(Image credit: T-Mobile)
By 
Source: www.nexttv.com, April 2021

Why T-Mobile’s smart pivot still doesn’t paper over the bigger problems facing the vMPVD business

Remember way back in around 2017 or so, how skinny bundles were supposed to be the cure to a mildly concerning phenomenon called cord cutting? They were going to provide a cheaper, slimmer online version of the traditional cable bundle, and it seemed like a smart way to keep a relationship with increasingly disaffected customers, paying something for traditional “TV.”

Virtual MVPDs, as the industry awkwardly calls them, even held the promise of offering new kinds of TV programming bundles, better targeted to specific niches of viewers, like those who loved lifestyle and reality shows but didn’t care about sports.

So how’s that going these days? The question arose again this past week, after T-Mobile summarily shuttered its five-month-old skinny bundles, collectively called T-Vision, and swapped in partnerships with two incumbents, Philo and YouTube TV.

One can’t help wondering what new CEO Mike Sievert’s brain trust was thinking as they prepared to launch T-Vision last year. Days after launch, media partners roasted the wireless carrier over which tier their networks got position, with conglomerates like Discovery unhappy with confined of their channels to the $10-a-month “Vice” tier.

T-Mobile backed off quickly, but that unforced error called into question the venture’s economics, and whether T-Mobile even knew how to run a TV service.

That was certainly a good question to ask regardless. It’s not like wireless carriers have had unbridled success running content services and aggregators. Just look at Verizon’s ill-fated forays with Go90, AOL, Yahoo, Huffington Post and Tumblr.

Similarly, AT&T just unwound part of its ill-fated $49 billion acquisition of satellite service DirecTV, selling a minority stake to TPG at a  sharply discounted enterprise valuation of just $16 billion. Presiding over a two-thirds plunge in value in less than six years is some kind of achievement, but not one you’d think anyone wants to replicate.

Of course, we’re still waiting to see how the $85 billion Time Warner deal works out for AT&T. HBO Max had a crummy launch last year, further complicated by the early days of the pandemic, but seems to be finding its feet.

But it may take years before HBO Max makes money. In the meantime, AT&T must keep building out an extraordinarily expensive 5G wireless network while paying down $150 billion in debt.

So, the best thing to say about TVision is that T-Mobile quickly killed off a bad idea, and signed deals to offer discounted services from two companies that actually know what they’re doing.

The YouTube TV deal expands an existing relationship with Google, knitting T-Mobile further in with one of the world’s largest advertising and technology companies.

The Philo deal is new, sending bargain-hunting customers to a small, smart and nimble indie that’s kept its main tier trim and affordable, just like what skinny bundles originally were supposed to be.

But T-Mobile’s smart pivot still doesn’t paper over the bigger problems facing the skinny bundle business.

Cord cutting accelerated during the pandemic, plunging pay-TV household penetration rates to 1990s levels. And that plunge accelerated despite the addition of several million skinny bundle subscribers. Advertisers followed eyeballs, especially on in-app advertising on connected TVs, according to new figures from Google.

Those aren’t good trends for the future of traditional TV, even virtual versions of it.

As analysts LightShed Partners pointed out in a January post, “Unless there is an ulterior motive to your vMVPD ambitions (such as YouTube TV’s goal of bringing more ad buyers into the YouTube ecosystem or Hulu Live’s goal of inflating ESPN’s subscriber base), it is increasingly clear that a standalone vMVPD is simply a bad business.”

To begin with, any chance of rebuilding the channel bundle from scratch—that long-ago dream—is now largely gone. Big media companies have used their leverage through broadcast retransmission agreements and the most sought-after cable networks to force vMVPDs to look more like MVPDs, with all the lesser channels most audiences don’t care about.

Worse, prices are creeping up, undercutting skinny bundles’ other main attraction. Networks keep raising prices, and service providers can’t afford not to pass along the costs to consumers.

Prices for the leading services now sit around $65 a month, with largely similar collections of channels. Worse, for the services that feature some sports networks (none have all of them), prices are about to get a lot higher as new rights deals roll in.

The lone exception is Philo. As LightShed suggested, the company “has stuck to its unique offering of general entertainment networks, without any expensive sports networks (no retrans, no national or regional sports networks) at a $20/month price point.”

But the discipline shown by Philo’s operators is uncommon. Most of Philo’s competitors have been force-fed a fattening, expensive diet of unnecessary channels, made worse by those sports programming costs.

And all of this is happening amid the greatest threat to all MVPDs, traditional or virtual: the flight of the best content from networks on the traditional bundle to streaming apps owned by the same companies or their big tech competition.

Netflix this week signed a whopping $450 million deal for two sequels to the hugely successful Knives Out film from last year. Apple paid a record amount for Sundance darling CODA two months ago. Amazon has been splashing large checks around too.

And as competition hits new levels, NBCUniversal may pull its licensed shows on Netflix and HBO Max early, to put them on Peacock, Bloomberg reported.

That potential move suggests the urgency with which media companies are moving to get distinctive, differentiating shows onto their own streaming services, rather than just counting the easy money of licensing revenue.

If companies are willing to do that to lucrative deals with outside partners, think how aggressively they’re likely to be harvesting the most attractive shows from within their own corporate families.

And more generally, that’s the long-term challenge of the now-mesomorphic bundles amid a step change in the ways we watch television. The literal bottom line:  If big streamers are giving you more high-level shows, with more flexibility and roughly the same price or less, why would you bother with a skinny—or even a pudgy— bundle at all?