YouTube TV challenged cable by doing one simple thing — imitating it

More viewers are cutting the cord in favor of less expensive streaming packages. But Alphabet-owned YouTube (GOOG, GOOGL) has seen success by mimicking the one thing consumers seem to be ditching.

YouTube TV, the internet pay-TV service that allows viewers to watch live channels and access local broadcast networks like ABC, CBS, FOX, and NBC, first launched in 2017. Since then, its breadth of content as well as its price of just over $70 per month has made it attractive to consumers looking for a cheaper replacement for their cable packages.

"We hear from our users that they want to be able to watch all their favorite content in one place, and they want to be able to manage all of their subscriptions in one place," Christian Oestlien, vice president of product management at YouTube, told Yahoo Finance. "There's a bit of this subscription fatigue."

According to Nielsen's latest TV viewing report, YouTube, which also includes the main digital platform, notched its 13th consecutive month as the most-watched streaming service on television screens during the month of February.

In total, YouTube jumped to a platform-best 9.3% of total US TV viewing, up from the prior-year period's 7.9%. It also delivered a sizable beat compared to Netflix's 7.8% market share.

Broadcast and cable continued to see yearly declines, contributing to a combined 50.9% of overall TV viewing — down from 54% in February 2023.

It's a significant feat for YouTube considering the fragmented media landscape.

On average, US consumers subscribe to four streaming services and spend about $61 per month, according to the latest Digital Media Trends report from Deloitte. Additionally, 68% of consumers surveyed pay for either a TV subscription or live streaming TV plan to access channels not available on streaming.

YouTube TV has capitalized on that demand.

The platform is now the largest pay-TV streamer on the market after recently surpassing 8 million subscribers at a price point of $72.99 a month. Disney's Hulu + Live TV (DIS), which costs $76.99 a month, is the next closest competitor with 4.6 million subscribers as of the quarter ending Dec. 30.

"We have the ability to deliver that complete experience," Oestlien said, referencing the success of not only YouTube TV, but also the popularity of the platform's digital arm with features like YouTube Shorts, a competitor to Instagram Reels and TikTok, along with viral content creators like Mr. Beast. "I think it's resonated with consumers."

For Alphabet, YouTube has become an increasingly important segment of the company with revenue from its annual subscription services, which includes YouTube TV, YouTube Premium, YouTube Music, and Google One cloud storage, amounting to $15 billion in the fourth quarter.

"YouTube is the key driver of our subscription revenues," Alphabet CEO Sundar Pichai said during the company's Q4 earnings call in January.

MoffettNathanson emphasized YouTube's importance in a note published on March 28, arguing it's the tech giant's second-most-important business to date — just behind its generative artificial intelligence efforts.

"With the growing success of their two leading subscription services (YouTube TV and YouTube Music), YouTube’s revenue growth accelerated by an estimated 17% in 2023 — almost double the 2022 growth rate," analyst Michael Nathanson wrote. "If YouTube was a standalone business, public comps suggest the business would be worth $375 to $400 billion."

MoffettNathanson expects YouTube to generate 16% margins by 2026 with operating profits expected to double to $11 billion. To compare, Netflix reported full-year 2023 operating margins of 21%.

'Sports underpins the entire experience'

Sports has served as the anchor to YouTube TV's success, especially after it secured the exclusive rights to NFL Sunday Ticket in late 2022.

"For YouTube TV, sports underpins the entire experience," Oestlien said. "Sports has always been a really critical component of what I think makes YouTube TV special."

Sunday Ticket, which makes out-of-market games available to fans nationwide, is currently available as an add-on package on YouTube TV or as a standalone à la carte service on YouTube Primetime Channels.

Oestlien categorized the Sunday Ticket launch as a "great moment" for the company, adding the package has served as a key driver for increased word-of-mouth subscriptions as more consumers cut the cable cord: "It was something that really captured people's attention."

But YouTube will face more competition in sports going forward.

Most recently, Disney's ESPN (DIS) announced a first-of-its-kind partnership with Warner Bros. Discovery (WBD) and Fox (FOXA) to launch a new sports streaming service sometime this fall.

The unnamed platform, which is expected to be priced "in the higher ranges" of current $40 to $50 a month estimates, will bring together the three companies' respective slates of sports networks and target YouTube TV's core demographic of "cord cutters" and "cord nevers."

ESPN will also debut a separate fully over-the-top sports streaming service in 2025.

Oestlien shrugged off the increased competition. Rather, he said the upcoming launches could open up more partnership opportunities for YouTube TV.

"A lot of the platforms that you would think would be competitors of ours are actually some of our closest partners," he said. "The three companies that are partnered in this new streaming service are all really good partners of ours that we interact with on a daily basis. I'm personally really excited to see them leaning into offering more consumer choice."

Still, the competition is only expected to grow with upcoming sports rights renewals on the horizon for prominent leagues like the NBA.

Experts say tech giants like YouTube have the upper hand in negotiations over traditional players, which have seen linear revenue plummet amid the cord-cutting phenomenon.

"YouTube and these other Big Tech companies are sitting on a lot of cash," said Jon Christian, executive vice president of digital media supply chain at Qvest, a media and entertainment-focused consulting company. "They have the ability to pounce on these things and have so much more flexibility because they're not burdened by a ton of debt. They also have the hardware and the infrastructure to support all of this [live streaming programming.]"

Oestlien wouldn't give specifics on YouTube's current negotiations. But he did emphasize the opportunity within the growing sports streaming marketplace.

"It's going to be a really fluid market for the next several years and that's only going to benefit consumers," he said of upcoming media rights renewals. "Hopefully, YouTube can play a big part there."

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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