreds of channels, customers are happy to pay $30 to $50 per month for about 50 to 70 channels. In many cases, this has convinced younger pay-TV users, who might not watch as much pay-TV on a daily basis as their older counterparts, to opt for these cheaper services.