Cable television companies are in serious trouble if the headlines are on target. Research outfit eMarketer predicted earlier in the year that the number of households that have officially "cut the cord" will reach 40 million by the end of 2019, with roughly 6 million customers likely to have said farewell since the end of 2018.
Even more surprising has been how similar-but-cheaper streaming alternatives to traditional cable service have failed to gain traction. AT&T's (NYSE:T) TV Now lost nearly 200,000 paying customers last quarter despite a fairly palatable introductory price of around $60 per month, down from peak membership of 1.86 million in the third quarter of 2018. PlayStation Vue from Sony (NYSE:SNE) only cost $50 per month for a reasonably robust channel lineup, but the company is shutting down that service at the end of next month because of too much competition, and, presumably, not enough profits. Half a million subscribers just weren't enough.
That still leaves more than 86 million traditional pay-TV customers behind, which isn't a bad base. But contrary to cable companies' broad plans, they're not jumping off to their provider's streaming options when they quit. MoffettNathanson recently posted research suggesting that 40% of cord-cutters don't even bother thinking about their cable company's nontraditional alternative, going straight to nonlive options like Netflix (NASDAQ:NFLX) or Hulu.
Given the anecdotal data, it would be easy to conclude, as my colleague Travis Hoium did earlier this year, that there's still just something unmarketable about streaming live broadcasts when the service isn't notably cheaper than the traditional cable alternative.
There are three exceptions to the lackluster launch of live-streaming television, however, that suggest there's more to the story.
Numbers tell the tale
The same MoffettNathanson analysis points out that Hulu With Live TV added 400,000 paying customers last quarter, bringing its total headcount up to 2.7 million and eclipsing Dish Network's (NASDAQ:DISH) Sling TV headcount. (Sling TV, by the way, still picked up another 214,000 customers last quarter.) Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) picked up another 200,000 paying customers for its YouTube TV live-streaming roster. That pushes its total up to 1.6 million subscribers.
Clearly the advent of live streaming isn't fully offsetting the deterioration of the traditional cable industry. In total, the few million live streamers still only make up a fraction of the 86 million traditional cable customers still paying for their service and are more or less in line with the 1.1 million customers AT&T's TV Now live streaming still has on board as of the end of the third quarter.
Except Alphabet and Hulu are clearly proving that a live-streaming option in the $50-per-month range can be marketable.
One small thing makes a big difference
Hulu's success on this front is partially understandable, even if a bit surprising. It was founded by several media companies with plenty of experience and know-how and entertainment content to boot. Alphabet being able to spin YouTube's short-form, user-generated video content platform into a marketable cable product, however, seemed unlikely in YouTube TV's infancy when its link to Google positioned it more like a tech name and less like a media venue.
So the $64,000 question is, what are Alphabet and Walt Disney (NYSE:DIS) -- which owns most of Hulu -- doing differently than AT&T and other names that have struggled with internet-based cable TV?
The MoffettNathanson report concluded that streaming success rests not just on pricing after all but also on not throwing customers frequent curve balls. Specifically, the analysis reads, "The signal this sends -- what, you thought by switching to a virtual MVPD you would avoid those infuriating annual rate increases? -- is arguably just as important as the absolute increase in prices." AT&T might have inadvertently underscored this argument with its official third-quarter comments, making a point of saying its departing TV Now customers were largely "rolling off promotional discounts."
In other words, it wasn't so much the existing price point as it was consumers not knowing what their price might be just a few months down the road.
The theory makes sense. YouTube TV has upped its monthly cost from $35 at its inception to $50 now, while rivals like Sling TV, Hulu, and AT&T's TV Now have imposed similar price increases. Of those four, though, AT&T is the only one that appears to have pushed two-year contracts and promotional pricing that set the stage for sticker shock after a customer is on board, and it's also the one facing the biggest subscriber hurdles. The rest readily accommodate month-to-month subscribers, who may pay more per month but know their provider will consistently compete to keep their business.
Never underestimate the little things.