Market Insight

Google launches YouTube TV, as US virtual pay TV market becomes increasingly crowded

April 28, 2017

Harold Vargas Harold Vargas Senior Analyst, Television Media

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YouTube TV, Google’s virtual pay TV offering, has launched in five US cities. The service, which is limited to New York City, Los Angeles, San Francisco Bay Area, Chicago and Philadelphia costs $35 per month when signing up on Android devices or on the computer, and $39.99 per month when billed through Apple’s App Store. YouTube TV is expected to roll out to more markets in the coming months.

At launch, there are nearly 50 live channels available with national broadcasters and sports networks included, however its cable channel line-up is less than comprehensive with a large programming gap. YouTube TV current channel offering consist of the following:

  • Broadcast networks: ABC, CBS, FOX, NBC and CW
  • Cable channels from Disney, Fox and NBC. AMC networks will soon be included at no extra charge.
  • Sports Channels include ESPN, Comcast RSNs, Fox RSNs and others
  • Add-ons include Showtime for $11/mo and Fox Soccer Plus for $15/mo
  • Access to all YouTube Red original series and movies at no extra cost, including select related YouTube videos
  • Notable missing channel groups include: A&E, Discovery, Scripps, Turner, Viacom and no ability to sign up to add- ons from HBO and Starz

YouTube TV is available on Android, iOS, computers, Chromecast, Chromecast built-in TV and Android TV. Device support is not as extensive as other online pay TV services, but will grow in the coming months and likely include more connected devices to the TV.

Sign-ups are available only to customers living in the launched markets, however, customers will have access to national networks while travelling outside the launched markets, but broadcast channels will only be available in markets where YouTube TV has launched.

YouTube TV offers one of the most comprehensive cloud DVR features, which is included at no additional costs, and features unlimited storage and unlimited simultaneous recordings, with recorded content lasting for nine months. There are six accounts included (each with unlimited cloud DVR), however there is a limit of three simultaneous streams of live TV, VOD, or watching a recording (any combination up to three streams) among the six accounts.

YouTube TV joins a growing list of online pay TV providers including Dish’s Sling TV, Sony’s PlayStation Vue, AT&T’s DirecTV Now, Fubo TV, Layer3 TV, Yip TV and Amazon Channels.  Amazon took a different approach in becoming a pay TV provider, amassing and offering individual channels through its Amazon Channels service (see HBO and Cinemax join Amazon Channels). These eight online pay TV services will all be vying for customers looking to alternative TV services. Hulu will soon join the fray with its upcoming live TV launch later in the year. 

Our analysis

With a starting price of $35, YouTube TV is not the lowest cost option out there, nor does it provide the most comprehensive channel package, but it does have the brand, backing and deep pockets of its parent, Google. YouTube TV is unlikely to be making money as it stands but Google may have its sights set on the TV advertising market, however, getting YouTube TV up to scale will be impeded by a staggered rollout in the short term and the inability to bundle the service with internet access remains a long term challenge the service must address if it is to go truly mass market.

Despite the significant awareness of the YouTube brand and marketing push Google will bring to the service, the limited launch in 5 metro areas will considerably impact uptake. This type of staggered rollout is reminiscent of PlayStation Vue’s launch, which hindered uptake. It took a year for PlayStation Vue to launch nationwide. The limited launch of YouTube TV is likely tied to the included broadcast networks.

With the inclusion of broadcast networks and variety of sports channels in YouTube TV, the margins are very thin or non-existent. But for Google, profitability for its new service can wait and it may not even be a priority to begin with. With YouTube TV, Google may finally have its foot in the door to carve itself a slice of the television advertising market.

Online pay TV services are typically able to innovate with the user experience and user interface (UI) to a much greater extent than traditional pay TV providers due to the fast paced development and update cycle. This results in experimenting with non-traditional ways to view the content available on a pay TV subscription. YouTube TV is represents one of the biggest attempts at innovating the pay TV user experience to date as it has moved to a that UI is content led and not channels led, disregarding the linear channel paradigm. The focus becomes in choosing what content to watch and not what channel to pick. In YouTube TV, the landing page foregoes the traditional EPG guide led navigation in favor of content led navigation, and the name of the actual channel takes a backseat to what is currently airing. What the user sees is a better look at the content being aired live and also what content is available through on demand, usually in the form of recommendations.

There is some precedent for this with the UI work that Sling TV and PlayStation Vue and to a lesser extent DirecTV Now have been doing (e.g. resuming shows stored on cloud DVRs) but Google’s competitors make more use of the channels paradigm (e.g. by offering favorite channels and more conventional EPG grid) . While the EPG channel led navigation, which still remains essential for some customers familiar with it, is still available, it is no longer prioritized. This approach to traverse the content of a pay TV subscription has the effect of depreciating the channel brand, thus moving the content to the foreground and making it more prominent and important. If this UI trend becomes more popular then the focus on the content from the beginning of the user journey will likely to make it challenging for channel brands to rely on name power alone.

While YouTube TV does contain many features that consumers may find attractive, ultimately it faces the same uphill battle that other online pay TV services face – difficulty in reaching desired subscriber scale without the ability to bundle internet services. It is true that traditional pay TV providers will face another new entrant into the burgeoning online pay TV sector and with it, comes additional challenges of attracting new customers, and more importantly, reducing existing customer churn. However, pay TV providers that have an advanced broadband infrastructure are best suited to combat these new entrants.  This video+internet bundle continues with a great degree of success for the major traditional pay TV providers offering broadband as demonstrated in 2016.

Cable has continued its turnaround and once again had another year of improved pay TV losses, helped by being insulated by its broadband services. The turnaround has shown that broadband service has surpassed traditional video services as the most important entertainment medium within the home. For the major cable providers, this has helped cable retain pay TV subscribers with double play packages, exemplified by both Comcast and Charter posting positive net video gains in 2016. Dish Network fared the worst in 2016, losing an estimated 757,920 satellite subscribers, in large part due to its Sling TV service and the inability to bundle its satellite service with broadband.

The major cable providers have been content in piggy backing its video services onto its broadband offers, using it as valuable promotional and retention tools. This helps keep them shielded against encroaching online pay TV service, as current customers who may seek to defect to online pay TV may find that the price for stand-alone internet+online pay TV is less attractive than the traditional pay TV double play. A similar story can be said about Verizon’s FiOS and now DirecTV falls in that category, but to a lesser degree, as it can be bundled with U-verse internet. As long as pay TV providers can continue leveraging their broadband services and scale, the reach of online pay TV services will remain limited.

Even with sticky bundled services, every new online pay TV launch will put added pressure for incumbent pay TV providers to launch their own similar countermeasure, if they haven’t already. Dish and AT&T have already launched their own online pay TV service and more traditional pay TV operators are expected to follow suit. Mid-tier IPTV provider CenturyLink has already stated they are ready to embrace the OTT model and will soon launch their online video service, starting within their footprint. There are also rumblings that Verizon is set to unveil its own nationwide online pay TV service later this year. Comcast is said to have been accumulating online rights for its channels, perhaps as an expansion and overhaul of its current but limited online service, Xfinity Stream, which is only available to Comcast internet customers in select markets. It’s likely that other large pay TV providers have also been quietly amassing online delivery rights as a preemptive and defensive measure in response to the changing landscape. For now, bundled internet service will shield the majority of the major pay TV providers from encroaching online pay TV services.

Geography
North America USA
Organization
Google Inc.
Research by Market
Media & Advertising
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