How Philo Keeps Pace in the Virtual MVPD Race

cable channels. It's a simple value proposition that has helped this venture stand out in a crowded marketplace of so called virtual m v p d s, and as Filo CEO Andrew McCollum explains, he's not about to make the mistake that has the prices of many of his competitors. Thanks for talking to me, Andrew, Thanks for having me. So I'm curious, how are those numbers looking now in and what is the pandemic meant in terms of your subscriber base and keeping that going. Yeah, I'd love to

talk about that. UM. We actually just passed eight hundred thousand subscribers recently, so we are tracking a law. I think that we've definitely seen a significant surge of growth UM this year around, particularly during March, April, May June, sort of the shelter and place period that was driving a lot of people to spend a lot more time indoors and consuming entertainment services. We definitely benefited from that.

I think, you know, as we kind of look ahead, we really start to think about, well, you know, if there's gonna be a longer term economic impact from the coronavirus pandemic, is that going to hurt the economy? And how do we you know, we've always tried to position ourselves as a really low cost, high value service. Um, we really think that we give you a lot for twenty dollars. You know, we include sixty channels and you know, an unlimited DVR and three streams, and you can use

it on any device. And you know, I think that in that climate, we think that, you know, we're very well positioned. As people are looking to control their budget, um, you know, control of the cost of what they're spending on entertainment. Filo is a really good option, um in the mix if you're looking to get a lot of great content at a at a really fair price. But this virtual m v P D space that you're in

is it's got a lot of players in it. Uh. The good thing is you're one of the cheaper options, but a lot of these players have also really run into a lot of trouble, and I'm curious, what do you think has kept you from running into that trouble as well. Well. I think it's probably fair to say that essentially every other service in this space came to market with an offering that was significantly under price relative to a price that would actually make it, you know,

a margin positive, functional, long term business. UM. I think a lot of this can be chalked up to the fact that almost every other company who's launched a stir this a virtual cable service, has taken a focus on broadcasting sports, and that content um brings a much higher cost along with it, and so delivering those services at

a palatable price point was really difficult to do. You know, in the time that we've been launched, you know, our twenty dollar package is the same twenty dollars it was when we launched, except it has a bunch more channels, and that same period of time, you know, YouTube tv has gone from uh thirty five dollars to sixty five dollars um. And I think that's a reflection of this challenge that they all came into the market with really

under pricing their services. UM. Whether that was sort of you know, I mean, the sort of cynical view of that is they're trying to get a bunch of people in the door so they can sort of aggressively raise the price later. UM. You know, the more favorable interpretation is, you know, that's just the price they thought they had to offer it at. But either way, I think that trying to kind of unwind that has been pretty challenging and painful for a lot of the other services in

the space. We really approached it from a different perspective. You know. We focused on this entertainment lifestyle knowledge category not just because we felt like it was unique in

the market. There weren't other places you could go to get this selection of content without paying a huge price for broadcasting sports, but also we felt like we could bring it to market at a fair price point that we can stand behind and not sort of be forced to raise prices significantly on our customers, on our subscribers

in order to actually make the business work. And that's why we've been able to maintain you know, basically the same pricing UM since we launched UH and we feel like that's put us in a great position to continue growing quickly and offering something UM that's really honest and fair to consumers, and and that's resonated, Well, are you going to be able to hold it that price point? It seems that the pitfall so many of your competitors have run into is they try to add more channels,

their costs go up. So or are you gonna stick to twenty dollars no matter what? Or is it inevitable your price goes up as you seek to add more channels. Yeah. I mean there's two factors that really drive price UM. One, as you mentioned, is adding additional content to the package. UM. I'd say that we feel pretty good about the package

of content we offer. Now. There's definitely things we intend to add, but we don't currently anticipate adding big categories of channels that will drive costs in our current based package. The things that will add are more in the category of UM you know, ad supported content, UH you know, premium add ons, UH, Spot offerings, etcetera. That are either all the card offerings to consumers or don't drive additional

programming cost in the base package. UM. But the other cause of price increases are the annual increases in costs that are built into programming contracts. UM. You know, I think you know, the average programming contract includes an annual increase in the cost of the content, you know, say,

roughly five to eight percent a year. Um. You know, just to put that in context, you know, that's higher than the annual increase in the cost of housing, healthcare, and higher education, which are normally cited as the three most egregiously increasing cost you know, parts of the economy. UM. Television programming cleans the floor with all of them. UM. So look, we're not um impervious to rising costs. Are

programming deals have anyone increases built into them? So I can't sit here and guarantee that our price will never go up. But I do think that we have put much more emphasis on, uh, you know, keeping the price low, not just through the choices we made around programming, but also we operate the company very leanly. Our company is eighty five people, and I'm pretty sure you know that any other streaming company is probably uh, you know, multiples

