×
You will be redirected back to your article in seconds

YouTube TV Subscriber Growth Threatened by $10 Discovery Hike

Even in an era of bundle bloat for virtual MVPDs like DirecTV Now and Sling TV, the recent news that YouTube TV had agreed to a carriage deal for Discovery’s major networks was a surprise, taking its total network count to 80. Even more so was the fact that YouTube TV was increasing its monthly fee to $49.99.

$10 more for Discovery’s networks?

Analysts are praising the deal for Discovery. Most of their major networks are included, with eight initially being available and OWN being added later in the year. The deal has increased Discovery’s VMVPD coverage to 71% of homes with a subscription, up from the low 58% they had following their departure from DirecTV Now (only Viacom had worse coverage of the major network groups).

But when it comes to YouTube, the reaction is more confusion than celebration.

Considering the recent growth that YouTube TV has experienced, with total subscriptions estimated to have increased by 400,000 in Q4 2018 and reportedly over a million subscribers, it appeared that YouTube had hit a sweet spot with consumers. It was lower priced than most competitors (including the other fast-growing service, Hulu with Live TV) and offered a higher than average number of channels.

YouTube TV was also estimated to be incurring heavy losses in spite of increasing the monthly fee by $5 in March 2018. The Information estimated last summer that the cost to YouTube per month for its network bundle was $49; given the subscription was priced at $40, this meant that YouTube was losing at least $9 a month per subscriber, as this doesn’t include the costs of running the service. With the estimated 400,000 new subscribers at the end of 2018, that amounts to $3.6 million extra per month. Chump change perhaps for parent Alphabet, but a growing loss nonetheless.

The cost of adding the Discovery networks to YouTube TV (estimated from SNL Kagan’s carriage fees and assuming a 6% increase a year) amounts to around $1.90 immediately, rising to $2.01 once the OWN channel is included. With the monthly subscriber increase of $10, this means around $8 will be available after for YouTube. But this isn’t profit. Instead, this will staunch the losses the service is making, to a more palatable $1 per subscriber per month.

There may be value to subscribers with these new networks. However, YouTube couldn’t raise their prices for the second year in a row by a substantial amount without giving their consumers something. (It’s also easier to do it this way than to let consumers know they’re not paying the true cost for the service, and they have to spend $8 more per month without getting anything in return).

The timing of the announcement is also interesting. It happened one month before the upfronts, so Discovery can tell advertisers they are reaching over a million more (mostly young) consumers who don’t have traditional Pay TV. The impact of the price hike on YouTube subscribers will also be noted after the upfronts happen.

Should the number of subscribers fall, as could well be likely with this move, it will be after advertisers see YouTube’s upfront pitches with the most up-to-date numbers for the year to date. It could be as well that YouTube chases more of the addressable advertising pie this year, and, as they are one of only three VMVPD providers to offer individual user profiles, going out there with the maximum number of addressable individuals can only aid their cause.

It’s important to note that addressable advertising by household carries a much higher CPM ($40) than standard advertising ($10), and that addressable by individual has a premium on top (at least $50 per CPM). YouTube’s biggest rival currently for addressable is Hulu, as they also have user profiles and a higher subscription count, so the timing for the price hike is fortunate.

YouTube TV enters the upfronts with a wide range of networks, its highest subscriber count ever, and the capability for individual addressable ads. It will likely keep two of those three in the months following, but with the service price now above both the mean and median for VMVPDs, it is tough to see their rapid growth continue unencumbered.

More TV

  • Winner of the 2019 Eurovision Song

    Netherlands' Duncan Laurence Wins 2019 Eurovision Song Contest

    Madonna’s controversial performance may have grabbed the headlines, but Duncan Laurence won the nearly four-hour-long 2019 Eurovision Song Contest for the Netherlands with the song “Arcade,” which he cowrote with Joel Sjöö and Wouter Hardy. Laurence won a total of 492 points from the expert juries and televoters in a contest that was touch and [...]

  • 'SNL' Cold Open Has Alec Baldwin's

    'SNL' Cold Open Has Alec Baldwin's Trump Rocking Out to Queen

    The cold open for the season finale of “Saturday Night Live” saw the Trump administration taking some liberties with a rock classic. Alec Baldwin returned as President Donald Trump, letting America know that he is going to be taking it easy now that summer is nearly here. He then said he was going to do [...]

  • Great Point Invests in U.K. Indie

    Great Point Invests in U.K. Indie Producer Seven Seas (EXCLUSIVE)

    U.K.-based Great Point has bought into Seven Seas Films, the British indie producer that recently teamed with BBC Studios for a drama series about the final months of Marilyn Monroe. Great Point has a new “enterprise investment scheme” fund, Great Point Ventures, and is primed to invest in several more film and TV producers in [...]

  • Outlander Season 4 Finale

    What CBS' Pursuit of Starz Means for CBS, Lionsgate

    CBS’ effort to buy pay TV service Starz from Lionsgate seems on the surface to be a head scratcher. CBS has told Wall Street for years that it has prospered because it brings only two must-have services to the table in negotiations with MVPDs, allowing the Eye to drive a hard bargain. Why would CBS [...]

  • Doha Film Institute Steps Up Documentaries

    Doha Film Institute Steps Up Documentaries and TV Series Grants

    The Doha Film Institute, which is at Cannes as a co-financier of Elia Suleiman’s competition entry “It Must Be Heaven,” has announced the 37 projects receiving its Spring Grants, roughly half of them to be directed by women. The latest batch of mostly Arabic fare set to tap into support from the DFI, a key [...]

More From Our Brands

Access exclusive content