Virtual MVPDs Growing ‘Like Weeds’: Analyst

The five largest virtual MVPDs ended 2017 with about 4.6 million subscribers to the detriment to traditional pay TV, but the OTT TV business remains a “lousy” one, MoffettNathanson analyst Craig Moffett noted in his Q4 2017 Cord-Cutting Monitor report.

The “Big 5” virtual MVPDs (Sling TV, DirecTV Now, YouTube TV, Hulu Live and PlayStation Vue) added about 2.6 million subs over the past year, more than doubling that total, and tacked on nearly 800,000 in the past quarter alone, according to Moffett’s estimate, which doesn’t include Philo and fuboTV.

With the latter included in its estimates, The Diffusion Group believes there were approximately 5.3 million virtual MVPD subs at the end of 2017.

As for Moffett’s OTT TV sub estimates, “[w]e hate to call them ‘paying subscribers’ since we don’t know how many are in free promotional periods.” While that uncertainty casts a bit of a cloud on the true numbers, it also represents an issue that programmers are raising.

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Though the virtual MVPD base is growing, having that option has not done much to improve revenues and EBITDA at Dish Network and AT&T. In fact, both continue to decline.

“Being a vMVPD will remain a truly lousy business,” Moffett wrote. “People constantly ask Comcast when they plan to launch their own national vMVPD, and they always answer the same way. ‘Why would we want to?’… We’re always surprised that people think they are kidding.”

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But the situation for programmers with respect to vMVPDs is better, he said, though that varies depending on whether a programmer has carriage on all of them or a subset. Fox and Turner, which are on all the Big Five, are seeing affiliate growth consistent with the “halcyon days of pre-2015,” while Viacom and Discovery, which are not on all of them are seeing affiliate fee growth dip into the low single-digit range, Moffett observed.

As for distributors? The rise of the virtual MVPD “is mostly just varying degrees of…bad,” he wrote, noting that the old adage of trading “analog dollars for digital pennies” still applies.

And while there’s still some uncertainty about the rate of decline, it is declining at a greater rate – it increased to 3.4% in Q4 2017, from 3.2% in Q3.

“All the usual platitudes apply; it was the first and the worst that that we have seen,” Moffett explained, conceding that further acceleration is likely over the next quarter or two.

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That uncertainty also applies to how bad it will get or might get. While it’s possible that the rate of decline will moderate as pent-up demand is satisfied and consumers become disaffected by the shortcomings of virtual MVPDs, it’s also possible to conduct a “doomsday scenario” that the wireline telephone business suffered.

Rather than rates of decline of 3% to 4%, they could grow to 3% to 10% per year, “with supply and demand chasing each other to a rather proximate collapse of the traditional model,” Moffett said.

Meanwhile, he reiterated an estimate going back to 2010 that the cumulative number of cord-cutters and cord-never homes has reached 13.5 million, with virtual MVPDs recapturing about a third of the loss, while a portion has left to make-do with SVOD and other non-live alternatives.

“The traditional pay TV distribution business is getting worse rapidly, and at an accelerating rate, and the total distribution universe for programmers is getting worse slowly, and at a roughly constant rate,” he concluded.