YouTube’s TV subscribers might be happy as they are getting discovery (NASDAQ: DISCA) (NASDAQ: DISCK) networks, but they will leave heartbroken when they see their bills next month. The alphabet subsidiary is escalating the price of YouTube TV from $40 per month to $50 per month.
It would be wrong to blame YouTube for the growing price of its TV – as per the records, at $40 per month, the company was losing about $9 per month per subscriber on programming costs alone. Discovery’s portfolio of networks cost an average of $3.10 per subscriber back in 2017, according to S&P Global reports. From the past two years, these fees have only raised, YouTube is still in loss even after the company has increased the price.
YouTube TV has just crossed one million subscribers, and it has overcome its competitors like AT&T’s, DirecTV Now or Dish Network’s Sling TV by offering the outsized value. But as mentioned, that value came at the company’s own expense.
Moreover, YouTube is not the only company increasing its pricing on its streaming TV services. Channels like Walt Disney’s Hulu has recently increased its price for Hulu TV from $5 per month to $45 per month, and AT&T has also updated his Direct TV packages which start from $50 per month. Last year Sling TV has also increased its lowest price packages by $5 per month.
Unlike AT&T, YouTube with the increased price at least including content and features to its service. It is unclear whether adding Discovery’s networks will pull more subscribers than the price increase loses. YouTube will see slighter loss per subscriber in any case.
YouTube’s parent company Google is a huge advertising company, and YouTube TV is an opportunity for Google to dive deeper into television advertising. According to reports, it can also make deals to manage inventory on some of the smaller networks on its service. Eventually, the company expects to generate $15 to $16 per subscriber in ad revenue per month.
These sort of advertisement will generate revenue more than YouTube TV’s loss on programming cost from subscriber revenue at $50 per month. But, it might need a better option to cover it’s operating expenses. With serious competition in the market, the company will face a challenge to attract new subscribers with its less competitive pricing. On the other hand, if it could attract new subscribers, it can be profitable at $50 per month.