Market Insight

Comcast partners with pay TV rival Dish to bring Sling TV to X1 set-top boxes

November 23, 2016  | Subscribers Only

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The US’s largest cable operator Comcast has agreed a partnership with DTH provider Dish Network to bring the latter’s pay TV lite video-streaming service Sling TV to Comcast’s flagship X1 set-top box.

The deal will give the 45% of Comcast residential cable video customers equipped with X1 – around 10 million homes – access to Sling TV’s slimmed-down bundles of linear channels and on-demand content. This includes two base ‘best of live TV’ packages featuring popular entertainment and sports channels, and a range of add-ons catering to different interests, in particular, an extensive offering of minority ethnic programming.

A timeline for Sling TV’s launch on X1 was not confirmed at the time of the partnership announcement.

Our analysis

Although on the face of it Comcast’s decision to bring a cord-cutting alternative to cable on to its advanced TV platform may seem questionable, the move is not as counter-intuitive as it might appear. While there is a significant degree of overlap between the channels offered by Comcast and Sling TV, the chances of a large number of Comcast customers opting to subscribe to these via the streaming service instead of cable are extremely slim. Many of these channels are tied to a basic pay TV subscription, meaning that customers cannot unsubscribe to them without cancelling their cable TV service altogether – and the incentive for doing this is, in practice, not strong.

The reasons for this stem from poor competition in US broadband market, the result of a lack of regulation of last-mile access to the incumbent cable and telecoms providers’ network infrastructure. This means that cable customers seeking to drop pay TV from their bundle are often offered no reduction in the cost of their subscription for doing so, with the operators having no fear of being undercut by a competitor. This is also a broader problem for Sling TV as a mass-market pay TV lite proposition – without being an ISP itself, Dish is unable to craft its own competitive broadband-and-video bundles.

This is not to ignore the cord-cutting that has plagued US cable in recent years, reducing the size of the sector by 11.7 million TV subscribers between 2005 and 2015, according to IHS Markit data. To put this into context, though, many of these losses were the result of analogue customers making their digital TV choice and opting for IPTV and, to a lesser extent, DTH over cable. This problem was compounded by negative public perceptions of cable, with consumers maligning its high price, outdated user-interface and poor customer service. Having worked to address these issues, and after completing the transition to digital this year, Comcast has stemmed its TV subscriber losses, increasing its video customer base by 52,000 in the two years to the end of 3Q16, to 22.4 million. Future growth will be hard to come by, though, as younger consumers becoming bill payers for the first time increasingly shun cable and other traditional pay TV platforms in favour of online-video-centric video setups.

With cord-cutting no longer of paramount concern, Comcast’s partnership with Sling TV serves simply as an online-video carriage deal, primarily designed to give Comcast X1 customers alternative options for accessing minority ethnic programming. Sling has assumed a leading role in a-la-carte online distribution of this type of content, particularly after DirecTV’s new owner AT&T opted to close the DTH operator’s Spanish-language streaming service Yaveo in December 2015, in the wake of the takeover that was completed earlier in the year.

Seen in the context of a carriage deal, there are clear parallels to be drawn between the Comcast-Sling deal and the deals Netflix has been striking with pay TV operators in the US and elsewhere. These include Comcast, which partnered with the SVoD provider in July and began rolling out Netflix on the X1 platform earlier this month.

Deals to bring pay TV lite services to the platforms of rival operators are certainly less common than operator-Netflix partnerships – but they are not unheard of. In the UK, for instance, Sky’s Now TV is available via the YouView platforms run by IPTV operators BT and TalkTalk. Both telcos, particularly TalkTalk, use the service to provide flexible access to a range of content, some of which they do not provide direct access to themselves and some of which they do. And in France, Canal Plus’s Canalplay – a fairly unambitious, largely non-premium pay TV lite offering – is widely available via IPTV platforms.

IHS Markit expects partnerships of this nature to continue to be forged where they are appropriate, i.e. where the pay TV lite service provides some added and/or more flexible content options for customers, and where the risk of cord-cutting is minimal. The rationale for adding third-party streaming services – whether Netflix or pay TV lite offerings – to pay TV set-top boxes is based on keeping customers on-platform, increasing customer satisfaction and reducing churn.

Cable providers are less likely to embrace pay TV lite carriage than telcos, as they typically already provide access to the content offered via these streaming services, and will be fearful of their customers being exposed to a ‘skinny bundle’ alternative that could be taken with a broadband subscription alone – likely from another provider. In Western Europe, for instance, price competition provides a strong incentive to switch, a product of regulation mandating that incumbent telcos provide access to the last mile of their networks to rivals. For IPTV providers, on the other hand, pay TV lite partnerships can be a better fit – telco TV bundles typically cost less than cable triple-play packages, meaning that there is less risk of a pay TV customer churning in favour of pay TV lite and SVoD alternatives.

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