Virtual MVPDs Were Supposed to Help Save the TV Industry—What Went Wrong?

Adoption rates remain low, and services keep raising prices

potted plants with the pots labeled hulu, sling and other telecom services
vMVPDs like Sling, Hulu and AT&T TV Now aren't growing as fast as the industry had hoped. Getty Images, Sling, Hulu, AT&T, Playstation

Key Insights:

In mid-November, Hulu + Live TV became the latest live TV streaming service to hike its prices. Hulu’s live television offering, which came onto the market at $40 a month in 2017 and jumped to $45 in January, now costs consumers another $10 more every month, an increase that Hulu said was necessary to keep offering the service.

The price hike comes at a complicated moment for services that offer live and on-demand television programming to customers over the internet. Just a few years ago, these virtual multichannel video programming distributors—known as virtual MVPDs, or vMVPDs—were thought of as a saving grace for a television industry that had become hobbled by cord-cutting U.S. consumers. Upon unveiling AT&T’s vMVPD in November 2016—then called DirecTV Now and now known as AT&T TV Now—John Stankey (who was then CEO of AT&T Entertainment Group and is now WarnerMedia CEO) said the service would be “the foundation of how we’re going to do things in the future.”

Three years later, however, vMVPDs haven’t exactly met the industry’s lofty expectations. In a note to investors in November, the media research firm MoffettNathanson wrote that “the wheels are already falling off the vMVPD model,” noting that the rate of people dropping traditional pay TV subscriptions compared to those signing up for vMVPD services has fallen to an estimated 40% in the last 12 months.

In November, about 6.1% of Nielsen-paneled households had virtual MVPD services, Nielsen told Adweek, up 2 percentage points from January 2019. Comscore estimated that about 7.7 million households had vMVPD services by the end of last year. The biggest vMVPDs on the market, Sling TV and Hulu + Live TV, have about 2.7 million subscribers each.

“There were a lot of expectations and predictions that [vMVPDs] were going to have a hockey stick adoption rate that really just did not transpire,” said Brian Fuhrer, svp of product leadership at Nielsen. “You would think that people would have adopted it really quickly, but it’s been a little bit slower than people anticipated.”

Overall, MofettNathanson said in its investors note, vMVPD adoption rates haven’t been nearly enough to offset deep losses in the cable industry. “The vMVPD model that simply reproduces the familiar cable network model online,” said the note, “isn’t proving to be the answer customers were looking for.”

There are a few reasons why vMVPDs have been slow to get off the ground.

Fees for distribution and carriage rights add up

MVPDs operate primarily as the digital version of cable or satellite providers, offering up broadcast and cable channels to customers over an internet connection instead of requiring hardware like a set-top box or satellite dish. And like traditional MVPDs, virtual pay TV services have had to negotiate costly distribution and carriage rights.

Those skyrocketing costs have proven to be a business challenge that has already led to one vMVPD casualty. A month ago, Sony’s live television streaming service PlayStation Vue, which debuted in March 2015, notified customers that it would shut down at the end of January. In a blog post, Sony Interactive Entertainment president John Kodera said the service would shutter because of a challenging business climate: “Unfortunately, the highly competitive Pay TV industry, with expensive content and network deals, has been slower to change than we expected.”

The other vMVPD services, many of which were initially priced at well below $50 a month, have also raised their prices—sometimes repeatedly. In addition to Hulu + Live TV, vMVPDs like AT&T TV Now, FuboTV, Philo, Sling and YouTube TV have all raised their prices within the last two years. The base plan of AT&T TV Now, previously known as DirecTV Now, presently costs $65 a month, a hike of more than 85% compared to its original $35-a-month price tag. (AT&T CEO Randall Stephenson said those price hikes were necessary to position the service “to where it’s profitable.”)

That’s a far cry from the $30-$35 a month services that dominated the vMVPD market only a few years ago. And as prices go up, it may be harder for vMVPDs to continue to attract new customers.

“When you saw a lot of these services launch initially, they actually provided a pretty considerable value to consumers as compared to traditional pay TV,” said Sean Buckley, chief revenue officer of the video ad platform SpotX. “As the focus has moved from subscriber growth to profitability, though, they’ve started to raise their prices, and that inherently erodes the value proposition.”

Increased competition from VOD services

There are other business realities that may dampen growth in the vMVPD space. Heavily funded video-on-demand services like Apple TV+, Disney+, HBO Max and Peacock continue to enter an already crowded streaming space, and as time spent streaming over-the-top video goes up, most of it is going to VOD.

About 80% of time spent on OTT streaming went to Netflix, YouTube, Hulu and Amazon Video, while only 6% went to virtual MVPD services, according to August figures from Comscore. (Comscore did not calculate how much time spent on Hulu and YouTube accounted for their vMVPD businesses in its figures.)

There are some vMVPD bright spots, however. Even though prices have gone up, virtual MVPDs are still cheaper than most cable bundles, and the technology required to deliver good viewing experiences has improved so that the viewing experience is comparable to linear, said Bill Demas, the CEO of the streaming media intelligence and analytics company Conviva.

“Video-on-demand is the primary use case of streaming, but I believe that’s going to change,” Demas said. “If the world is moving away from linear TV to streaming, that means the content is also going to have to follow suit.”

One of those content offerings includes live sports, which offers one of the strongest use cases for both MVPDs and virtual MVPDs. That’s likely why Hulu has built an entire campaign around it and why smaller vMVPD services like fuboTV and DAZN have targeted sports fans with their offerings.

But that doesn’t mean it’s necessarily a foolproof solution. Amazon’s interest in streaming the NFL’s Thursday Night Football games for its Prime Video customers may be a sign of things to come, said Scott Worthem, svp of strategic partnerships at Comscore.

“That proves that you don’t need to be a live TV service to show sporting events,” Worthem said of the Amazon deal. “I think it’s a defensible position right now and for the next several years, but 10 years from now I see sports being available on many platforms.”

With that said, some industry watchers say they won’t be surprised if other vMVPDs go the way of Playstation Vue.

“Like with any business, there will be some shakeout,” Worthem said. “There will be some services that cannot make it.”

@kelseymsutton Kelsey Sutton is the streaming editor at Adweek, where she covers the business of streaming television.