Skinny Bundles Still Aren't Quite Working

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DirecTV Now is raising prices. AT&T's (NYSE: T) "skinny bundle"-like TV streaming service is ditching its four-tiered pricing structure in favor of a two-tiered model, and its new lowest price will be $50 per month (previously, $40 per month was the lowest price available). It's the latest sign of financial issues for DirecTV Now, and it's far from an exceptional development in a skinny-bundle space that has found profits very hard to come by.

The latest of DirecTV Now's woes

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The price hike isn't the first sign of DirecTV Now's struggles. After posting an impressive first two years on the market, DirecTV Now scaled back its aggressive marketing strategies and saw its subscriber numbers drop by a staggering 14% in the fourth quarter of 2018. That's unusual for a streaming service -- for on-demand services like Netflix and Hulu, slower growth is enough to upset investors. Losing subscribers is something cable is supposed to do, not streaming services. Yet here we are.

And regardless of how many subscribers DirecTV Now does or does not have, it is probably not making much money. The price hike helps illustrate just how hard it is to serve up a profitable live-TV bundle in the $40-per-month range. In fact, DirecTV Now is not the first skinny bundle to give up on the $40-per-month price point.

DirecTV Now is not the only struggling skinny bundle

Early skinny bundles focused on the $40-per-month price point, but hardly any are still there. FuboTV, which once offered a $39.99-per-month bundle, now prices its cheapest one at $54.99 per month. Sony's PlayStation Vue, also once $39.99 per month, is $44.99 per month at the minimum now. DISH Network's Sling TV still offers a $40-per-month bundle formed by the combination of two smaller bundles (each noticeably less complete than the typical entry-level bundle), but it increased the price of building-block bundle Sling Orange from $20 to $25 per month in 2018. Hulu recently raised the starting price for its live-TV bundle from $39.99 to $44.99 per month -- even as it lowered the price of its much more popular on-demand service.

YouTube TV, Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) entry in the skinny-bundle wars, still costs $40 per month -- though that is up from the $35 per month that YouTube TV originally charged. But experts believe that it is taking a loss with each subscriber right now. That's because the costs per subscriber of the channels that YouTube TV offers add up to more than the subscription fees.

Alphabet can absorb losses easily -- it's an $800 billion company -- and may hope to simply outlast its rivals. But any way you slice it, skinny bundles don't seem to be making any money.

What's next for DirecTV Now and the rest?

Making an immediate profit isn't everything, of course. Companies and investors alike are capable of seeing the big picture and playing for the long term -- just look at Spotify's long journey to profitability. But the field is looking crowded right now. Companies like AT&T that sell skinny bundles are going to have to keep taking losses and hope that they have a bigger stomach for them than the competition. Maybe scale will make these multichannel streaming services profitable, but reaching lots of subscribers appears to require big losses in the near term.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Stephen Lovely owns shares of AT&T and Netflix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Netflix. The Motley Fool has a disclosure policy.