OTT Startup Layer3 Begins Pumping Fat $75-Plus TV Bundle in Chicago, Via Comcast and Others

Bucking conventional wisdom that consumers are gravitating toward “skinny” pay-TV bundles, Layer3 TV has launched a big, fat honking package in the Chicago area that is priced starting at $75 and costs as much as $150 or more for the full package.

It’s not clear that Layer3’s ambitious, upscale over-the-top play will succeed in attracting a sizable user base. The startup faces pretty big headwinds. Besides evidence that people want cheaper pay-TV bundles (not large, expensive ones), there’s the company’s delivery model, which relies on delivering content directly over the broadband networks of cable and telco companies — the very providers that Layer3 will compete with for its fat TV bundle.

In the Windy City, Layer3’s allHD package with more than 144 high-def channels became available over Labor Day weekend. It also plans to launch soon in Denver, where the company is headquartered, and in Washington, D.C., with additional markets eyed for 2017.

According to Layer3 CEO Jeff Binder, unlike competing OTT pay-TV services like Dish Network’s Sling TV, Sony’s PlayStation Vue and Hulu’s forthcoming live-TV package, Layer3 video doesn’t ever traverse the public internet — it carries the streams over its own managed network, and then delivers those over the last-mile broadband infrastructure of ISPs with which it has interconnection agreements. That, in theory, ensures more reliable delivery of high-bandwidth live TV streams. In the Chicago market, Layer3 has interconnect deals with Comcast and other providers (which Binder declined to name).

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But that also means to get Layer3 in Chicago today, users must be broadband subscribers of Comcast or one of the other ISPs that Layer3 is directly connected to. And for now, relying on specific ISPs will limit the startup’s potential customer base and how quickly it can launch new markets.

Layer3 execs believe that its supersized TV strategy, coupled with an advanced guide, will indeed ring the cash register.

The company says the allHD Platinum package delivers more HD in an entry-level package than any other provider and that it will eventually make available over 200 HD channels with additional options for add-on such as individual channels, thematic genre tiers and premium add-ons. In addition, the service provides access to more than 20,000 movies and TV show episodes on-demand. Layer3 has distribution agreements with media companies including Fox, Disney and ESPN Media Networks, Turner, NBCUniversal, Viacom, CBS, Discovery, HBO, Starz, Epix, Scripps Networks Interactive, as wells as regional sports networks from Comcast, Fox Sports and Pac-12 Networks.

“The industry’s universal support for innovation has been astounding, resulting in our launch of an entry-level offer that includes virtually every channel,” said Layer3 TV chief content officer Lindsay Gardner.

Layer3 touts is user interface as head and shoulders above the rest of the pay-TV pack. The company has declined to provide images of what the UI looks like but says it uses a patented “visual navigator” that helps users find the most relevant TV shows quickly. In addition to providing a guide for live cable and broadcast television channels, the Layer3 UI also integrates social-media properties such as Facebook and a variety of other applications. The system also provides voice search and control.

Naturally, Layer3’s programming partners are excited about it — because it’s based on the big, old-fashioned bundle, in which subscribers pay for their entire channel suites. “Layer3 TV’s user interface and packaging options offer a fantastic environment, taking advantage of the latest technology to present our content,” said Justin Connolly, executive VP of affiliate sales and marketing for Disney and ESPN Media Networks, in a statement provided by Layer3. We continue to look for new ways to reach consumers and Layer3 TV offers a great avenue to do that.”

But will consumers share the same enthusiasm for a fat OTT bundle, especially given that they’re able to get pay TV from their cable or telco provider already?

Only 33% of consumers said they’d expect pay more than $50 for an OTT service as a replacement for traditional cable or satellite TV if it included regional sports networks, according to a MoffettNathanson survey of 513 consumers conducted in July by research firm Survata. Nearly half (47%) said they would be willing to pay no more than $30. Even with an elegant user interface, Layer3’s offering may be too rich for the blood of cord-cutters or even existing pay-TV subs.

In any event, Layer3 appears to have plenty of cash to sustain it for the near future. Founded in 2013, the company has raised more than $100 million from investors including Evolution Media Partners — whose shareholders include TPG Growth, CAA and Jeff Skoll’s Participant Media — French telecom company Altice (which owns Suddenlink and Cablevision Systems), John Paulson’s Paulson & Co., and North Bridge Venture Partners.

Pricing for Layer3’s allHD service starts at $75, going up from there depending on programming options and configurations. Subs with several TVs and the entire channel lineup may have packages that cost $150 or more per month. Layer3 says its packages “are always competitive” compared with incumbent pay-TV providers.

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