Pay TV's Evolution Is Good News for These Companies

The over-the-top evolution continues to move forward, as comScore recently divulged that the first three OTT pay-television providers (Sling TV, PlayStation Vue, and DirecTV Now) together reached over 3.1 million subscribers by the end of April. We note that the industry reached the 3-million-subscriber milestone without any impact from YouTube TV or Hulu with Live TV, both of which have tremendous infrastructure and experience in streaming video content. We expect that the high-profile entrance of the two largest OTT video players will lift the entire space, as the launch of DirecTV Now did at the end of 2016. Both services also added new channels to their offering in recent weeks. We are maintaining our moat ratings and fair value estimates for all 11 U.S. media and pay-television distribution companies under coverage. With shares trading in the 4-star range for both

Both new entrants have recently expanded their services. YouTube TV announced that the service would be available in 10 new markets within a few weeks. These new markets (Atlanta, Charlotte, Dallas-Fort Worth, Detroit, Houston, Miami-Fort Lauderdale, Minneapolis-St. Paul, Orlando-Daytona Beach-Melbourne, Phoenix, and Washington, D.C.) will join the original five markets of Los Angeles, New York, Chicago, Philadelphia, and the San Francisco Bay Area. The slow expansion of YouTube TV will limit its subscriber growth but offers the advantage of not launching with a limited package, an issue for the relatively skinnier YouTube TV lineup.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.