of that, if not orders of magnitude that size. UM. Some of these other companies probably place may lawyers as we have employees. UM. We also build all of the technology ourselves, and that helps us to keep the cost down because we can reduce our infrastructure and overhead cost really significantly because we've created basically all the tech we use UM in house. So I think that UM, well we you know, I can't say that the price of

file will never go up. We definitely put a lot, a lot, a lot of effort into trying to keep it as low as we can and and and not and not raise the price. You've done that in part because, as you've mentioned, uh, no broadcast, no sports. You're also missing some of the top news names. So uh, you know, those are some pretty big gaps. I would imagine there's gonna be a big chunk of the marketplace that's not going to go for your product because that's missing. So really,

who is your customer base? Who out there doesn't want these kind of things? Maybe it's a bigger market than some might realize. Yeah, I mean around the time we launched UM, several outside independent analysts, without any involvement by us UM studied this idea of an entertainment driven package, and most of them pegged the number of US households that were interested in this type of package somewhere in the fifteen to twenty million households range. So we're obviously

nowhere close to that. We think there's a lot of room to grow and and to to become quite a significant size service just with the category of content we have. But I actually think that it's a bit of a mistake to peg filos market as simply those subscribers, because there's a lot of other ways to get value out of Filo. For example, a lot of people combine Filo with other spot services like Netflix, Disney Plus who lose

v O D service, Amazon Prime, inst and Video. You can kind of build your own package out of a bunch of these olive cart Spot offerings and Filo, and you know, still be paying a lot less than you

would be for traditional cable. You know, adding multiple ten to twenty dollar month add ons on top of a twenty dollar month TV package is a lot more economically viable than adding those same add ons on top of a hundred and twenty dollar month TV package, which is like, um, you know what the average direct TV customer pays for example, Um, you know, I think that other than that, there's also the opportunity to pair Filo with over the air broadcast antenna.

You know, here in San Francisco, you can get seventy channels over the air. Uh, And so with Filo you can get twenty channels for twenty bucks a month. It's a really good deal if you're looking to really um, if you're really budget conscious and cut your cost. And there's a lot of great you know, a lot of the news and sports content you can get for free over the air. So that's a great option for people.

I think that also, I would say that, you know, we don't have any in air bias against broadcast and sport. We would love to offer those networks if we can do it in a way that preserves the kind of choice and flexibility we think that customers demand. Uh. And I think that I'm hopeful that we'll get there eventually, but you know, I think that, uh today, we haven't been able to make make it work well, certainly given the state of the economy in this country right now.

Something as budget conscious is what Filo is doing, I think is going to resonate. But on that same point, up until very recently, you guys were the cheapest option along comes T Mobile, which very recently launched a ten dollar thirty something channel offering. What do you think about you know, the possibility that we could see others come in and undercut you. Is there some some area there to play that you guys might not have anticipated could

become into market. Well, look, we've never really defined our service as being the lowest cost TV service. Um. You know, I think that we want to be a good value to people. We want to deliver you know, a great a lot of content and functionality for the price you're paying. And we think we do that today with the price, uh that we're at. But you know, we're not really focused on being the cheapest. We really want to be a great service for the price you pay, no matter

what that price is. Um. You know, I think that the offering from T Mobile is really interesting. You know, this idea of splitting broadcasting sports just getting to the point I was just mentioning, makes a ton of sense. Um, you know, I think it's really uh, that is the direction that the TV Bundle needs to move it. In our opinion, Um, if we were gonna offer broadcasting sports, I think we would really seek to do it as a separate package. So that part is really smart. And

hats off to them for for doing it. Now they seem to be in a bit of hot water with their programmer and partners. So, UM, maybe the approach they took wasn't quite um uh calculated just exactly right. But UM, in spirit, I think that um, the concept makes sense. You know, I think that comparing the prices directly isn't

exactly fair. They don't include DVR for ten dollars, so you're you're paying an extra five dollars for that, and it's not an unlimited DVR, it's only a hundred hours, and you know, like also you only get two streams instead of three, so and it's not available on Roku and so, and it's only available a T Mobile postpaid customers. So there's a lot of caveats to get to the

you know, to the price that they launched at. UM. And so look, I think that we still feel really good about where we are in the market, and you know, maybe someone will come along and and undercut us on price, and I think that, UM, we really try to focus not on what other people are doing, but on what we're doing and just try to deliver the best service we can and you know, kind of let that speak

for itself. Well, but you can't ignore the competition. And I'm curious whether you know, some describe it, I guess as a different products set. But these free ad supported streaming services like Pluto, there's a number of them out there. Do you see them as competitors because of course what they're providing is absolutely free. Yeah, not really. There's a lot of people who that's another uh point. Actually, a lot of people combine those free unsupported services with Filo

