Market Insight

YouTube TV adds Turner to its lineup

February 21, 2018  | Subscribers Only

Erik Brannon Erik Brannon Associate Director – Research and Analysis, Service Providers & Platforms

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YouTube TV gave a nice Valentine’s Day present to its sports-loving subscribers - the gift of Turner Networks, and several NBA, MLB, and NCAA games. The Turner networks added were: Adult Swim, Cartoon Network, CNN, Headline News, TBS, TCM, TNT, and TruTV. At the same time, YouTube announced that it will increase its monthly price to its Live TV service by $5 to $40/mo.

The price increase will only be for new users who sign up for the service after March 13, 2018; new users who sign up before then will also be grandfathered in at the original $35/mo. price.

The service initially limited its roll out to a handful of major markets, this is going to change dramatically in 2018. The company reached a total of 370,000 subscribers by year end 2017 according to IHS Markit’s Broadband Media Intelligence. The company has announced that it has plans to dramatically expand the offering to all of the top 100 markets in the US, or more than 80% of all TV households.

Another limiting factor for YouTube TV is network carriage. Prior to the announcement, the company had agreements with AMC, BBC, CBS, Disney, Fox, and NBC; it notably missed channels from A+E, Discovery, Epix, HBO, Scripps, Starz, Turner, and Viacom.

YouTube TV is currently available on all popular devices with the exception of the Kindle Fire family of devices and the PlayStation ecosystem. The service is available on computers, Chromecast, Apple TV, mobile phones, tablets, Android TV, Xbox One, and some smart TVs.

Our analysis

When it comes down to it, YouTube TV is expensive to run, and it’s playing in a field where there is stiff competition. According to IHS Markit’s TV Media Intelligence there were 93.7 million pay TV homes in 2017 - 99.1 million if you add in the virtual pay TV operators like YouTube TV and Sling TV. YouTube TV is attempting to cannibalize a portion of the 99.1 million existing pay TV subscribers with a skinny bundle offering which is increasingly looking less skinny.

According to IHS Markit’s Channels and Programming Intelligence the YouTubeTV’s carriage fee load was $38.94 per month. Prior to the addition of Turner’s networks, the company’s margin was -10% before any operating costs. In the next few years, this situation is expected to worsen, with the companies carriage fee obligations being $53.71 per month on $40 per month in subscription revenue in 2020 (if there are no further price increases). What’s also striking is that 2017’s $38.94 and 2020’s $53.71 are calculated using industry average carriage fees; YouTube TV is likely paying 10% to 25% above the average.

The company is relying upon its innovative user interface, and a widening distribution in 2018 to bolster its subscriber base. Like Google Fiber, YouTube TV is also counting on brand recognition to help boost subscriber additions. Also like Google Fiber, YouTube TV is facing stiff competition from incumbent cable operators who are able to bundle the very broadband pipes which it relies upon, with their own video services.

At the same time, many pay TV operators have gotten on board with offering skinny bundles, which is effectively what YouTube TV is offering. It is also important to take a step back and think about the top networks that YouTube TV is missing and the fact that many of its incumbent competitors already have video bundles which contain them at not much more of a price.

Like other startups, YouTube TV has many hurdles to overcome; the most significant are carriage fees which threaten to drive margins into untenable positions.  While the future of the service isn’t certain, what’s certain is that the business of pay TV still has huge profits to meet out to the company or companies who can offer the best mix of price versus value.


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