NBCUniversal recently asked YouTube TV to bundle Peacock, the NBC streaming service that has apparently failed to get many paying subscribers. The Comcast-owned NBC wants the Google-owned YouTube TV to pay for Peacock as a condition of continuing to have access to NBC channels after the companies’ current contract expires.
Google objected to the demand, and NBC is apparently willing to drop it. But a dispute over how much Google must pay NBC is still pending, and both sides have warned that YouTube TV subscribers could lose access to NBC channels.
NBC’s Peacock demand came during an ongoing carriage dispute between NBC and YouTube TV, according to a blog post yesterday by investor research firm LightShed Partners. The existing carriage contract between YouTube TV and NBC expires on Thursday, and about 15 NBCUniversal channels would be dropped from YouTube TV if the companies don’t strike a new deal in time.
“NBCU is trying to force YouTube TV to bundle and pay for Peacock Premium as part of a new affiliation agreement for the NBCU channels,” LightShed Partners wrote, pointing out that this is a strange demand.
“Your initial reaction should be why is Peacock even part of this discussion since it is an over-the-top, direct-to-consumer streaming service,” LightShed Partners wrote. “You do not need YouTube TV nor any MVPD/vMVPD [Multichannel Video Programming Distributor] service to get Peacock—it is $5/month with ads and $10/month without ads via iOS/Android, tvOS, etc… The whole point of DTC streaming is you do NOT need the legacy multichannel bundle.”
When contacted by Ars, a Google spokesperson confirmed that NBC asked YouTube TV to bundle Peacock and said that NBC’s demand would force subscribers to pay twice for the same content. Google also told Ars that despite this proposed bundling arrangement costing users more, subscribers would have to download and use the Peacock app separately from YouTube TV. Given that, a Peacock subscription would simply be an extra perk of subscribing to YouTube TV without providing any special integration that makes the two services easier to use together.
An NBC source who is familiar with the negotiations told Ars that NBC’s Peacock demand is “out” of the negotiations for now. But the source did not completely rule a Peacock/YouTube TV bundling out of a final agreement because negotiations are fluid and could change up until the final minute.
NBC clings to “legacy business model”
LightShed Partners analysts say they “sense the leading reason [for NBC’s demand] is that Peacock has been underwhelming to date beyond usage on Comcast/Cox set-top boxes, where it effectively functions as an updated version of on-demand programming for cable subscribers… With NBCU struggling with marketing Peacock direct-to-consumer (evidenced by their talking about ‘registrations’ vs. ‘paying subscribers’), they are falling back on their legacy business model of wholesale bundling to drive distribution. If they can force YouTube TV to carry Peacock, we suspect they will try to force other vMVPDs and MVPDs to do the same.”
The dispute is a reminder that the bundling practices common to cable and satellite TV may not be eliminated by the rise of online streaming services. But in this case, LightShed Partners said it believes that NBC is fighting a losing battle and will ultimately drop its demand:
While carriage battles almost always end with the distributor caving, this just feels different. NBCU… want[s] to show investors that Peacock is a ‘success’ as streaming success is now the only thing that matters to media investors (thanks to Disney’s incredible success launching Disney+) and sustain their increasingly challenged legacy broadcast/cable network assets. Yet, doing battle with a tech platform whose investors do not care about the broadcast/cable network business and who probably think of YouTube TV as a hobby with little-to-no profitability is going to be hard for Comcast/NBCU to win. Google clearly believes in the importance of YouTube TV to drive YouTube ad sales given its aggressive marketing spend. However, the leverage in this negotiation feels like it is skewed toward Google. Ultimately, we expect NBCU to cave and leave Peacock out of the agreement.
NBC may have dropped its Peacock demand after LightShed published its post, based on what the NBC source told Ars.
Though YouTube TV is delivered over the Internet, it is similar to traditional cable TV in that it offers a bundle of live channels, on-demand video, and DVR service. Google would obviously like YouTube TV to continue offering NBC channels without having to bundle Peacock, and that’s probably a better outcome for users who could be forced to pay more for YouTube TV if NBC’s bundling demand is successful.
Comcast CEO Brian Roberts said in July that Peacock has “54 million sign-ups and over 20 million monthly active accounts.” That includes people who registered for the free tier, and it isn’t clear how many people pay for the $5 and $10 tiers. As LightShed noted, the user number also includes people who get the ad-supported $5 tier of Peacock for free in a bundle with Comcast or Cox cable service. Comcast’s latest quarterly earnings announcement said its media-division results include a “loss of $363 million related to Peacock.”
