YouTube TV’s fight against big cable has gotten a big boost during the coronavirus pandemic

With coronavirus quarantines shutting down most of the country, YouTube’s cable television rival, YouTube TV, is getting a lift.

Homebound subscribers are increasingly watching the TV-streaming service. It had 830,000 daily active users on April 8, a 40% gain from the 580,300 on February 1, before the coronavirus pandemic began in earnest, according to analytics firm SimilarWeb.

“Similar to other streaming services, as well as traditional TV, we’re seeing an uptick in usage,” a YouTube TV spokesperson says.

The outbreak is a pivotal moment for streaming services, which were already tussling with cable providers for viewers. But with more people seeking entertainment while they “shelter in place,” the fight has intensified.

For $50 monthly, YouTube TV subscribers get 70 channels that feature live sports, news, and entertainment. They also get original content created by YouTube and a DVR with endless recording space—all without equipment or a contract.

When it debuted three years ago, YouTube TV had one major selling point: a strong package of live sports channels and features. In the past couple of months, however, virtually all sports have been cancelled worldwide because of the coronavirus outbreak, potentially threatening the service’s main sales pitch.

But Bruce Leichtman, president and analyst at boutique research firm Leichtman Research Group, says YouTube TV isn’t alone. Most of its competitors are in a similar situation because they also heavily depend on sports fans to subscribe.

Adding to YouTube TV’s complications is that the cost of licensing certain sports content became too high just before the coronavirus outbreak. As a result, YouTube TV dropped Fox Regional Sports Networks and YES Network, which includes New York Yankees and Brooklyn Nets games. Shortly after the announcement, YouTube TV cut a deal with cable company Sinclair to provide Fox Regional Sports Networks in certain cities.

But that arrangement still left viewers without YES in the New York area, and Fox Sports Prime Ticket and Fox Sports West in Los Angeles. That meant that viewers in two leading markets couldn’t watch their home teams like the Los Angeles Angels and the New York Yankees.

Short term, it may turn out to be a lucky turn of events considering that professional sports are on a hiatus. Long term, however, it could hurt.

“Our number one challenge is managing the cost of content,” says Lori Conkling, global head of partnership for YouTube TV.

The service’s success hinges on striking a balance between giving people the shows they want while keeping the service cheaper than traditional cable. With popular streaming services like Netflix and Hulu continuing to attract eyeballs and traditional cable being offered as an add-on to broadband services, the competition is stiff.

Christian Oestlien, YouTube TV’s vice president of product, says he thinks the service, which already has “more than” 2 million subscribers , translating into more than $1 billion in annual revenue, can become a top five television provider over the next five years. It’s currently ranked around No. 8.

Comcast, which has 21.3 million customers, dwarfs YouTube TV, as does AT&T, with 19.5 million; Charter, with 16.1 million; and Dish, with 12 million.

Because of how YouTube discloses its subscriber numbers for YouTube TV, it’s unclear how it measures against other streaming services in terms of subscribers. Sling TV, for example, says it has 2.6 million subscribers.

“The business model for television is going to change in the next few years,” Oestlien says. “We think we’re set up to handle that.”

Overall, YouTube TV is trying to sell the message that its service is more convenient for users than cable because it lets them to watch programs from any device, check sports stats on-screen while watching a game, and watch news segments based on a particular topic.

“The old traditional [concept] of turning on something you don’t like and being stuck has gone away,” says Esther Ahn, head of design for YouTube TV. “We can create more of those moments where users can get right into the content that they want to watch.” 

Some features on YouTube TV already do that. For example, sports fans can instantly tap into specific highlights from a previously aired game or player highlights across games. The broader goal is to add that capability to other broadcasts like the Academy Awards or the Olympics.

The service is also exploring creating features specific to certain types of content. In other words, it could, for example, repurpose some of its fantasy sports teams features so that viewers can predict Oscar winners or which women received a rose on The Bachelor.

In the grander scheme, YouTube TV is chump change for its parent company, Alphabet. The overall company had $161.9 billion in revenue in 2019, to which YouTube TV contributed less than 1%. Alphabet declined to say whether YouTube TV is profitable, but one analyst says that it’s unlikely.

“They’re probably losing money on it right now,” says Jason Helfstein, an analyst with Oppenheimer. “But again, it doesn’t matter right now for Google in the scope of the business.”

But even if YouTube TV is a minor part of Alphabet’s business, it could help the company create a television strategy—something that Helfstein says has been unclear in the past. Previously, Google has invested in products like televisions and Blu-ray players; Android TV, a smart television platform that uses the Android operating system; and Chromecast, a dongle that lets users stream content from their devices to their television sets.

“They’ve been all over the place with their TV strategy,” he says. “It’s probably a fair place for them to experiment.”

Even if YouTube TV can prove to consumers that it’s better than its competitors, it will never be able to kill cable, according to Leichtman. Big cable companies have become, above all, broadband providers using cable as the “glue” to keep its customers loyal. YouTube doesn’t have that same foundation.

“They’re nipping away at the edge, but they’re not going to be Comcast or Charter,” Leichtman says. “What holds a customer there?”

Because of its low cost, YouTube TV is likely to be a high-churn service, meaning it gains and loses customers easily, Leichtman says. And YouTube has no plans to change the price of its service.

Arguably, bundling YouTube TV with other products could increase customer loyalty. And YouTube TV has been working with companies like Verizon to offer a free-trial period in hopes of hooking new subscribers. But if more entertainment providers roll out à la carte options, allowing users to pick and choose what they pay for, it could complicate the case for subscribing to YouTube.

“Does the media industry ultimately give you an alternative where you can make your own bundle?” Helfstein says. “It’s just hard because other companies will be bundling their offerings with other things too.” 

Still, YouTube TV’s executives think they can find a successful formula. “The burden is on us,” says Erin Teague, head of YouTube Sports. “There are things we can do because we’re purely digital that can’t be done on linear TV.”

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