NEW YORK (TheStreet) -- As the media and technology worlds converge and clash, Dish's (DISH - Get Report) Sling TV has emerged as one of the most interesting options available for those looking for an easy-to-use alternative to traditional pay TV.
First unveiled at the Consumer Electronics Show in January, Sling has fulfilled long-simmering consumer demand to be able to watch a select number of channels for a reasonable price without an onerous long-term contract. Sling starts at $20 a month and can be watched anywhere on any mobile device.
Following Sling TV, Time Warner (TWX) launched its own HBO online service (first announced in October 2014 and launched in April of this year). Other media companies -- including Viacom (VIAB - Get Report), CBS (CBS - Get Report) and Comcast's NBCUniversal (CMCSA - Get Report) -- are either exploring their own services or have already launched them.
The core Sling package includes Walt Disney's (DIS - Get Report) ESPN channels in a first-of-its-kind deal, plus AMC (AMCX - Get Report), home of The Walking Dead and Better Call Saul. For $5 more a month, Sling offers add-on packages that cater to sports fans, news enthusiasts and kids. Sling has also partnered with HBO to offer the premium channel for $15 a month to its subscribers, which CEO Roger Lynch said "was really a big event for us and so far, it's worked out great."
For all of the wonders Sling TV has dangled in front of viewers as it attempts to disrupt the 100-million-subscriber pay-TV market, it's not without its kinks.
During the NCAA Tournament, some Sling TV users were unable to watch the Final Four. The company later apologized in a blog post, with Lynch telling customers the problems were caused by a high number of new signups and "an extremely high volume of concurrent streams." Lynch said the company was adding additional infrastructure to handle the new signups and traffic load, and to "address 'errors' in real time, among other things."
Sling TV also experienced some hiccups with the Game of Thrones season five premiere, with some customers unable to launch the Roku app. Lynch noted the issue was solved "pretty quickly."
I recently talked with Lynch about the state of the pay TV market, his company, the competition and more.
(Note: This interview has been lightly edited for clarity and brevity.)
Roger Lynch: We've come out in opposition of the merger. Primarily it has to do with concentration of power within broadband. With the FCC appropriately defining broadband as 25 megabits, they'd have 57% of population. We think that's an unprecedented control of broadband infrastructure and we're quite concerned about Comcast having the ability to thwart over-the-top video so they can favor their own traditional pay-TV service. If they're going to control 19 of the top 20 markets [and] OTT -- which tends to be concentrated in urban markets -- it seems unfair, and we oppose the merger.
Lynch: I'm not going to go into any specific contractual agreements we have with programmers, but every programmer that we're working with -- now around 50 channels on Sling -- everyone is interested in having us grow faster and get more subs.
TheStreet: The NCAA streaming disruptions hurt Sling TV a little bit, with some users not being able to watch the games. Do you have any regret about what happened with the Final Four being unavailable for some users?
Lynch: Certainly. We put out a blog post on it. It was discouraging for us that we let down some of our subscribers and some of those who were trying to sign up for a free trial. It was a small percentage, but it was discouraging. We made some adjustments to our infrastructure. The problems we saw during the Duke game, we haven't seen since then. We'll always be dealing with how do we scale effectively and avoid bottlenecks.
TheStreet: Looking back, is there anything you could've done differently?
Lynch: We have live TV, which is a lot more complicated to stream on the Internet than just video on demand. Since there are a lot of tentpole events like basketball games and football games. You can have a lot of people signing up at the same time to watch an event. They happen in non-linear ways and we found that we weren't as prepared as we thought we were. We did get more subscribers since then, but this is something we'll always be dealing with as we bring live TV to the Internet.
TheStreet: Sling has a core $20-a-month package and then it sells add-ons for a few additional dollars per month. What percent of subscribers are buying the add-on packages and which ones are the most popular?
Lynch: I'm not going to go into any specific numbers, but the add-on packages are quite popular. As you can imagine, sports is a very popular package and as to whether we'll continue to add additional packages, it's certainly a good possibility.
TheStreet: In addition to getting revenue from subscriptions, Sling also gets money from ad insertion. How's that process work and what's been the response from advertisers?
Lynch: If you think about traditional TV, ads are pre-encoded into the stream. Everyone in the country sees the same ad, so if you're watching ESPN, ESPN is the same in San Diego as it is in Maine. If you set a recording on your DVR for that show 3 or 4 days later, you're seeing an ad that may not be relevant anymore.
What we're doing is we're enabling every ad that everyone sees to be individually targeted. Over time, we'll continue do more targeting. When we get our feed from ESPN, there are no ads in the feed; nothing has been encoded. Over time, we'll dynamically insert an ad and target based on geography, device, person, etc. We're reaching the audience advertisers want to reach.
As for the response from advertisers, I've spent a lot of time with our ad sales group and advertisers are quite excited about it. Although these ads will cost more, the reason they cost more is because there's less waste. They can deliver higher value to advertising clients because of better targeting capabilities.
TheStreet: Sling TV already offers live sports. But given the propensity for people to watch live sports in this country, are there any plans to bring the big four networks (CBS, NBC, Fox (FOXA) and ABC) to Sling?
Lynch: Univision is also a major network, having 65 million subscribers.
Our strategy is to enable a broadcast tier with those channels. It's not our strategy to put them into the basic $20-a-month package. We're going after cord-nevers, but also cord-cutters as well. If there are a lot of people who are watching those channels, cord-cutters can put up antennas and get high-quality TV. So we don't want to force people to pay for channels they're getting for free. For that, we would have a broadcast tier, but the broadcasters would have to be willing to play ball.
There are 210 local markets, and only two pay-TV companies, Dish and DirecTV (DTV - Get Report), have every local market. That means there are many, many contracts that we'd have to do, but it'll take time. Any time you want to launch a service in locals, it takes time. ABC may own ABC New York, but not in San Antonio, so it'll take time.
TheStreet: There's a lot of new entrants into the over-the-top market. Is there a threat of competition, be it from the rumored Apple (AAPL - Get Report) service, what Verizon (VZ - Get Report) is doing, or others that may enter the space?
Lynch: I think it's a benefit. What tends to happen when you have a new industry, the market expands faster and you tend to see faster growth. Even though market share may decline, the unit growth gets higher. When you're in a mature market, then you worry about share shift. But for the foreseeable future, any competitors will grow the market, which is ultimately a good thing.
TheStreet: How big can the market get, when you look out a few years and look at your crystal ball?
Lynch: (Laughs.) A few years is tough. What I would expect is that the traditional pay-TV business will continue to decline, you'll see OTT grow, but the net of the two, assuming 100 million pay-TV subscribers, you might see 80 million pay-TV, but 30 million go to OTT. We've see it internationally with Dish World [re-branded Sling International earlier this month].
It's a full replacement for pay TV. If you look at the international channels business in the U.S., it had been in decline. That business reached maturity and started to decline before the domestic channels did. Two years later, it's in growth mode because Sling International has grown faster than traditional platforms.
Our objective is to grow the overall pay-TV market with Sling TV. We're the No. 3 pay-TV operator in the U.S., and we know that for an increasing number of people in the U.S., pay TV doesn't meet their needs. We're not focused on how to take subscribers from this operator or that operator, but 25 million households don't have pay TV, so we're going after that because it's a growth market. We want to enter new markets that are growth markets.