@teganslaw wrote:
So all the people who are "cutting the cord", it's their fault that we have all the streaming services. (j/k, maybe.)
Networks have to make money somehow.
@teganslaw
This is very long---but this is a transcript of a podcast that discussed it all....the cord cutting and where it will go from here...and how it may be losing its relavance in the future as all these streaming channels cannibalize themselves and only the strong survive with increased pricing...
Daniel Kline and Associates July 17, 2020....
Kline: It's happened. But we're going to talk about the more intentional cord-cutting, and wow, have those numbers sped up -- 2 million people in the last quarter, which is just stunning to me.
Kline: Cord cutting is getting rid of the traditional cable bundle, the live channels, it's usually $100 to $200. You're paying somewhere between $99 and $200-plus, depending on what you have.
Flippen: [laughs] Well, the reason why I wanted to have this conversation today is because last week, we had news that YouTube TV would be increasing its monthly subscription price to $65/month, because -- wait for it -- they were expanding the programming [laughs] and offerings as part of their product, throwing back to the reminiscent days of your cable product [price] going up as they expanded new programming. So, there was, obviously, a really large amount of backlash from these cord-cutters, because the whole reason why people subscribed to services like YouTube TV, was because they didn't want to pay for channels and subscriptions that they didn't use.
And I know you've made the argument, Dan, that you think the state of cord-cutting as it exists today is going to dramatically change or already has changed. So, what do you make of this?
Kline: Well, you have a problem: People want their cake and they want to eat it too, and then they want another cake delivered, [laughs] you know, and that all to be included. The problem is, if you want to have a skinny bundle, which is what YouTube TV was first promised to be, you're going to have to give up some channels or you're going to have to pay more money per channel. In a truly a la carte world, you're going to pay a lot more, because let's think of it now. I mentioned Cooking Channel before, Emily, I don't know if you watch Cooking Channel, but I'm going to guess we both watch -- I don't know if you have cable even, but Animal Planet, if you had cable, is something you might watch. There's a show there called Too Cute! that's just kittens. And I feel like you'd enjoy that show -- we're both cat people.
You and I, if you had cable, which I don't think you do, we each pay maybe $0.02 [a month] to get Animal Planet. But you pay it whether you want Animal Planet or you don't. When you get rid of tens of millions of people from paying that $0.02, and you say, OK, Emily, you really want Animal Planet, a la carte on Sling TV or YouTube TV, you want to add that to your subscription? Okay, it's $6.99 a month. And that's the problem. Now, that's not a channel that's available a la carte, but a lot of channels are. And if you take away this, sort of, communist system where we all support each other's weird likes -- like, my wife likes to watch true crime dramas. I don't understand that at all. But whoever else has cable is paying their fraction of a cent so she can get Court TV or whatever channel it is that she's watching. That world is crumbling.
As cable lost about 5 million people last year, it's about double that number since cord-cutting started, and it's only getting worse. That's going to make some of these lesser channels that have their fan bases less viable. And some of them, look, the Food Network and Cooking Channel might be able to make up that revenue via an app, via selling content other ways, maybe via charging you for a $9.99 subscription that comes with some special stuff, and they'll get half a million subscribers in addition to their cable base, and that will help prop them up. But a lot of channels? I don't know. Like, I might flip by and watch something on MTV, but I'm not going to pay for MTV. You know, I have Sling TV, which is really the only true skinny bundle, mass-market product, and it's $35 for 35 channels. I can add other channel bundles, but on a per-channel cost, they're pretty high.
So, we kind of have a devil's bargain here. We all wanted lower cable bills. In exchange for lower cable bills, we're going to get a lot less, and when you get a lot less, sometimes you're going to miss what you don't have, even if it's something you only watched occasionally.
Flippen: What's really interesting is, the reason why we saw a move toward cord-cutting was because prices were, you could say, getting out of hand and people wanted a cheaper alternative in the era of streaming services like Netflix. But to your point, if you start buying things a la carte, that really, dramatically increases the amount of money that you pay for your entertainment services, whether that's subscribing to YouTube TV or subscribing to Sling. So, is the future of cord-cutting actually [laughs] just more expensive than cable ever was?
Kline: More expensive and less convenient for some people. So, think of it this way. So, I have Sling, I have Netflix, I have HBO Max because I have HBO, I have WWE Network. And some of those I can watch in one interface on my TiVo device, but I only have one of those. So, if I am using my Roku device or my Amazon device, and I want to switch from Sling to Netflix, I have to switch services, and that actually takes time. So, I'm paying individually for each of those services, and it's not that fun to flip around.
And, yeah, if you get YouTube TV and layer that with a bunch of different streaming services, you could take yourself above the $110 average cable bill. Now, are you going to take yourself to the cable extremist who is paying $185, $200, probably not, but there are more streaming services coming. Peacock launches this week. Well, that's [$5 a month], if you want the [full] advertising-supported service.
