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Alphabet Inc (GOOGL) Probably Won’t Win the Cable TV Wars

YouTube TV will be an interesting experiment to watch play out, but it won't be game-changing for Google

Back in February, Alphabet Inc (NASDAQ:GOOGL) finally unveiled its oft-rumored cable television service, dubbing it YouTube TV. It was a well-received addition to the Google menu of consumer-oriented services. Owners of GOOGL stock cheered it a bit too, as over-the-top television is an area where Google has been getting lapped by competitors like PlayStation Vue, from Sony Corp (ADR) (NYSE:SNE) and SlingTV.

Alphabet Inc (GOOGL) Isn't Well-Positioned to Win Cable TV
Source: Shutterstock

At $35 per month, Google parent company Alphabet should at least be price-competitive with the same so-called “skinny bundle” of channels (which isn’t exactly skinny) that the Vue and SlingTV are offering their customers.

After a closer, more scrutinizing second look, GOOGL shareholders who thought this might finally mark the moment where the true potential of YouTube as a game-changing over-the-top television alternative is realized might want to rethink their stance.

The ship has already sailed, for a handful of reasons.

YouTube TV is Anything But Special

Sorry GOOGL shareholders, but YouTube TV is anything but a panacea.

That’s not an indictment of the platform itself. The channel offerings are robust, and the price is fair. SlingTV packages start at $20 per month. PlayStation Vue’s offerings range from $30 to $65, and Hulu’s costs around $40 per month. YouTube TV more or less offers the same channel lineups as those alternatives.

The issue is, above all else, once of perception. The secondary issue (and this is a close second) is one of timing.

Kudos to Alphabet for turning YouTube into the world’s most recognizable repository of user-generated video content. The company reports viewers consume a billion hours worth of its digital content every single day. For perspective, Americans watch 1.25 billion hours of traditional TV on a daily basis.

But the switch from ad-supported interludes of video amusement to a true alternative to traditional cable television is a large one. And it’s one that Alphabet hasn’t proven it’s ready to make.

As evidence of this idea, one only has to look at the limited success of YouTube Red — Google’s loose version of Netflix, Inc. (NASDAQ:NFLX). YouTube Red offers a (mostly) ad-free YouTube experience, also offering members access to a fair amount of music and some exclusive video content. Google also developed some original content for YouTube Red,though reviews were mixed, at best.

That may be why as of the latter half of last year, YouTube Red only boasted 1.5 million subscribers. That’s a pittance compared to Netflix’s nearly 100 members, and Hulu’s 12 million paying subscribers.

To be fair, it is apples and oranges … or maybe red apples to yellow apples. Netflix and Hulu sport a wide selection of curated, traditional TV content, and YouTube is a hodgepodge of user-generated videos and a smattering of organized, scripted programming.

Still, 1.5 million YouTube Red members has to be something of a letdown for Google.

Doesn’t YouTube TV Fix That?

In many regards, YouTube TV is the answer to that problem. YouTube TV looks, acts and feels like a true alternative to traditional TV. It’s essentially a clone of Sling TV and PlayStation Vue.

Problem is, that’s still not good enough.

Two impasses lie ahead for the ambitious endeavor. One of them is the simple fact that Google is very late to this party. The lines in the sand have been drawn. Market share has been quartered. While that share will ebb and flow over time, Alphabet’s entry into the race is an outsider looking in at the SlingTVs and PlayStation Vues and the Hulus that (and several others) that are already doing traditional television via the internet. Being first is better than being best … not that YouTube TV is the best.

The other headwind blowing against YouTube TV is a more philosophical one, and perhaps more difficult to grasp. Consumers associate the YouTube name with the free-for-all — and free — content cauldron that it is.

For the record, YouTube TV is walled off from its non-subscription content (some would say unfortunately so), so there’s no confusion as to what a user is paying for and what is otherwise available for free. That’s not the challenge. The challenge is, the public has so tightly linked the YouTube name with a no-holds-barred collection of some of the web’s craziest content that those same individuals may struggle to ever see it as anything but that.

Even a different moniker wouldn’t likely help that much. Consumers are pretty savvy about connecting the dots that lead back to a true owner.

Looking Ahead for GOOGL Stock

Again, don’t get the wrong idea. Alphabet will be fine even if YouTube TV isn’t a smashing success. It’s still the leading search engine in the Western world, and it’s making a respectable dent in the cloud computing market against rivals like Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).

Internet television is hardly the only thing Alphabet does.

Still, it is a disappointment in that a huge chunk of Google’s total ad revenue comes from YouTube, and the popular internet video venue has accounted for a great deal of the company’s recent revenue growth. That would imply the market for digital video was firm. Maybe it is.

So far, though, the digital video market’s strength mostly seems reserved for other players.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/alphabet-inc-googl-probably-wont-win-the-cable-tv-wars/.

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