We're obsessed with broadband and streaming at home. Now what?

Cord cutting,cord shaving, cord hybridizing. There are so many concepts out there and everyone thinks they know which way things are going. And they also are trying to guess how those directions are changing right now, during the pandemic that's created both economic hardships, reexamination of how we're spending our money and a whole lot more time. In our homes, in front of those media choices, there's a lot of cogs that are turning now what Bruce Leichtman is here. He is the head of the Leichtman Research Group an organization that I've always paid attention to whenever I see his quotes, his data his, newsletters one of the first ones I open when it lands in my inbox. He was really clear, concise, to the point research into the area of streaming television broadband, that intersection of where we all focus on entertainment right now. And Bruce, I want to start with this idea of a glossary for our viewers. There's so much jargon that you know, so well. I want to make sure everyone knows what we're talking about. Lightening around, MVPD what is that? It's multichannel video producted distribution. [LAUGH] I don't even know the writers exactly. It's when we think of the MVPD, that's kind of the SCC term. It's cable satellite, telco traditional pay TV service, okay and then a VMVPT is what is a virtual. So what that is is an internet delivered pay TV service that is Sling TV, Hulu Plus live TV, YouTube TV ATNT TV Now, those are the VMPDs. In this point, it's important to note, Brian, that these are part of the pay TV industry. They're not a adjunct to it. They're part of it. It's just like cricket. Is a mobile phone service or boost or Metro, their mobile phone services and in many cases their flanker brands of existing services like cricket is AT&T or Metro is T mobile. And that's it. To a large degree, what vmvpds are That's a good point cuz so often these were seen as a completely different animal, some other industry that's coming into encroach Well, they often come from the traditional brands You know, five years ago when sling launched if somebody wanted to feel that they were cutting the cord and feel great about that they could do it, but it's five years since then. So I think this idea of sticking it to the man [LAUGH] And cutting the cord It is really not there anymore. People are just making a decision that works for their household. Yeah, we're kind of often sticking it do one pocket of the man but we're taking the money from the other pocket of the man. It's not so much that we're leaving. Although once we get to the Amazons and the Netflix, that's when you have moved to a different camp. It's not an either or, in fact, the majority of households get both a pay TV service At least one s VOD service, pay TV, both because of consumers having other options, but also providers are now being much more disciplined in who they're going after they're looking for profitable subscribers. So when we look at 2019, what we saw was about five. 5 million losses for the major pay TV providers. Keep in mind, one company, AT&T had over 80% of them because they took the industry and said, We're going after The profitability. And they increased their revenue per subscriber from $112 to $130 in two years. So while they lost 50% of their subscribers over the last year, their revenue only dropped by 4%. In the industry terms, they're not chasing subs the way they used to chase subs. And everybody has different priorities keep in mind what we call cable providers. Are not broadband providers. Their main business, their main source of revenue of earnings is broadband so when we look when we look at the industry it is not the traditional pay TV business is not as much a priority for them. As it used to be, I think you have to look at it in a nuanced way. I mean the other way we see it is when you look at losses by company if the percentage of losses were all the same we could say, it's all about consumer demand. But when we look at the percentage of losses by company, it's completely different by company and its really related to their strategies. So some of the major cable companies are really bundling companies. So a Comcast charter and all t 's. They are broadband companies first, but they care about the bundle. But for at&t, they had a profound impact on the pay TV industry in 2019. because there's change in looking at profitable subscribers. As you look at the number of these premium services out there that are either vMVPDs or they are SVOD services, there's an awful lot of amount there. We are at peak new service right now. can't imagine there's any more majors coming. We know there are not all going to make it What do you think are going to be some of the factors that start to drive who is left when the dust settles? Well, they all come from different perspectives. So when I went in there, one of the acronyms we didn't talk about with DTC which is direct to consumer. So when I look at SVOD, I'm particularly looking at Netflix, Hulu and amazon prime video. Then you have all these other DTC services that now include Disney plus and ESPN plus and CBS all access and what have you. And then you've got the premium services. Traditional premiums like HBO NOW and Showtime and Stars and Epics. So one interesting thing from a survey we just did. This was an online survey and 76% of households in our online survey had one of the three SVOD services, Netflix, Hulu, or Prime. When we added Disney plus they were already at 30% 31%. In our survey in February, yeah in mind, they started in mid November. That added only 1% that we added. So adding Disney plus to the three s VOD services went from 76 to 77. When you add When you add in six other direct-to-consumer Internet delivered services, it only adds two more percent. I never talk about these SVOD services as subscribers. When I look at the numbers, I always say, half Because not everybody who has Netflix is subscribing to it. There is a lot of passport sharing out there. And that one of the challenges of all of these businesses. As you have mentioned that I thought maybe you were gonna go the direction of saying you don't call them subscribers because it's so easy to leave these services unlike traditional cable. That also a factor right? Sure no barrier to entry means no very DAGs. And generally what we've seen over time is that low cost actually equals high churn, that the lower the cost the service, the higher the churn, because if people get something because it's low cost, then they'll just go to the next one and go the next one. And that's why established services have Kind of avoided going just on a cost basis because you know what you're getting R. if you're going at that angle what every company in the industry has to look at whether ask your do your pay TV is what is the glue? What holds consumers there? And for cable one of the pieces of glue has always been the bond On the bundle between broadband and pay TV, and phone, and our mobile phone that's always been glue. When we look at you know Disney plus they have glue and annual pricing or or combinations with with Hulu And ESPN. Netflix is glue is the product right? Netflix is glue is more and more content and