And look -- nothing is going to get cheaper. Netflix isn't going to come around and say "we're lowering prices." You can bet that every few years, everybody is going to raise prices. That may well no longer happen with cable because they simply might not be able to. So, you might see a point where to get everything you want, especially in say, a family of four -- I'm in a family of three, and we all watch different things. I don't particularly watch Netflix; I could get rid of Netflix and not be that upset about it. My wife would stab me in my sleep, she wouldn't literally do that -- that's an expression, but she likes Netflix, she watches a lot of shows without me on Netflix. She probably doesn't even know we have WWE Network or DC Universe. We have different tastes in things.
So, this is one of those scenarios where absolutely cost could get out of control. You know, if you order a sushi meal, that's going to fill you up. If you order a la carte sushi, that gets expensive really fast.
Flippen: You kind of pitched two concepts here, one being that streaming services are going to get more expensive. And I can see that as a really compelling argument. As their cost structure increases from the original programming, but also just as they get more scale, they get a little bit of pricing power with their audience. But the flip side of that is, if there are more streaming services, doesn't that mean that competition heats up, and shouldn't that lower prices? Do prices for streaming services really go up from here?
Kline: I think they do for the winners. Look, do I think Netflix is going to raise its price by $5 next year? No. Do I think they'll say, 18 months out, "we're going up a $1"? Yes. Do I think Disney+ is not charging enough? They're not charging enough. And I think there will be a scenario where Disney+ says, "Hey, we had this new Star Wars thing and we were going to release it this way, but now we're just going to bring it to Disney+, but by the way, our prices are going up to $8.99, you know, if you don't join now." It would only be $7.99, if you join now, instead of the $6.99 people are currently paying. I think $9.99 is not a difficult price ceiling for something that has that. So, I think they have a lot of ability to go up.
If Netflix went to $19.99 and you're a big fan of it, I don't think that matters, but it might mean you get rid of CBS All Access or something else you're paying for. I really think this is going to be a market where the winners win big, the niche players might do OK. I think if ESPN came out with, you know, you can get the SEC Network for $2.99 a month. Well, if you're a fan of the SEC, you're probably going to do that, so.
But the mid-tier players, like, I worry a lot about HBO Max. When was the last time HBO had a big hit? I worry about Peacock, because what's on that platform that you care about? And people say, "Oh, well, The Office." Nobody is subscribing to something so they can get F.R.I.E.N.D.S. episodes or The Big Bang Theory.
So, I am very confident that the winners will win. And there might be three winners, it might not just be Netflix and Disney+, but it's not going to be five winners, would be my guess. We haven't even talked about ESPN+. ESPN+ isn't ESPN streaming.
Overall, the concept of streaming TV, it has more players but it didn't grow in the last quarter. So I'm not sure there's this giant audience of people out there that want less cable, but still cable, but no local channels, but in some places, local channels, and you pay a lot more for that. It's very confusing, and I do think that's going to help cable for the next couple of years. I don't know where the bottom is, I don't know that the bottom for cable is zero. It might be, I think they're in about 87 million homes now; it might be 70 million, it might be 40 million. It's really hard to know those numbers.
Flippen: And to bring this back to YouTube TV, part of the reason why they justified increasing their price to $65 a month is they did a direct price comparison between YouTube TV versus alternatives, and they estimated that if you pay for Hulu plus live TV, that would cost about $65 a month, and if you paid, for what they call, traditional services, which are your traditional cable bundles, then you're paying somewhere, on average, around $110 a month. And that was their justification for increasing their price to $65 a month, seemingly unaware of everything you just mentioned, Dan, which is that people do not subscribe to only YouTube TV, right? That's not their only streaming service. They're likely paying for other streaming services as well, which push them above that traditional cable bundle.
With that in mind, and with everything that we've talked about, is the future just cable? I mean, you said that cable numbers are dropping, but at this point, the whole reason why people started cutting the cord was because they didn't like expensive contracts and everything was too pricey for what they were getting. If streaming services are getting more expensive and content is being distributed across numerous channels, aren't the aggregators, the cable networks, the ones that win in the end?
Kline: So, I think you might see a period where families recognize, especially if they have different age kids and a couple that have differing tastes, that they're spending so much money to get everything they want, that they'd be better off just paying for cable.
I think you're going to find people making the choice of, do I want some version of cable? That's the best way to get local channels. You can get them through YouTube Live. You can't get them in most cases through Sling TV -- there are a couple of exceptions in a few markets. But you're paying for that. Now, if I have to pay $70 for something that's not as good a viewing experience as traditional cable, and I could get cable for $109, I might get cable and Netflix and call it a day. I think there are large groups of people who are doing that. You might see the return of people who are doing that, or maybe they have cable and Disney+, depending on the age of the kids.
Does it cut into my justification for having a cable bundle? It does. But it also cuts into my justification for Sling TV or whatever service I was buying based on which one had the channels we like the most. This is going to be a universe that cannibalizes itself.
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