When Philo CEO Andrew McCollum spoke with Flixed recently, he discussed the growing connection between Philo and regional cable providers. It turns out, even the cable companies want you to cut the cord.
Note: Our interview with Andrew was long enough that we decided to produce more than one article from it. Here’s what he said about the surprising nature of Philo’s subscribers. Or, read about Philo’s plans to make streaming TV more social.
Half of Philo Subscribers Weren’t Cord Cutters
McCollum said that, when Philo surveys its customers, the company finds “over half of them had no [pay] TV service when they signed up for Philo. They weren’t necessarily switching from an existing cable provider or even another virtual cable provider to Philo. They had no service at all.”
Philo’s unique approach to the streaming business bundles 58 popular lifestyle and entertainment channels into a single $20-per-month subscription plan. The catch? You can’t get sports channels, 24-hour news networks or the big broadcast networks.
“If you cared about channels like HGTV and Food Network and Discovery Channel,” McCollum explained, “you couldn’t get those channels without paying $15 per month for ESPN and another $10 per month for all the news networks”. This is the reason why cable-replacement streaming services typically cost $50 per month or more.
People who don’t have a cable subscription can use Philo to supplement their over-the-air TV watching, with included features like TV and a digital TV streaming guide. McCollum said that attracting people who aren’t already streaming “means we’re really re-engaging people with television who had kind of dropped out because they thought the options weren’t meeting their needs.”
Philo Helps Cable Companies Cut the Cord
McCollum also discussed Philo’s surprising new distribution channel — cable companies. More than 750 local and regional cable companies banded together as the National Cable Television Cooperative (NCTC). Working together improves the NCTC’s position when dealing with content providers. In late 2018, Philo signed a deal with the NCTC that lets its members sell Philo subscriptions to their customers.
At first glance, it seems crazy that cable companies would use Philo to help its customers become cord cutters. But McCollum said that cord cutting is becoming part of the cable industry’s long-term strategy.
“There has been this conventional wisdom in the past that cable operators would never want to give up [TV services] because they would be reduced to ‘dumb pipes’. I think that analysis was really wrong.”
“Almost all of the profit they make is on the high-speed internet service,” McCollum said. That’s because they have to pay the same licensing fees as every other TV provider. “Partly because of rising costs and competition and some of the built-in dynamics of the industry, a lot of the smaller cable operators either break even or lose money on the TV service.”
The cable companies lower their costs by shifting customers from cable TV to a service like Philo. McCollum said that “the more forward-thinking cable operators are starting to see that internet is the main service they offer”. By promoting services like Philo, regional companies can focus on their value as internet service providers.
“I think they’re a great natural ally for us — it’s really upside for both sides,” McCollum said. “I’m really quite optimistic that that’s only going to continue into the future.”
Flixed: Are your customers mainly former cable subscribers or are they coming from other streaming services?
McCollum: Yeah, that’s one of the really interesting things. We hypothesized when we created the service that we would reach a different kind of demographic than was currently being well-served by existing TV offerings.
Before Philo there really wasn’t a way to get a package of entertainment, lifestyle, knowledge focused channels we offer without paying a huge premium for live sports. It just wasn’t possible to do. If you cared about channels like HGTV and Food Network and Discovery Channel and Comedy Central and AMC, you couldn’t get those channels without paying $15 per month for ESPN and another $10 per month for all the news networks and just a lot of additional cost that those channels brought.
When we’ve polled our subscribers, over half of them had no TV service when they signed up for Philo. They were pure cord cutters. They weren’t necessarily switching from an existing cable provider, or even another virtual cable provider, to Philo – they had no service at all.
That’s really interesting to us. It means we’re really re-engaging people with television who had kind of dropped out because they thought the options weren’t meeting their needs. So it’s nice to see that.
Working with Cable Companies
Flixed: Last year Philo signed a deal with the NCTC giving you a new distribution channel through regional cable companies. How does Philo’s service align with the direction that the regional cable companies are heading?
McCollum: I think that there has been this conventional wisdom that cable operators would never want to give up some of these additional services they offer and focus purely on high-speed internet because they would be reduced to “dumb pipes”. I think that analysis was really wrong.
If you look at the business behind cable operators and internet operators generally, almost all of the profit they make is on the high-speed internet service. Partly because of rising costs and competition and some of the built-in dynamics of the industry, a lot of the smaller cable operators either break even or lose money on the TV service. They think of it as a marketing channel for the high-speed internet.
In that kind of world where consumers are cutting the cord looking for more flexible options, looking to pay a lower price, it makes sense for cable operators to partner with services like ours. It gives them additional options to offer to their consumers, it emphasizes the value of their high-speed internet to use Philo.
I think the more forward-thinking cable operators are starting to see that internet is the main service they offer. They can be a portal for these additional internet-delivered services like TV, phone service, security or other offerings. In fact, they can provide a greater variety of things to their customers if they partner with other folks. So you’re seeing more and more cable operators replace their set-top-boxes with things that have access to much richer app ecosystems like Roku or boxes that are based on Android TV.
You’re seeing them partner with companies like us. I think they’re a great natural ally for us. It’s really upside for both sides. They can make it simpler for people to get access to Philo. Sometimes it’s easier for people to bill for it all through one provider. On the flip side, it lets them offer a much more diverse set of services and choices for consumers so its not just this one-size-fits-all option like there was before. That’s what’s behind our thinking there and I’m really quite optimistic that that’s only going to continue into the future.