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The Real Streaming Battle: SVOD vs. vMVPD

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Disney and Apple debuted their streaming services at the end of 2019, and the mainstream media has awoken to the idea that there's a streaming battle going on. The media can only cover things like this as a horse race, so publications spit out articles about Disney+, Apple TV+, HBO Max, Peacock, and more as if they were all rushing around the track at Belmont.

Yes, there will be winners and losers—PlayStation Vue is no longer with us, and more will follow—but that's not what's truly interesting here. How people get their entertainment is changing, and that's a bigger story than whether or not Peacock can outperform CBS All Access.

The heat is entirely with subscription video-on-demand (SVOD) services. When virtual mul­tichannel video programming distributors (vMVPDs) get any attention, it's because they have once again raised prices (as Hulu did in November 2019 when its live services jumped from $45 to $55 per month).

vMVPDs are bloated and expensive, and consumers aren't fond of them. They don't provide a tidy and economical alternative to pay TV. As households cut the cord, take on more SVODs, and shun vMVPDs, it raises the question of whether or not live TV has a future.

According to Brett Sappington, senior research director and principle analyst for Parks Associates, 70% of broadband-enabled U.S. house­holds currently subscribe to at least one SVOD, but only 10% subscribe to a vMVPD. "With an SVOD service, you're not really replacing either your antenna or your traditional pay TV service. You are just adding content on at a low price. You're adding content on to what you're already getting from pay TV or your antenna," he says. "With a virtual MVPD, you're effectively replacing your pay TV service, and that's a bigger decision. There are people that are happy with what they have. They love content, they love their channels, and they don't plan to change. So, one is a replacement and one is complementary."

Taking a harder view, MoffettNathanson senior analyst Craig Moffett recently declared "live is dead" in a research letter. "Customers are not leaving linear TV for vMVPDs. They are simply leaving live TV altogether," he writes, noting that 15 million U.S. households have abandoned live services. 

Cable and satellite providers are seeing record cancellations, and few cord-cutters are replacing those services with vMVPDs. "For a time, vMVPDs looked like the answer for media companies preparing for the cord-cutting future," Moffett writes. But, "in the most fundamental way, they preserve the very bundles of programming that created so much frustration for so many customers in the first place. Sure, when vMVPDs were being priced far below cost, there was naturally a willingness to switch. But now that prices are being reset to more reasonable levels, perhaps we shouldn't be surprised that demand for vMVPDs is drying up."

The appeal of live sports streaming is strong, Moffett notes, and live news also has a following. But live entertainment is going to face a harsh new reality. When it comes to entertainment, many people prefer on-demand options and aren't willing to shell out for pay TV alternatives. Having fewer viewers means smaller budgets for program creation.

It also means fewer commercial breaks for advertisers, something that's already causing panic. Advertisers are desperate to get their messages in front of streamers, but the most attractive customers pay for ad-free options. The only way forward is for advertisers to work with vMVPDs to create more appealingly priced subscription options that include all the same premium channels viewers currently get with pay TV. If households can get premium live bundles for less than vMVPDs currently charge, they might be willing to sign on. The services would survive, advertisers would get a reliable outlet for their commercials, and consumers would get a deal. That sounds like a win-win-win to me, and it might be the only option to keep streamers from saying goodbye to live entertainment for good.

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