TelevisaUnivision curbed streaming losses in Q1 as it also saw usage climb on its ViX streaming service, which launched roughly eight months ago. However, the company is making some swift changes to the branding of ViX’s premium tier, opting to drop the “+” that it initially debuted with to avoid more consumer confusion.
The ViX streaming service incorporates both free and paid tiers. The free ad-supported version launched last March called ViX, while the paid version debuted in July with the branding ViX+. However, both the paid and free ad-supported versions are available within one app and marketing the two tiers as separate services caused confusion for consumers, TelevisaUnivision CEO Wade Davis said during Tuesday’s earnings call.
“Separate campaigns and separate brands for two different tiers inside of the same service ended up being confusing to the consumer and expensive for us,” he said on the call. “Based on everything we now know and significant incremental work around the brand, marketing and consumer engagement strategy, we are going to quickly pivot to one brand: ViX, with two tiers inside the service: gratis and premium.”
The adjustment means reworking marketing and a relaunch with a one-brand strategy, which Davis acknowledged will likely cause one or two months of slowing subscriber growth and additional near-term expenses related to the rebrand. Still, “in the medium-to-long term, this is absolutely the right decision,” he continued.
In Q1 TelevisaUnivision stemmed streaming losses and recorded 6% total revenue growth year over year to reach $1.07 billion. Still while feeling confident on unifying the ViX branding, Davis said that move, coupled with macro-driven softness in the ad market, is likely to push back the timeline by a couple of quarters for when its streaming business is expected to break-even.
“We are continuing to see the quarter-over-quarter sequential improvement in streaming losses that we projected, including in this quarter where we are following a blockbuster World Cup and absorbing the seasonally soft first quarter ad market,” he noted.
In Q1 2023 TelevisaUnivision’s total subscription and licensing revenue climbed 7% over Q1 2022 to $436 million, primarily driven by the launch of ViX’s premium subscription tier. That includes 5% growth in the U.S. to $326 million, driven by the ViX premium debut and also reflecting subscriber declines in traditional MVPDs, partially offset by virtual MVPDs. Subscription and licensing revenue growth in Mexico 13% to $110 million was also primarily attributed to modest growth in linear subscribers and pricing growth. Investments in ViX, including new original content, sports rights, marketing and technology, drove expenses up 17% in Q1. As a result, Adjusted EBTIDA dropped 10% to $361 million but declines improved sequentially thanks to narrowing streaming losses over the prior quarter.
In terms of usage on ViX, over the quarter engagement grew 26% in total streaming hours, which Davis categorized as “remarkable, given we are coming off the World Cup in Mexico.” Still, soccer in particular is driving a sizable chunk of TelevisaUnivision’s new subscribers as he said the sport “continues to perform well on ViX, driving between 20-30% of new subscribers.”
“As a result, we are in the process of making incremental expansions to this soccer offering for ViX,” he continued.
The chief executive also noted that first-party content is driving around 75% of total streaming hours on the service, something Davis views as encouraging both as a competitive advantage and for profitability.
During opening prepared remarks, he reiterated it feels like TelevisaUnivision’s two-tier approach to the direct-to-consumer SVOD is the right strategy, with users of the free tier driving paid subscriptions. The three main rationales for both tiers within one service include: creating a mass market appeal in markets with relatively low levels of financial services; reduced customer acquisition costs; and managing churn in markets that intrinsically have lower ARPU and higher churn than the general markets.
In the U.S. Peacock is one service that previously incorporated both a completely free and paid versions within one app, but reversed course and stopped offering a fully ad-supported tier for new subscribers in earlier this year. Others, such as Paramount Global, have premium and ad-lite subscription tiers within one Paramount+ service, but the company has kept its free ad-supported streaming TV (FAST) service Pluto TV distinct, for example.
Davis said while the main learning of the DTC came by the way of confusion related to separate marketing of the two tiers, early results are “very validating of our two-tier product strategy,” with the free tier of ViX serving as the biggest source of subs for the paid version.
“We are seeing the percentage of subscribers coming out of this massive funnel accelerate and is now up to 60% of gross adds,” Davis said. In addition, it’s also starting to see some of the churn benefits it had hoped to.
While still early days, he noted the company is “seeing meaningful reactivation from users who churned out of the premium tier, continuing to enjoy the free tier, and then reactivating back to premium.”
At the end of the fourth quarter ViX counted more than 25 million monthly active users on its free tier.
Ad growth and opportunity
ViX also continues be a significant driver of growth for TelevisaUnivision’s larger ad business, which in Q1 grew 6% worldwide to $607.4 million. That includes 2% growth in the U.S. alone to $398.4 million. Advertising in Mexico grew 14% to $209 million, which included benefits from the 2023 Upfront in the market where the company said it “secured record volume commitments.”
As for ViX, Davis said attachment rates continued to grow quarter-over-quarter, and are now at 70%. Sellouts were a little lower than the prior quarter but remain above 75% and pricing continues to climb, with over 80% premiums to linear on a P+2 basis. It sees a major opportunity on the advertising side in the U.S., with an overall audience that is 20% of the U.S. population, based on two elements including, a lack of penetration of major advertisers spending in Spanish-language against the company’s audience, and price disparity between what Univision has historically charged compared to prevailing prices in the general market.
“Closing the price gap and bringing U.S. advertisers and their spend closer to what our audience reflects in terms of population and purchasing power represents hundreds of millions of dollars of ad revenue upside for us, which will only grow as we continue to scale our streaming capacity and our portfolio of advanced marketing solutions,” Davis said.
He also reiterated that TelevisaUnivision is focused on programming its linear and streaming platforms “as two distinct and complimentary content propositions,” enabling it to maximize audience reach, cross-promote where it makes sense, and leverage both formats to improve the overall audience experience.