Walls are coming down fast in the race for digital pay-TV supremacy.
Dish Network's (DISH) Sling TV has secured a distribution deal with Comcast (CMCSA) that will place an icon of the subscription-based multichannel streaming platform on the home screen of the country's largest pay-TV operator. In industry terms, Comcast will "upsell" Sling TV, sharing in some of its revenue similar to an arrange begun earlier this month with Netflix (NFLX) .
At first blush, that might seem to run counter to Comcast's investment in Hulu, which is expected to launch its own multichannel streaming platform early next year. Hulu, whose owners also include Disney (DIS) and 21st Century Fox (FOXA) , with Time Warner (TWX) holding a minority 10% stake, will compete for digital pay-TV customers with AT&T's (T) DirecTV Now and Alphabet's (GOOGL) Google Unplugged, both coming to market in the near future.
Sony (SNE) also has it own multichannel pay-TV platform, PlayStation Vue, focused on users of its PlayStation console.
Over time, Comcast could lose pay-TV subscribers by helping to market Sling TV, which offers subscriptions for as little as $20 per month for around 25 channels that include many of the most popular networks on pay-TV. By comparison, DirecTV Now and Hulu are both expected to unveil platforms that are anything but skinny.
For Dish and Sling TV, which was first out of the gate with a digital pay-TV platform, the Comcast deal is all about getting up and over 1 million subscribers. Estimates of the Sling TV user base range from 750,000 to around 1 million, according to Park Associates, a Dallas industry consulting group.
With a size and price point that appeals to Millennials, Sling TV is focused on viewers who want quality over quantity, a service that provides specific viewing needs such as college football on Disney's ESPN or The Walking Dead on AMC Networks (AMCX) .
That Dish may be sacrificing some revenue to secure distribution on Comcast's popular X1 set-top box, widely accepted as the most user-friendly device in the industry, is simply the cost of winning subscribers.
But in the context of the slow erosion of the traditional pay-TV model, Comcast, Dish, Disney and Time Warner are choosing ubiquity over boundaries. With the exception of CBS (CBS) among content creators, and Amazon (AMZN) among distributor/creators, most media conglomerates are vying for the widest possible reach. Apple (AAPL) is arguably an exception as well, but that's been the case for 30 years.
Comcast took a similar stance earlier this month when it began upselling Netflix (NFLX) on its X1 set-top box. At a Goldman Sachs investment conference in September, CEO Brian Roberts explained that Comcast had "made a conscious decision we will aggregate other people's content. Some we sell ourselves and some not."
At the root of the decision is Comcast's realization that for the traditional pay-TV model to survive, users must be able to access any programming of their choice from one location. In Comcast's case, that's the X1. If a viewer wants to find something on Netflix or Sling TV, they should view the X1 as their starting point.
"Comcast has worked hard to create the best integrated experience for its users (i.e., struck a deal to bring Netflix in as well) and now it is targeting Sling TV to expand its offerings," said Scott Berman, senior portfolio analyst for Action Alerts PLUS, our club for investors, which holds Comcast shares. "It may seem weird at first given that Sling TV appears to be a service that would be aimed at taking down Comcast and other cable providers, but this deal is mainly to gain access to Sling TV's international programming given that Comcast's customers are growing increasingly diverse. Either way, customers would have to pay for some sort of bundle service to have the X1 platform that will offer Sling TV, so they aren't cannibalizing themselves (at least not unless people decide to completely switch to Sling TV if they feel those offerings are sufficient on their own). Sling TV simply brings more customizable content to a platform that is already lights ahead of competitors."
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As for Hulu, Comcast has less of a role in how the platform is managed than either Disney or Fox because of conditions mandated by the Department of Justice when it approved Comcast's 2011 acquisition of NBCUniversal. Comcast would violate terms of that agreement if its actions were shown to obstruct new content distribution models.
Like Comcast, Disney has taken a similar view toward the proliferation of digital pay-TV platforms.
Arguably, Disney -- which is exploring its own streaming service -- stands to lose if ESPN is made available on Sling TV, DirecTV Now or Hulu's new platform. Already, ESPN has lost some 10 million subscribers over the past five years as pay-TV users "cut-the-cord." The advent of digital pay-TV platforms is certain to create channel packages that don't include ESPN, which gets an industry-leading $7.21 per subscriber per month for the channel. (The next highest network, TNT, fetches just $1.21 per subscriber per month.)
But Roberts has dismissed the notion that viewers want skinny bundles, a position that explains his willingness to upsell Sling TV.
"I don't know that it's really what people want," Roberts said in September. "There are certainly some who want to pay less," but it's "not a majority behavior," he said, adding that Comcast's focus on building the X1 set-top box is "to continue to make the bundle more attractive."
Dish Network declined to comment beyond the statement. Comcast could not be reached for immediate comment on the deal.