T-Mobile Is Willing to Pay to Bundle TV

A little over three years ago, T-Mobile (NASDAQ:TMUS) spent $325 million to acquire Layer 3. In the years that followed, it relaunched the pay-TV service … and then relaunched it again. Now, it seems to be throwing in the towel: T-Mobile has announced plans to shutter its TVision streaming service at the end of April. 

But T-Mobile hasn’t given up on the idea of bundling a pay-TV service of some kind with its cell phone service. It’s partnering with a pair of providers — Philo, and Alphabet‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube — to offer similar services at similar prices to its customers as it did with TVision.

Ultimately, T-Mobile is looking to reap the sorts of benefits that similar bundles deliver to AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA).

TVision. Image source: T-Mobile.

It’s hard to make money on pay-TV

The pay-TV industry continues to shed subscribers steadily as the prices of its bundles creep higher and higher. Distributors can only do so much to control those prices, however. Consolidation in the media industry has allowed the companies that own networks to require distributors to package more of those networks into their bundles and to pay more per month for each one. Ultimately, that only feeds into the vicious cycle of cord-cutting, but the big media companies have mostly pivoted to direct-to-consumer streaming services at this point.

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During T-Mobile’s March investor day, CEO Mike Sievert described the TVision service as “an initiative to help us sell home broadband and serve customers.” In other words, the telecommunications giant had entered the market with its eyes open and was merely hoping to break even on the video service while using it to improve its customer addition and retention rates.

Sievert’s comments echoed what Comcast CEO Brian Roberts said at a conference in September. Video’s role at Comcast, the largest pay-TV distributor in the U.S., is to improve customer lifetime value. Whether that’s through the big cable bundle or through a streaming platform, Comcast doesn’t care. 

The challenge that T-Mobile ran into is that it didn’t have any advantages that would allow it to offer a compelling video product to its subscribers. When it launched TVision last year, I noted that the most interesting package was TVision Vibe, a $10 per month collection of entertainment networks. But T-Mobile quickly learned it had run afoul of its contracts with certain media companies, and it had to pull Vibe as a stand-alone offering, thus eliminating its lone point of differentiation.

Can partnerships provide a solution?

T-Mobile’s decision to drop TVision and switch to a partnership model holds a lot of potential. It’s subsidizing $10 per month for customers who want to subscribe to either Philo or YouTube TV through the wireless carrier. That drops the prices for the consumer to $10 per month for Philo or $55 per month for YouTube TV for their base packages. 

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YouTube TV already has over 3 million subscribers. Philo says it has over 800,000. So, T-Mobile should get a boost from an existing subscriber base and well-established brands.

But partnering does have its drawbacks. It would be a big surprise if T-Mobile wasn’t losing money on the offers. But, as Sievert noted during his investor day talk, offering customers a video service isn’t about making money. It’s about increasing customer lifetime value. So, if these deals mean that enough subscribers reconsider switching to a new carrier because doing so would cost them their discounted TV service, it would be worth the expense for the telecom. 

Furthermore, T-Mobile has less control over pricing with partnerships. Video subscribers have become extremely sensitive to increases in cable pricing over the last few years. Meanwhile, YouTube TV has raised its prices every year since its launch in 2017.

T-Mobile has been working to offer a live-television bundle for years. As the wireless carrier enters the home internet market, being able to offer a bundled package will be a particularly important feature of its efforts to attract and retain customers. And while it was potentially more cost-efficient to build the service itself, that doesn’t matter if the service can’t generate sufficient consumer interest. Partnering with YouTube and Philo will allow T-Mobile to capitalize on their strengths while focusing on its own as it builds out its 5G network and associated services.

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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.

View more information: https://www.fool.com/investing/2021/04/02/t-mobile-is-willing-to-pay-to-bundle-tv/

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