that's what everybody's looking at. What is the glue what is going to make people stay? Because you're right you can leave at any time you see that bill either in the mail on your credit card you can say okay that's the way I can save money. The question I get a lot about Netflix especially from those that are in the advertising business Is there waiting for the other shoe to drop that Netflix is gonna have some pressure of some kind, that's gonna make them need to take advertising and offer a new advertising supported lower cost tier. Do you buy into that theory or you think they don't need to? I think they're need to do it. Just extend it out a little bit. You know, if you've looked at the irrational exuberance in their stock price over the last week, all time high now, the base in in domestically is getting tighter. And that's why, you know, when you look at what they talk about, it's so much about international and that's much more Greenfield opportunity to me. Internationally than domestically. Certainly they have this base of 16 million nationwide in the US. Ultimately, how do you profit from that? I don't think they need to do it as long as their price keeps running up. Eventually it's at least the opportunity of putting pre roll advertising is something that's there. Let me ask you about two of the newer entrants as of today we're taping today on the 16th of April, kwibi is still fresh on the market. Peacock is in a pre launch, I understand and may move up its full launch. At least that's some of the rumors out there. What do you think of these two that are launching into the jaws of historical economic pain in American household and yet they decided to go into it instead of wait and get to the other side of it. What do you think was going on there? Yeah well what we have to look at these services, not just the SVOD and DTC services but the vMVPDs, is as a revenue model itself, they're all challenging models. Even Netflix's model is a challenging model, but Netflix kind of showed the valuation of it. So you have to look at the different purposes. Peacock at its core, is designed to add value to Comcast. Peacock is NBCUniversal, NBCUnviersal is Comcast. The real Initial goal of that is to add value to Comcast broadband offering to their 28.6 million broadband subscribers and growing and that's the real purpose of it. Kwibi is a completely different story. So Kwibi is a a venture capital backed service. It's launching a unique time. Not only because the coronavirus but relatedly with everybody in the home. So [INAUDIBLE] is a mobile phone video service only to mobile phones and even if they ve launched Two months ago, the challenge of what is going on is more and more internet delivered video is watched on the TV set. So in our consumer research, what we see is 90% of Netflix subscribers say that they watch it on the TV set. That's the same for Holo, that's the same for Prime Video. It's in the home on the TV set. I think that the Quibi concept is more of a on the go type of thing. So, Yeah. when people not on the go, that obviously challenges The model, but It's a long run strategy. Again, it's a startup. So, it's as much about in many ways, like many startups. It's about being acquired as it is about building a consumer base. Keep in mind, they're launching at free for 90 days. That's right. So that allows Consumers to give me the trial, see if this is something I want. Now paying is whole nother paradigm. Lastly, I wanna ask you Bruce. I know you're not a mobile telecomm guy, but seeing 5G as a future way to deliver broadband to homes, leaving out the mobile part that everyone thinks of first, do you think, in your consumer research, people are Open to or hungry for another broadband ISP, another method to get their broadband or will they need to be kind of sold on that aspect of 5G? I think they're receptive to a competitor. I mean, I think that's one of the challenges that. In most places in America, consumers only have two offerings, and two thirds of people are choosing the cable offering. And that's why in many cases People don't like their company because they feel like it's a monopoly. And in many cases, when we look at satisfaction levels, it's about choice that people want to feel like they have a choice. But what's often misunderstood is these are the companies that wired America and the reason why you don't see multiple providers is Because it's a very expensive proposition to do that to wire America. So the idea of a competitor cert, certainly people are intrigued by that. But then you run into the challenges, that's kind of the base. Then you see, does it work? What's the cost? What does it mean to what do I have to give up because consumer nurses a powerful marketing weapon, and this is where the bundle comes into place. If it tears apart the bundle then it has challenges. It also depends on where you live. I live in a more rural area in New Hampshire. The likelihood is not going to get there as quickly. [LAUGH] Yeah, you may [INAUDIBLE] well. [LAUGH] It's going to be different. In all areas, there is a receptivity, obviously to any competitor. But there's also that degree of a nurse and one thing that has happened during during this time of staying at home is the broadband networks have actually performed pretty well. Yeah, they have, it's surprising. I think a lot of us thought our broadband networks were going to sag. We thought, boy, here we go, we're all gonna go home, have more time to use broadband entertainment and be doing our jobs typically via broadband video connections like this. And now anecdotally, again, I'm not hearing that there's a collapse out there, not even on mobile No, most everything has been positive. And the other, going back to where we started, Brian, from a consumer standpoint, everything is up, everything is up. That means streaming, more time spent streaming, more time spent watching on demand, more time spent watching live TV. Even without sports, more spent time on talking on mobile phones, Yeah Or spent time talking on landline phones. So with all this time at home, people are doing more of everything right now. And that gives all these different players we've talked about in this alphabet soup a whole lot more inputs. To work with as they continue to adjust their model and what was already gonna be a year of change. Absolutely. But we also, we can't just count the economic challenges. I think the the unemployment in the last three weeks, four weeks is now up to 22 million. Unemployment Claims. So, you know, willingness to pay, ability to pay becomes a major factor in many households. And I think that's the way everybody looks at it as what works for their household. I tried to coin the term cord, cobbling and it never and never took hold. I wonder why. But that's really when it's not as cool a term. And you can't have a scissors cutting. Or maybe you have a peach cobbler or something. Yeah, well, yeah. What was the graphic look like? right? Exactly. Everybody has their own their own cobbler. But really that's what people do. They cobbled together and experience [UNKNOWN] that works for them. Bruce Liesman is principal of Liesman Research Group. You can find him at liesmanresearch.com. [MUSIC] [BLANK_AUDIO]