Well, that was a short-lived experiment. T-Mobile US‘s (NASDAQ:TMUS) low-cost streaming cable TV service TVision, just launched in October, is shutting down at the end of the month. The wireless un-carrier is instead steering customers to Alphabet‘s (NASDAQ:GOOGL) (NASDAQ:GOOG) YouTube TV or a similar-but-smaller virtual cable brand called Philo, offering an exclusive discount on both.
It’s clearly a failure for T-Mobile, which touted its television plans for years leading up to 2020’s big reveal. Shareholders aren’t losing anything because they never actually benefited from the company’s cable efforts. Still, it’s a lost opportunity that cost a little money and burned a lot of time and energy.
There’s more to the story for investors than just T-Mobile’s TV flop, however. The decision underscores four stark realities about the entire virtual multichannel video programming distributor (or vMVPD) movement that investors need to understand.
1. The skinny bundle just isn’t all that appealing
When the term “skinny bundle” began circulating in earnest just a few years ago, investors were buzzing while cable companies were sweating. Consumers didn’t watch all of the cable television programming being piped into their homes, but were paying for them anyway. A platform willing to charge less just for the channels people were watching posed a serious threat to the cable television industry.
However, given the modest amount of interest in TVision’s slimmed-down live TV bundle priced at $40 per month — and its even skinnier lifestyle-oriented platform VIBE — pricing may not be the issue after all.
We’ve certainly seen other hints of this possibility. DISH Network‘s (NASDAQ:DISH) similarly skinny streaming cable service Sling TV costs a comparable $35 per month, and its subscriber base is leveling off now that so many a la carte streaming options are available. Conversely, YouTube TV and rival vMVPD outfit fuboTV (NYSE:FUBO) both continue to pick up customers with virtual cable services starting out at $65 per month, which is near the price traditional cable customers are paying.
2. Promotional partners are critical
While fuboTV and Philo have managed to grow roots without much third-party help, they’re the exception to the norm. Aside from Alphabet using YouTube’s reach to help promote YouTube TV, telecom giant Verizon (NYSE:VZ) also sells Alphabet’s cable brand — even pitting it against its own products. Ditto for broadband outfit Windstream. And why not? YouTube is a trusted brand name, and such partnerships punt the inherent risk of competing in the cable race.
Whatever the rationale, it’s working. YouTube is now the biggest vMVPD with over 3 million paying subscribers, while TVision’s complete lack of promotional partnerships may have set the stage for its quick demise.
3. Scale is needed
We don’t know the number of consumers who signed up for any TVision service over the course of the past few months, but clearly, some were compelled to do so. Just as clearly, though, not enough signed on soon enough to indicate there would ever be enough to justify maintaining the service.
Ultimately, though, the closure of TVision reflects a key challenge for any company breaking into the vMVPD market with a uniquely packaged product. That is, TV and film production outfits still wield a great deal of control in terms of how their content is bundled.
Discovery Communications (NASDAQ:DISCA), which also owns channels like HGTV and Animal Planet, was one of the first to cry foul at TVision’s super-cheap bundles, pointing out that its distribution agreements with TV service providers require all of its content to be made available through all tiers of service. Comcast‘s NBCUniversal and ViacomCBS were both reportedly prepared to lodge the same complaint.
More scale could have helped T-Mobile tackle this hurdle, but the company just didn’t have it.
4. Name-branding is important
Finally, while T-Mobile is a respected name in the mobile phone market, it’s not an established television name. YouTube wasn’t either at first, to be fair, but it’s had years to work its way into people’s living rooms. YouTube’s chief product officer Neal Mohan noted that in the final month of last year, “over 120 million people in the U.S. streamed YouTube or YouTube TV on their TV screens.” And eMarketer estimates that 34.4% of YouTube’s total views in the third quarter of 2020 were made via a connected television, up from 12.2% just three years earlier, thanks to steady growth on this front.
YouTube is already well-positioned as a TV brand, even if an unconventional one. T-Mobile wasn’t.
Winners and losers
It’s not terribly difficult to pinpoint the winners and losers of T-Mobile’s decision. T-Mobile loses, while YouTube TV and Philo win.
T-Mobile’s loss isn’t just a missed opportunity to break into the cable TV business, however. Indeed, given the industry’s current struggle, the wireless name may be better off not being in the business. The real blow is the loss of TVision as a means of attracting and retaining wireless customers, in the same way AT&T is leveraging its nascent streaming service HBO Max.
Another big blow is the $325 million T-Mobile shelled out to acquire Layer3 TV in 2018, which was made for the purpose of getting the company into the cable game. Now that investment is effectively worthless.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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