DirecTV Now Launch Raises Questions About Which MVPDs Will Follow

Such offerings are "going to be another player" but won't wipe out incumbent MVPDs, Effros said, saying all the major MVPDs are likely ready to quickly jump aboard if it takes off. "All the pieces are there; it's just marketing," he said. He also said a major MVPD like Comcast might have "the infrastructure and contractual muscle" to start such a DirecTV Now rival, but "I think they're going to watch and wait." They might also try to counter-market against such services, he said: "Their strongest argument might be ‘OK, you tried it, come back to what works.’" He also said Comcast's integrating Sling and Netflix into its X1 platform indicates cable operators think of such services as ancillary. Neither Comcast nor Charter commented Wednesday, but Comcast CEO Brian Roberts in July said the company didn't plan to use its X1 platform as its route to enter the national OTT marketplace (see 1607270028).

Most MVPDs are likely on a continuum of aggregating the content rights they need when ready to launch an OTT service, said retransmission consent and program access lawyer John Hane of Pillsbury. MVPDs that don't have a national footprint obviously have had this on their radar a long time, he said, but it's unclear who might go first in competing head to head with another MVPD outside its existing territory.

The idea of an MVPD distributing content to the rest of the country has been around for years, with it finally coming to reality first with Dish Network's Sling TV, media consultant Tom Wolzien said. One big barrier to such a virtual MVPD offering was seemingly knocked down by the FCC's net neutrality rules, since cable ISPs under that regime can't throttle back offerings from competitors, he said. There might also be some concerns about what the FCC or lawmakers might do if such competition started since it likely would force many small MVPDs out of the market, he said. And there might be some worry about starting head-to-head competition with other cable operators in their markets, Wolzien said. "There has generally been a broad path of view across industry, 'We will buy each other out but we won't try to kill each other.' This would be all-out war if someone started doing this."

One of the biggest competitive worries is incumbent cable ISPs stifling competition through throttling or giving preferential treatment to their own affiliated virtual MVPDs via zero rating offerings, said Charles Herring, an investor in KlowdTV, a live linear streaming service that also carries Herring Networks' One America News Network and A Wealth of Entertainment channels. "As we move down the road a little bit, all the MVPDs will have an OTT offering," he said.

Such offerings remain niche products, but heavy subscriber growth could raise "massive technical questions" due to middle mile capacity issues, Effros said. He also said the interest some parties have shown in OTT raises questions about how it would work as source of revenue. "Is Amazon in the Amazon Prime Instant Video business because they want to be in the video distribution business or because they want to accumulate data for their advertising business? Same thing is true with Google."

No OTT plan offers 4K capabilities, local channels or more than two streams, "so the linear TV experience ... is clearly going to continue to be a superior one," Wells Fargo analyst Jennifer Fritzsche said in a note Tuesday to investors. And in a separate note, Wells Fargo analyst Marci Ryvicker said DirecTV Now should be seen "as competition for the Slings and PlayStation Vues of the world rather than for the core cable customer." Ryvicker also said competition with Dish's Sling TV will revolve around the user interface, not content, but accelerating subscription growth for Sling isn't expected due to DirecTV Now.