Streaming TV bundles, once seen as industry savior, hit a wall

Low-cost streaming services such as DirecTV Now and Sling TV were supposed to stem the bleeding in the media industry by attracting cord cutters who ditch their cable subscriptions.

But those services’ growth has hit a wall, raising doubts that they can halt or reverse the subscriber losses that have weighed on the entertainment industry for more than three years.

Both DirecTV Now and Sling TV recently raised prices, which contributed to the slowdown and revealed how fickle consumers can be in the streaming era. With fewer channels, these online TV services are essentially cheaper versions of traditional pay TV. Unlike cable or satellite, though, they typically don’t require long-term contracts; that lets viewers cancel or renew subscriptions based on which service offers the best price or shows they like.

Dish Network Corp.’s Sling TV signed up just 26,000 new subscribers in the third quarter, the company said Wednesday. That’s after attracting 41,000 in the previous three months and 91,000 the quarter before that. Overall, the parent company lost 341,000 customers in the third quarter.

Meanwhile, AT&T Inc.’s DirecTV Now gained 49,000 subscribers last quarter, after signing up 342,000 customers in the prior three months.

Customers are “seasonally shopping for shows” and “jumping from promotion to promotion and really spinning in the industry between us, Hulu Live, YouTube TV,” AT&T executive John Donovan said on an earnings call last month.

Focus on profit

AT&T executives have said they’re focusing on improving the profitability of DirecTV Now, which has nearly 2 million subscribers, by scaling back promotional prices. Sling TV — which was the first live, online TV service — is the industry leader, with about 2.4 million subscribers.

Craig Moffett, an analyst at MoffettNathanson LLC, said Wednesday that the growth of Sling TV and DirecTV Now appears to be “cratering.” But he suggested the market for “skinny bundles” may not be shrinking so much as shifting to newer services from YouTube and Hulu.

YouTube TV gained about 100,000 customers in the last two quarters, after signing up 125,000 in the first quarter of this year, according to estimates by Vijay Jayant, an analyst at Evercore ISI. Hulu’s live TV service attracted 175,000 new viewers last quarter, after signing up 200,000 the past two quarters, he estimated.

Market-share war

If streaming TV services are only taking customers from one another, that could be troubling news for media companies such as Walt Disney Co., Discovery Inc. and AT&T’s entertainment division, WarnerMedia, which are counting on online viewing to offset traditional pay-TV losses.

Subscribers to a traditional cable or satellite TV service declined by more than 1 million between July and September, the worst drop on record, according to MoffettNathanson.

On an earnings call Wednesday, Dish Chairman Charlie Ergen disputed that the online TV market was slowing. “I don’t think it is sputtering as much as people are writing,” he said.

Competition in online TV has been tough from the start, with companies promoting unsustainably low prices, Ergen said, adding that his rivals probably will “get financial religion” and raise prices rather than sell slimmed-down TV service with little to no profit.

Ergen also said new online viewers are rejecting traditional commercial breaks in programming and embracing ad-free options such as Netflix. Marketers of online packages will have to adjust, he said, predicting over-the-top services will be as big a factor as cable or satellite.

“It’s just that we have to go through some evolutionary changes to do it,” Ergen said.

Smith and Moritz write for Bloomberg.