Orby TV was a bit of a contradiction in terms when it launched back in 2019: A video programmer that was offering a skinny bundle (a plus), over a satellite distribution platform (a minus) but economically priced at $40 per month (a plus) and aimed at a market that was becoming increasingly neglected by traditional TV (Baby Boomers who wanted a lean-back experience.) But former CEO Michael Thornton said the service, which was zeroing in on its break-even point after a little more than a year in business, was done in by a combination of industry misperceptions about the satellite TV business, broken promises from potential investors and the emergence of streaming video.
In an interview with B+C/Multichannel News, Thornton said Orby TV was in the final stages of landing a new benefactor before they pulled out at the last minute, dashing the satellite startup's chances of survival and leading to it filing for Chapter 11 bankruptcy in March.
Thornton, a former chief revenue officer at premium programmer Starz, founded Orby TV in 2018, with $25 million in backing from the General Electric Pension Trust. Armed with that money, Thornton said that Orby TV was poised to carve out a healthy niche, even if it was in a segment of the TV business that practically everyone else believed was dying a slow, painful death.
But according to Thornton, the initial reaction to the service was extremely positive.
“When we went out [to potential investors], I guess it was in late 2017, we got a ton of traction,” Thornton said. “The story, even though it was somewhat contrarian, people understood it, particularly the idea of a centralized and very un-capital intensive [company]. It was a really easy story to tell [and] it didn’t take a lot of subscribers to generate a fair amount of cash.”
Thornton said when Orby TV shut down, it had about 30,000 subscribers, nearly half-way to its break even point (where it would start turning a profit) of 65,000 customers.
Orby TV’s pitch was focused on its prepaid, pay-as-you-go offerings, with no contracts to sign and no credit checks to slog through. The company believed that it could appeal to the 30 million existing prepaid wireless customers, who are traditionally focused on keeping costs low and don’t particularly cotton to the hidden fees and charges that pop up in many traditional video packages. With Orby TV there were no surprises in the monthly bill -- that $40 included all taxes and fees.
But though the service launched with much optimism, there were already two strikes against it: the precipitous decline of satellite TV and the chasm between what consumers say they want and what they are willing to pay for.
First, the satellite business.
Subscriber numbers for the satellite business have never been worse than they are today, but they weren’t much better in 2019. DirecTV and Dish Network had been steadily losing subscribers for years -- DirecTV had peaked at about 21 million customers in 2017, around two years after it was purchased by AT&T, but has lost about 8 million subscribers in just three years, according to Statista. Dish Network, which had about 11 million satellite TV customers in 2017, had shrunk to about 8 million subscribers by the time Orby TV launched.
Orby TV launched amid that backdrop, which to the untrained investor would look like a risky neighborhood. Even trained investors said that in retrospect, launching a brand-new satellite TV service in that climate would have raised many questions.
FBN Securities media analyst Robert Routh, who has followed the satellite business for years but did not cover privately-held Orby TV, said that the primary rule for any TV service is that it brings something new to the overall business. And though Orby TV was trying to differentiate itself through its low-priced prepaid options, he said to most consumers, that probably wouldn’t be enough.
“When it comes to distribution, unless you're bringing to the table something that is a real advantage to the consumer that the other’s don’t have -- and I don’t know what that could be -- at a better price, why bother?” Routh said. “It’s like putting up a gas station across the street from other gas stations.”
Thornton said he realized that satellite TV service was in decline, but he and his investors believed that was tied more to the inefficiencies and high prices of the larger providers. Plus, Orby TV only needed to convince less than 100,000 prepaid wireless customers to sign on to the video service to make money. With 30 million prepaid wireless customers already out there, that seemed like a good gamble.
“The difference with us, we were looking at tens of thousands of customers for a profitable business and a really profitable business once it hits that break-even,” Thornton said. “So, it doesn't take a [lot of] time to move forward. But you’re right, satellite is not the future in terms of in-home television viewing, And that just became a really really hard thing to overcome.”
Thornton didn’t enter into the satellite venture naively. A 22-year veteran of the TV business, he had spent eight years at premium channel Starz, was an EVP at Disney/ABC Domestic Television and even served as SVP of programming acquisitions at DirecTV in the late 1990s. So he knew how the pay TV business worked. And even with the satellite business in decline, Thornton was convinced that there was room for a focused, cost-efficient, niche player that offered a strong programming slate for a low price.
“We really felt that the traditional market was just too expensive and there had to be an opportunity for people to access television but not at these exorbitant prices that just keep going up and up,” Thornton said of the decision to start up the business. “The idea was, even with the streaming that hit the market, there were still a ton of people, particularly in the boomer generation, that just wanted to turn on their TV and watch it and get a skinny bundle with a lot of value that wasn’t exorbitantly priced, wasn’t in that $125 price range.”
