Streaming video is one of the booming media trends of the past decade. Netflix (NASDAQ: NFLX) had attracted nearly 140 million paying subscribers as of the end of 2018, while Hulu has drawn 25 million to its platform. The two have shown that customers desire the ability to stream their shows and movies on demand, and that they're willing to pay for it.
Where streaming has had less success is in replacing traditional cable. Hulu, Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube, AT&T's (NYSE: T) DirecTV, and others all have tried to sell streaming bundles to cord-cutters, and while their offerings appear compelling, customers aren't signing up in large numbers. Certainly those services aren't drawing as many subscribers as the cable companies are losing every year.
Image source: Getty Images.
Cord-cutting is real
According to eMarketer, 33 million people in the U.S. have already cut the cord, and millions more will do so this year. ESPN, for example, has lost 15 million subscribers in the last seven years, which is shocking given how many people viewed Disney's (NYSE: DIS) sports network as a must-have channel just a few years ago.
Some of those customers have shifted their media consumption to streaming platforms, but the number of subscribers to livestreaming pales in comparison to the number of cord-cutters. According to Bloomberg, Hulu TV has nearly 2 million subscribers, followed by YouTube TV with over 1 million, while Sling TV and DirecTV Now trail behind both.
Livestreaming isn't catching on
There are a number of problems with the livestreaming models those companies are promoting. One is that, in the wider media realm, consumers are becoming accustomed to watching shows whenever they want to, rather than on a network's schedule. Outside of sporting events and news, there's no real advantage to "live" TV.
Beyond their failure to address this fundamental change in consumer behavior, livestreaming services are trying to port over a problematic cable pricing model. YouTube TV, for example, just raised its subscription from $40 per month to $50 per month ($55 for those buying through iTunes like me) after it added eight Discovery Communications (NASDAQ: DISCA) channels to its lineup. Depending on which ISP you're using -- and streaming demands high-speed internet -- it might be cheaper to bundle a cable subscription with your internet than to use a livestreaming TV service.
Livestreaming TV provides a better user experience than cable, but if these plans aren't significantly cheaper and don't offer greater value than the subscriptions that cord-cutters are abandoning, it's hard to imagine them attracting a large share of those customers.
A new business model is needed
Cable companies used to hold one of the most powerful positions in media. As essentially the only game in town when it came to aggregating and distributing content, they were free to grow revenue and profits just by steadily raising prices.
Today, consumers have more choices, and they are showing that they don't value the same things they once did from cable TV. Aggregators like Netflix and Hulu are successful because they have great content, but consumers don't typically demand specific content from these streaming platforms. What's available on Netflix comes and goes -- the constant is Netflix itself.
This creates a challenging environment for smaller media companies like Discovery, Viacom, or even CBS. They can (and do) offer their own streaming services, but their catalogs lack the scale of the leaders, making it tougher for them to gain traction. They could hitch their wagons to livestreaming TV services, but, given that those don't seem to be particularly successful, these second-tier media companies remain stuck in no man's land.
Companies that can aggregate enough content and build a critical mass of subscribers will ultimately succeed. Netflix and Hulu have big head starts, and Disney (NYSE: DIS) will enter the game in a big way this fall with Disney+. But the livestreaming TV concept doesn't look like it'll gain much traction, which doesn't bode well for those that are tied to the old-fashioned model of cable TV.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Netflix, and Walt Disney. The Motley Fool is short shares of CBS and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.