Yes, YouTube TV’s price hikes stink. But don’t blame YouTube

The response was all too predictable on Tuesday when YouTube TV announced its biggest price hike ever.

After adding a slew of ViacomCBS channels such as MTV and Comedy Central, and raising prices from $50 per month to $65 per month, YouTube tried to explain on Twitter that it wasn’t at fault for the higher costs. While the company said it would love to offer a la carte packages, in which people only pay for what they want, it’s not allowed to do that. “Most networks require that we include their full portfolio of channels to subscribers, which increases the overall price of the service,” YouTube wrote.

That explanation didn’t go over well with subscribers.

“Hey @YouTubeTV you’re turning into the thing I was excited to move away from, an expensive cable package with tons of channels I don’t need, yet have to pay for,” wrote one user.

“You have gone full blown 90s cable by baiting everyone in with $35 basic, and a few years later we’re paying for all the crap we never watch,” wrote another.

YouTube is right, though. The real blame for ever-higher prices doesn’t lie with services like YouTube TV, but with TV networks such as ViacomCBS, which are unwilling to break up their channels into smaller, more flexible packages. It’s the same dynamic that applied in the cable era, but it’s also been made worse through a series of mergers and acquisitions that have given TV networks more power to negotiate higher prices.

As a result, streaming bundles like YouTube TV are becoming bigger, more expensive, and more homogenous. That won’t change until more customers opt out entirely.

Merger mania and its consequences

The latest price hikes for YouTube TV were foreseeable a year ago, when Viacom and CBS merged into ViacomCBS. One of the merger’s goals was to increase leverage over TV providers, giving the combined company broader distribution at higher prices.

The merger clearly had an impact on YouTube TV, which until this month carried channels from CBS, but not from Viacom. Now it’s licensing channels from both parts of the combined company as one package—just as other distributors have done—so that customers have to pay for them all. If YouTube had ignored Viacom channels such as Nickelodeon and BET, it would likely have been forced to give up CBS as well, and no one likes having channels taken away.

We’ve seen this pattern play out before in live TV streaming. After Discovery acquired Scripps Networks, services such as YouTube TV, Hulu Plus Live TV, and FuboTV started adding Discovery channels to their lineups, raising prices around the same time. None of these services wanted to give up popular Scripps channels such as HGTV and Food Network, so they acquiesced to even bigger bundles.

“Rarely do we ever see them push back to where they say, ‘Okay, we’re going to take this content out of our lineup,’” says Dan Rayburn, a principal analyst for Frost & Sullivan who covers the streaming business.

Disney’s acquisition of most of 21st Century Fox last year has put similar pressure on TV providers. For years, FuboTV resisted carrying Disney channels because of the costs, and even lost FX and National Geographic channels in January after Disney acquired them as part of its Fox deal. This month, Fubo finally relented, announcing that it will add Disney’s channels in August alongside a $5 per month price hike. To make room in its budget, it’s dropping WarnerMedia channels such as TNT and CNN.

All of this helps explain why YouTube TV can’t make Viacom channels optional through add-ons or premium tiers, as some users have requested. The purpose of these mergers is not to give customers more control over their TV packages. It’s to make them pay more through all-or-nothing bundling.

Unrealistic expectations

If there’s any blame to go around for YouTube TV and other live TV streaming services, it’s for the unrealistic prices they set in the first place.

Mike Keyserling, the COO of the sports-free streaming bundle Philo, says that when DirecTV Now launched in 2016 with a $35 per month bundle, it was always too good to be true. While it wasn’t the first live TV streaming service on the market—that honor goes to Sling TV, which arrived in 2015—it offered a much wider range of channels, including the local station coverage that Sling lacked.

That in turn prompted other services to launch at similar prices. YouTube TV and FuboTV arrived in early 2017 for the same $35 per month price as DirecTV Now, and Hulu with Live TV followed for $40 per month.