And the prevailing wisdom seemed to back him up. For years prior, analysts, distributors and some programmers touted the need for “skinny bundles,” thinner packages of programming, usually minus sports networks, that could be offered at lower prices to consumers. With the traditional TV bundle costing north of $100 per month, several distributors attempted to offer up smaller, cheaper bundles that at first brought some pretty stiff resistance from programmers. As time went on, and pay TV subscriber rolls have dwindled across the board, that resistance has waned somewhat.
The Trouble With Skinny Bundles
And that brings us to the second strike against the satellite startup -- rights issues and payment demands have hamstrung MVPDs in trying to set up skinnier packages for years. While that is beginning to ease a bit, consumers have managed to talk a good game when it comes to desiring smaller video packages, but have been reluctant to open their wallets.
A combination of not being able to get the channels they want in a skinny package, the hassle of switching providers and the emergence of streaming services like Netflix, Amazon Prime Video and Hulu have effectively squashed the skinny bundle. The advent of direct-to-consumer offerings from established programmers like Disney (Disney Plus), WarnerMedia (HBO Max); ViacomCBS (Paramount Plus) and Discovery (Discovery Plus) have made it even more complicated.
Secondly, for pay TV stalwarts like cable, telco and satellite TV companies, skinny bundles haven’t really worked. Mainly because they’re not that skinny.
Obligations to keep pricey sports channels like ESPN, FS1 and regional sports networks on the most popular tier have tied many a cable, telco and satellite TV operator’s hands. When Verizon’s Fios first introduced its Custom TV skinny bundle in 2015, it was met with outrage by programmers, who said the package violated their agreements. One year later, Verizon amended the Custom TV package, adding ESPN and other sports channels to a Sports and More offering for the same price. Today, Verizon has “Mix and Match” which allows customers to “test drive” its entire channel lineup, formulating a package of most-watched channels after two months.
But Then Again, There’s Philo
At the same time, Philo TV, launched in 2018, around the same time as Orby TV, has managed to carve out a niche in low-cost, non-sports programming. Philo first offered 35 channels for $16 per month (an add-on package of nine channels was also available for an additional $4 per month). Now the company offers 63 channels (including AMC, Comedy Central and Discovery Channel) for $20 per month and as of November 2020 had about 800,000 subscribers.
Thornton pointed to Philo as proof that the skinny bundle is still desirable.
“They [Philo TV] have many, many more subs that we had with a smaller bundle than we had,” Thornton said. “The skinny bundle is something that people want.”
He also dismissed the argument that what consumers really want is ala carte programming where they can mix and match their favorite channels for lower prices. While that’s the ideal, it’s also a hassle to sort through the hundreds of possible options such a future could bring.
“Ultimately everybody tries to get to more of an ala carte place, but in reality people don't want ala carte, they want to be told, ‘Here are the different packages,’” Thornton said. “They want to be pointed to the best value, they want the ability to think that they can ala carte as well. It’s a difficult balance, and a lot of it is based upon history.”
Routh added that adding to the pressure is that some people, especially in really rural areas, don’t want TV at all. And it doesn’t matter how low the price for the service is.
"You can’t change the nature, the behavior of those people,” Routh said. “There’s nothing wrong with that, but out of that universe he was targeting, there was [probably] a certain percentage that even for nothing they wouldn’t take it.”
When it launched in 2019, Orby TV offered content from top programmers like ViacomCBS, WarnerMedia, AMC Networks and Discovery. From the start, Orby TV offered 44 channels for $40 per month, with an expanded package that included digital networks like MTV Classic, DIY and others for $50 per month. Orby TV was able to keep its rates low because it didn’t offer sports channels like ESPN and FS1, and broadcast channels. Customers could access their local broadcast networks via a digital antenna over-the-air.
With lower cost programming -- no USA Network, Fox News Channel or Disney Channel -- and no upfront equipment costs -- customers had to buy their own dishes and set-tops at Best Buy, Target or other retailers -- Orby TV had low overhead. Thornton said the company at its height only had 17 full-time employees.
"The cost basis was very low," Thornton said.
Looking back, Thornton said he wished he hadn’t relied on one financial backer. And even with low overhead, the company burned through most of that $25 million in about 16 months -- bankruptcy documents said the company had $500,000 in cash and $52 million in liabilities, mostly to programmers.
According to court documents, GE Pension Trust is owed about $11.6 million, while programmers like Viacom ($16.4 million), AMC Networks ($10.4 million), Turner Broadcasting System ($4 million) round out the list of unsecured creditors.
When it became clear that the GE Pension Trust wasn’t going to put any more money in the company, Thornton said that he had lined up a group of investors -- including programmers who had networks carried by the service -- to pump in needed capital. But that deal collapsed literally inches away from the finish line.
