The UK’s Sky TV satellite TV service, currently owned by Comcast, rolled out a very interesting product this month that is likely a harbinger of what we can expect the future to look like for American MVPDs.
The TV is meant to replace both the set top box and the satellite dish. It features a generally well-reviewed interface from Sky and some features that should have great consumer appeal, including a built-in five-channel Dolby Atmos sound system, complete with subwoofer. Next year it is due to get a 4K smart camera for gaming, workouts and Zooming.
In addition to Sky’s cable lineup, viewers can subscribe to a range of streaming services like Netflix, Disney Plus and BBC iPlayer. Other services like Peloton and Spotify are available as well.
But the most interesting innovation of all is one that allows viewers to pay a monthly “subscription” fee to lease the TV via a 48-month (four year) contract. This mobile phone-esque plan allows viewers to get a new TV without much of a monthly outlay while cementing a four-year customer relationship for Sky.
Why the Sky plan makes sense for American MVPDs
U.S. MVPDs are at a crossroads.
Cord-cutting is picking up, but it’s still nowhere near the level that would cause larger operators to get out of the pay TV business altogether.
That said, these days maintaining a pay TV service has largely become a customer retention play for the MVPDs, who make the bulk of their revenue from selling broadband service.
More than that, the smart TV OEMs and companies like Roku and Amazon whose OS powers smart TVs, are assuming the gatekeeper role the MVPDs once had.
This means that they are the ones who are striking the streaming equivalent of carriage deals with the various Flixes, FASTs and niche providers. Not to mention the vMVPDs.
To counter this, the MVPDs have tried a variety of tactics. They’ve gussied up their set top boxes and added in access to streaming services. They’ve rolled out their own streaming devices. They’ve even made noise about rolling out their own branded TV sets.
Which is what Sky did, but the “leasing it like a cell phone” piece is genius.
It acknowledges the state of the market, which is that the television is now the cheapest screen in the house. By offering TVs on a monthly lease basis for 48 months, Sky will also be able to speed up the replacement cycle, which is now at around every seven years, and, absent any major innovations, likely to go even longer.
Leasing TVs will be a good play for American MVPDs who, at some point in the next five years or so, will be looking at audiences of around 30 to 40 million households or around one-third of the total television audience.
Those pay TV households are likely to skew older and less affluent than streaming only households, and so the ability to lease a new smart TV that provides some mixture of traditional pay TV channels and streaming services via an interface designed for the tech un-savvy, should be a win all around.
It also locks those households into a broadband and pay TV contract for the next four years, which means the MVPDs can slow down all those “MVPDs shed 1 million customers last quarter” headlines, which cause nothing but hurt for their share prices.
It’s a good deal for the remaining MVPD consumers too.
They’ll get a brand new TV, access to their favorite linear and streaming channels via a provider they trust, and, more crucially, can call when something goes wrong.
This is a variation on the TiVo versus MVPD DVR scenario twenty years ago, where consumers often went for the less technologically sophisticated MVPD set top box/DVR combo over TiVo because they could lease it month by month and a tech would (eventually) show up when something went wrong.
Will the new MVPD TVs be enough to knock current market leaders Samsung, VIZIO, LG and TLC (Roku) off their perch?
To begin with, the audience for the new sets will be limited to those remaining MVPD subscribers who are in the market for a new TV, which is going to be pretty small to begin with.
In addition, it would actually make sense for the MVPDs to partner with one of the big OEMs and vice versa. The OEMs all have their own FAST content which they could white label for the MVPDs (e.g., “WatchFree on Charter”) and they have the sort of strong name recognition which would make convincing customers to upgrade to a new TV that much easier.
What will be interesting to watch is whether licensing smart TVs becomes the norm.
It’s easy enough to imagine the aforementioned OEMs offering a monthly subscription package that gives consumers a brand new TV along with a bundle of four or five Flixes ... provided they signed up for a full 48 months.
That would change the pay TV business significantly and would likely raise issues of how much MVPDs could charge for standalone broadband if consumers were not buying a bundle from them.
It’s all just speculation now, it’s a future that could be here sooner than you think.
Alan Wolk is the co-founder and lead analyst for media consultancy TV[R]EV
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