“It undervalued the content so significantly that these other companies that wanted to get in the game, whether it be Hulu, YouTube TV, or Fubo, they all had to try to undercut the price as best they could, and they were operating at significant negative margins,” Keyserling says.

Eventually, reality set in. DirecTV Now, whose low prices always seemed like a way to drum up support for AT&T’s acquisition of Time Warner, slashed channels and raised prices in early 2019. (The service is now called AT&T TV Now, and starts at $55 per month.) YouTube TV, which had already upped its price to $40 per month, hiked prices further to $50 per month last year, and now $65 per month. Hulu raised its live TV prices from $40 per month to $45 per month to $55 per month. FuboTV now starts at $60 per month. Sony, which had operated a live-streaming service called PlayStation Vue, exited the business entirely after several of its own price hikes.

Even the especially price-conscious Sling TV, which has steadily piled on more channels from more networks to compete with bigger bundles, has raised prices. Its two base packages now cost $30 per month—or $45 per month when combined—and that’s without a full complement of local channels.

The new pricing more closely reflects what these channels actually cost to carry. And because a handful of media companies now control most of the channels people want, it’s too late for services like YouTube TV to slim down.

“You can’t argue with numbers,” Rayburn says. “The cost to license the service, versus the cost to operate it, doing the back-end service, everything else, you are losing money.”

A fork in the road

One of the fundamental, unanswered questions about cord-cutting right now is whether TV networks will even bother to save the bundle.

Millions of households have already decided that TV bundles aren’t necessary—streaming or otherwise—opting instead for cheaper services such as Netflix, free alternatives like Tubi, free TV from an antenna, or no TV at all. The result has been a sustained decline in the total number of pay TV subscribers.

“The habits have just changed, and there’s less time to watch this stuff,” Rayburn says.

To turn things around, TV networks could change their attitudes. Rather than forcing customers into bigger bundles, they could allow services such as YouTube TV to offer more flexibility. You might imagine a package with just local channels, news, and sports, or a package with no sports at all. TV networks would make less money from these packages, because they’d have fewer overall viewers for carriage fees and ad revenue, but they might retain more subscribers overall.

There are some signs that the networks will choose this path. Hulu has been exploring the idea for a while now, and YouTube says it’s “working to build new flexible models for YouTube TV users.”

During an earnings call in May, Discovery CEO David Zaslav also suggested that TV networks might be feeling some pressure to slim down with sports-free offerings at lower prices. He called out the $20-a-month Philo as an example (Discovery is an investor in the service). But Philo, which doesn’t currently offer any channels at all from NBCUniversal, Disney, Fox, and WarnerMedia, is missing a lot more than just sports.

“What we should have in the U.S. is what everyone else has, which is a bundle of content that doesn’t have sports that would be very affordable,” Zaslav said. “And we would likely see a very quick turnaround in this issue of subscriber loss, because [currently] we’re saying take it for $80, take it for $100, or don’t take it at all.”

Alternatively, the networks could let the entire system crash and burn. Instead of trying to save the bundle, they might race to build up their own individual streaming services, adding more content to the likes of Disney Plus, ESPN Plus, HBO Max, NBC’s Peacock, and CBS All Access. In the meantime, people who stay with pay TV service—for sports, perhaps, or for that one cable channel they can’t fathom living without—gets stuck with higher prices.

YouTube TV’s new deal with ViacomCBS, and FuboTV’s deal with Disney, suggest that TV Networks haven’t pulled themselves off that track yet. Philo’s Keyserling says he hasn’t observed much of an attitude change among TV networks.

“It still feels like the reins are being tightened, and people are going into these siloed direct-to-consumer products,” he says. “I do think over time that’s going to change.”

Just don’t expect change to happen by yelling at YouTube TV and shifting over to another big bundle with a similar lineup of channels. You might save a little money with Hulu Plus Live TV, AT&T TV Now, or even FuboTV, but all those roads lead back to the same place.

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