“We lined them up, hopefully to close in the middle of 2020, but like everything else in the pandemic, things were slow to get going,” Thornton said. “That close kept getting pushed off, pushed off until the fall. Then at the eleventh hour, literally the week we were set to close with the programmers, one programmer backed out. With that programmer backing out, all the programmers said, ‘Well, maybe we will take a step back and rethink this.’ The irony at least to me was the numbers had held really really well during the pandemic -- a lot of people were watching TV, were watching their budgets, and we continued to grow.”
Thornton declined to identify the investors, but said the specter of streaming TV dominated almost every conversation he had with potential backers. At one point, because of its pre-pay option that allowed customers to “pay-as-you-go,” for service, Thornton met prepaid wireless carriers like Tracfone and its then-parent American Movil about potential partnerships.
“We had some very interesting discussions with the Tracfone guys and even American Movil out of Mexico City,” Thornton said. “But unbeknownst to us, at the same time we were talking to them, they were talking about selling as well.”
Tracfone said in September that it had agreed to be purchased by Verizon.
Hooking up with a prepaid phone carrier would have been a smart move, Routh said.
“What he was doing, it did, on a certain level did make sense, and if he could have gotten it bundled with a prepaid phone plan, then it probably would have had a much greater chance of survival,” Routh said. “Since he wasn’t able to, I’m sure he was paying the programmers multiples of what Comcast pays. And with the upfront costs and the leverage, he couldn’t grow subs fast enough. It was ballsy to even attempt, you have to give him credit for that.”
Thornton added that there was no lack of trying. In the pitch to phone providers, he compared Orby TV to another alternative video carrier -- Layer 3 -- that was eventually swallowed up by T-Mobile in 2018 for $325 million. T-Mobile shuttered that service, along with its TVision video offering, about two years later.
Orby TV was pitched as a way for prepaid carriers to break into the video market at a lower cost than Layer 3, he said. At the time Layer 3 (which raised about $100 million in several rounds of financing) was marketing a high-end, “fat bundle” package, targeted at customers that wanted lots of video, white-glove customer service and weren’t afraid to pay top dollar for it. Layer 3 video packages started at $75 per month.
“In some of the early pitches, I would say if you’re familiar with Layer 3, we are exactly at the other end of the spectrum,” Thornton said.
Also at that time, several programmers were eyeing streaming options, but most were still selling content to SVOD companies like Netflix and Amazon Prime. That all changed when The Walt Disney Co. launched its Disney Plus streaming service in 2019. Disney set the tone with a $6.99 monthly price point, and was followed by offerings from WarnerMedia (HBO Max), AMC Networks (AMC Plus), NBCUniversal (Peacock), ViacomCBS (Paramount Plus) and Discovery Inc. (Discovery Plus).
“The surprise to me was the amount of focus solely on streaming, it's the bright shiny object that everyone seems to be chasing,” Thornton said. “People talk about that there is a lot of money out there that needs to be invested, and there is, but people are singularly focused on streaming.”
He added that the market responds quickly and favorably to seemingly minuscule streaming moves, ignoring the fact that it will take a tremendous amount of growth before that segment is profitable. Meanwhile, other parts of the video business are being ignored.
“People are wildly, wildly focused on that one [streaming] aspect,” Thornton said. “Wherein last I checked it’s still a very profitable business to be in the broadcast business. Local broadcast stations are still doing insanely well. Do they need to grow and do they need to adapt? Absolutely. But it’s a great business right now.”
Still, there’s no mistaking that streaming is the future of the business. And programmers are making moves to lay out the infrastructure for that future now. In the meantime, there are some analysts that predict that some satellite players will be whittled down to nothing in as soon as five years.
Thornton said that when it became apparent that the bottom was falling out of his financing deal, he tried hard to save the company, talking with Dish Network founder and chairman Charlie Ergen about a possible partnership. In the meantime, speculation was high that the company was in trouble, especially after its website suddenly went dark.
“I went to Charlie and we talked about even doing an MVNO relationship,” Thornton said. “Using his capacity, using his satellites and his equipment and just keeping the Orby name and having to transfer everybody over. He [Ergen] sees the value in these customers because it’s probably not unlike the customer he originally went after. In the end, while we talked about it and thought about it, the expense of pushing everybody over he felt was probably more than it was worth.”
After it filed for bankruptcy in March, Orby TV urged customers via its website to switch to Dish Network.
Today, Thornton isn’t holding out much hope for an Orby TV rebirth.
“I think if it was going to be able to restart, it probably would have by now,” he said. “The longer the customers are without programming, the harder it is to bring them back. If it got down to right before pre-filing that I thought there was a chance for somebody to come in and swoop it up, I actually thought about trying to raise money myself and swoop it up, but it just became more trouble than we thought would be worthwhile.”
But he believes there is a lesson to be learned from the demise of the business.
“You would think that the programmers would look at that and say we’ve got to figure this out,” Thornton said. “When a cable operator, no matter how small, says it’s worth my while to give you a Firestick or an Apple TV or a Chromecast because I can't give you programming in a way that I can make money, something’s wrong.”
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