Google to cut price by $10 if dispute continues
Google announced in a blog post on Tuesday that if the NBC deal expires without a new agreement being reached, it will decrease the YouTube TV monthly price from $65 to $55 until NBC channels are available again. Google pointed out that customers can sign up for Peacock separately “to continue watching NBCU content, such as Sunday Night Football.”
NBC made a similar Peacock-bundling demand of Spectrum TV operator Charter earlier this year but “failed in trying to get Charter to carry Peacock Premium… and settled for a short-term trial for Charter subs,” LightShed Partners wrote.
“We cannot fathom why YouTube TV would pay for Peacock, when they can simply tell subscribers to sign up for Peacock Premium via Google Play or any other app store,” the investment research firm’s blog post said. One of the strangest aspects of NBC’s demand, LightShed wrote, “is that YouTube TV subscribers would not even be able to access Peacock from within the YouTube TV app; they would need to download Peacock and use the Peacock app. In addition, Peacock has a lot of next-day linear programming from NBCU that you already get when you subscribe to YouTube TV (or any other MVPD/vMVPD).”
Channels that could be dropped from YouTube TV if the dispute isn’t settled include NBC, Bravo, CNBC, E!, Golf Channel, MSNBC, Oxygen, SYFY, Telemundo, The Olympic Channel, Universal Kids, Universo, and USA Network. Also at stake is access to NBC’s regional sports networks in the Bay Area, Northern California, Boston, Chicago, Philadelphia, New York, the Northwest US, and Washington, DC.
YouTube TV wants to be treated “like any other TV provider”
One sticking point in negotiations is reportedly YouTube TV’s demand that NBC agree to a most-favored-nation (MFN) clause. LightShed noted that other TV providers have required MFN agreements for years, and “[g]iven YouTube TV’s scale and growing industry importance, we have a hard time understanding why they would not be able to protect themselves with an MFN.” Another area of dispute is over what YouTube TV has to pay NBC for regional sports networks, but LightShed’s post said that the Peacock and MFN disputes are the “two big issues.”
“Our ask is that NBCU treats YouTube TV like any other TV provider,” Google said in its blog post, in an apparent reference to negotiations over an MFN clause. “In other words, for the duration of our agreement, YouTube TV seeks the same rates that services of a similar size get from NBCU so we can continue offering YouTube TV to members at a competitive and fair price.” Google told Ars that NBC has not been willing to offer contractual protections that ensure YouTube TV doesn’t pay more for NBC channels than similarly sized TV providers do.
Google’s blog post said that “NBCU is an important partner for us” and that it is “hopeful we can get past this impasse to keep their content available on YouTube TV.” NBC took an aggressive stance, setting up a “You Need Channels” website that warns users, “YouTube TV may drop your favorite channels.” This NBC website urges users to express their discontent by contacting YouTube TV and provides a list of alternate TV providers that consumers could switch to.
NBCUniversal provided Ars a statement, saying that “NBCUniversal is seeking fair rates from Google for YouTube TV’s continued carriage of the only portfolio offering entertainment, Hispanic, news and sports networks. Unfortunately, Google is refusing to make a deal at these fair rates and is willing to withhold entertainment, news and sports programming from their paying customers. NBCUniversal feels a responsibility to inform our fans that they are at risk of losing their favorite shows if Google continues with their demands.”
Analyst: Comcast should stick to broadband
Comcast continues to operate both a cable network and a media business, courtesy of its 2011 purchase of NBCUniversal. By contrast, AT&T plans to spin off WarnerMedia and focus more on its core telecom expertise, while Verizon is similarly giving up on the media business by selling Yahoo and AOL.
LightShed analysts say Comcast should focus on broadband instead of media—but they don’t expect that to happen.
“Given that Comcast investors really only care about Comcast broadband, we are having a harder and harder time understanding why Comcast still owns NBCU, let alone Sky in the UK,” LightShed wrote. “Not to mention, why is Comcast even still in the video bundling business and trying to force Peacock to be a success versus just offering third-party vMVPDs and SVOD/AVOD services on top of its incredible broadband pipe? If Comcast exited NBCU, Sky and the video bundling biz, its stock would soar. Unfortunately for Comcast investors, it does not appear any of this is likely anytime soon.”