YouTube TV is Becoming a Serious Player in the US Pay TV Market


YouTube TV

YouTube TV, Google’s over-the-top (OTT) TV service in the US, is relatively unknown here in Europe. But since launching in 2017, YouTube TV has grown to establish itself as a serious competitor in the US TV market.

YouTube TV is one of four major vMVPDs (virtual multichannel video programming distributors) in the US, the others being Sling TV, AT&T TV NOW, and Hulu + Live TV.

vMVPDs are over-the-top services which bundle linear and on-demand content, providing a similar service to a cable or satellite pay-TV subscription. But vMVPDs are cheaper than traditional pay-TV subscriptions since there are no installation costs (as vMVPDs can be accessed by most internet connected-devices), and tend to offer fewer channels.

YouTube TV is fairly unique among the four big vMVPDs. Sling TV and AT&T TV NOW are both directly owned by pay-TV providers (Dish Network and AT&T respectively), whilst Hulu + Live TV is part-owned by Comcast. As consumers have cut the cord in the US, pay-TV operators have tried to sell these cheaper services in a bid to hold on to customers.

YouTube TV meanwhile has established itself alongside these four, despite its relative lack of experience in the TV space.

Google has only released stats on YouTube TV once, with Google CEO Sundar Pichai saying on an earnings call back in February that the service had over two million subscribers in Q4 last year. Bruce Leichtman, founder and principal analyst at Leichtman Research, a research firm which covers broadband, media and entertainment, said this likely puts YouTube TV behind Sling TV (2.6 million subscribers in Q4 last year) and Hulu + Live TV (3.2 million subscribers in Q4), but ahead of AT&T NOW (0.9 million subscribers in Q4).

Keeping up with its competitors is an achievement in itself. Competition is high – since subscriptions can be cancelled and switched with relative ease, and margins are low. Sony’s offering, Playstation Vue, was shuttered earlier this year, having struggled to build an audience despite being one of the earlier entrants in the vMVPD space.

And it is growing at a time when others are struggling. Sling TV and AT&T TV NOW have both reported falling subscriber counts in recent quarters.

Heavy investment from Google

Google’s financial heft has certainly played its part in YouTube TV’s success.

Launching a vMVPD service is expensive. While Leichtman told VAN that content providers are keen to be available on as many platforms as possible, it’s still costly signing up distribution deals with both regional and national TV networks. But Google’s vast resources have allowed it to sign deals with the majority of major networks.

Geoff Blaber, VP research for the Americas at CSS Insight, a tech intelligence and advisory firm, said these deals have been crucial to YouTube TV’s success.

“YouTubeTV delivered a very high quality of experience from day one, with broad platform support and a strong range of local and national programming,” he said. “This isn’t easy to achieve and alternatives delivered a far more varied user experience as they established their offerings.”

Blaber added that YouTube’s heavy investment in marketing was also important. “Crucially YouTubeTV was supported by a huge marketing investment which proved impossible for competitors to rival, particularly Sony with PlayStation Vue,” he said. Blaber described Google’s total investment in YouTube TV as “incomparable to anything seen before”.

But it hasn’t simply been a case of Google throwing money at a new project. Rich Greenfield, partner at LightShed, a technology, media and telecommunications research firm, said Google has developed a genuinely compelling product.

“YouTube TV’s interface is purpose built for watching live – in fact it learns what you watch and when you watch that content,” he said. “It suggests content when you open up the app, regardless of whether that content happened yesterday or is live right now. So for example, it might know that I’m likely to want to watch ‘60 Minutes’ on a Monday morning, or Saturday Night Live on a Sunday morning.”

Playing the long game

But while YouTube TV has successfully attracted subscribers, it’s likely struggling for profit. Google hasn’t revealed the overall costs and revenues of its TV unit. But those VAN spoke with said the vMVPD space as a whole is a tough place to turn a profit.

“As standalone businesses, these are not great businesses, because the margins are very low” said Bruce Leichtman. “That’s why none of them are standalone businesses, all of them are stuffed into larger businesses, where they’re serving some wider purpose.”

The question is, what’s the wider strategic purpose of YouTube TV?

Some see the service as YouTube’s attempt to capitalise on the decline of traditional pay-TV services. “Google is playing the long game and using its brand and marketing muscle to dominate the space,” said CSS Insights’ Blaber. “Its hope is that the cord cutting trend maintains momentum and YouTube TV establishes itself as the leading replacement.”

LightShed’s Greenfield agreed that while YouTube TV may not be profitable now, that could change if it builds a big enough market share. “Google knows that as they grow scale, they will gain leverage as to which channels are and are not included in the bundle, as we just saw with Sinclair’s regional sports networks,” he said [Sinclair acquired Fox’s regional sports networks from Disney, and YouTube TV subsequently dropped the channels, citing rising costs]. With more leverage, Google may be able to bring its costs down, negotiating cheaper deals to carry TV networks’ channels.

But Greenfield added that YouTube TV adds value beyond the revenues it can bring in. “TV is the missing part of Google’s data knowledge, and understanding what you watch is critical to their overall consumer profile,to help target ads across multiple devices,” he said.

Bruce Leichtman agreed that YouTube TV is likely designed to add value to Google’s ad sales business, while helping build its understanding of the TV sector as a whole. But Liechtman disputes the idea that Google has traditional pay-TV companies in its crosshairs.

“I don’t think YouTube TV’s destiny is to destroy the existing cable companies – and the existing cable companies are now broadband companies anyway,” he said. “But it serves a particular niche for consumers, and even more so for Google and its ad business.”

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