and very happy to to use both. Um. You know, I think ultimately, um, they're much more synergistic than they are competitive. Um. As I mentioned, we are looking to bring more of that content within Filo. Would be great to offer it within the same app and experience, and I think that, um, there's a lot of opportunity there. Um Ultimately, Uh, you know, the free content is great. I'm a big fan of that strategy and think that

it again, it makes a ton of sense. Um, but you know, there's a lot of uh, you just aren't gonna be able to offer the full range of content at free. It's just not a price point that works for the economics of television to to have everything be

available for their at that price. So I think that there's gonna be a lot of people who are gonna want you know, more premium offerings and and so it would be great to pair those things together to say, look, we've got a selection of the as supported content for people who want that. We also have options, uh, you know, at really fair prices above that for those who want to add more premium content, and you can get one

or the other. You can start one place, go to the you know, you can start it free and go to paid. You can start to paid and go to free if if you feel like it, and really just give people a lot of ability to kind of pick what makes sense for that. You guys recently announced a partnership with best buy where uh, customers who buy various streaming products that come to that retailer will get I

think it's one month free of file. Oh how important are those kind of partnerships when you're trying to crack

this marketplace. In the long term, I think they're very important. UM. I don't think it's been a huge driver of adoption of our service or or other services to date, but I think in the long term, UM, I'm very optimistic about those kinds of partnerships because I think that this still the single largest barrier to people adopting streaming TV like services like Filo is just the complexity of it. I mean, I think that those of us who are in this space, you know, day and day out, Uh,

it seems very straightforward. We're like, oh, well, you just like get a Roku and then you go on the channel store and you get the Filo app and you sign up and you're off to the races. But for I think the average you know consumer out there, they're like, well, which thing do I get? Do I get a Roku or a fire TV or or a Google TV? But I thought that was Chromecast And how is it different now? And or or maybe I get an Apple TV and what's the different Like why is one and one thirty

dollars and what's the difference? Or maybe my tv R does it? I thought I got a smart TV three years ago, so you know what does that mean? And and then they're like, okay, well I want to replace these channels, but which services do I need? I want the entertainment networks from Philo, but I want the sports networks from someone else, um, you know, but also I want you know, uh, Peacock and HBO Max, but that's not available on you know, it's very confusing to people,

you know. And you know, for all the things you can say about traditional cable that are bad, and there are many, uh, there's a lot that's bad about traducial cable, the one part of it that's really great is you know, it's a pain to call them on the phone and and schedule like an eight hour block when they're gonna

come to your house. But when that cable installer comes, they set everything up, They put the box in your TV, they connect all the wires, they put the batteries in the remote, they test it all out, and when they leave, you pick up the remote, you press the power button and your TV comes on and it's playing and it works. Um. And that is like actually and an amazingly underrated experience that you know as a consumer. It's literally you know, brain list to to get it to get it working.

And we do not have that right now in streaming TV that I believe is the single biggest bearer to people adopting these services. So if we can build these kinds of relationships with retailers like best Buy, who have you know, they have tech support, they haven't they have installers, they have you know, salespeople in the store who can explain the options and how it works and help you

get set up. You know, that is a huge win over time because we can basically recreate the ease of the cable installer, uh, you know, in the streaming space, and I believe that in the long term that will be absolutely vital. Was curious is international on the philoh road map? Could we see you guys in in Europe or elsewhere? Do you see much products of your type out in these markets that you're not in yet? Yeah? I mean I think that, um, a lot of the other.

Every TV market is sort of unique and has its own dynamics that you need to understand. I think we we have, Uh, we're obviously most focused on the US and think that there's a lot of room to grow here. We have looked at launching in some international markets, and I think that, um, it's more likely than not that we will go in that direction in the relatively near future.

You know, I think that the way TV content is licensed, you know, it's quite smart that Netflix has been able to build this international library of content, whereas most of the traditional TV content tends to be licensed out market

by market in a very piecemeal fashion. That makes it actually much more challenging to UM grow services internationally, you know, like UM even if you look across the border from like the US to Canada, there's a lot of TV networks that have the exact same name but totally different

content lineup, totally different content strategy and approach UM. And that makes it really ch lenging to build a globalized service because we would love to have the brands and channels are on Filo be available everywhere and have it be consistent and and have it have the same meaning to consumers, but it doesn't UM. So I think that's a challenge. I think they will overcome that, UM, but it does make the international growth piece UH much more,

much more challenging. And you know, I think that UM definitely like the economics of each different market are are you know, are are something to be considered as well. You know. Filo, of course, is is very reliant on all these US cable brands that in their day we're you know, had the very best programming out there. You fast forward to though, and it seems like a lot of the content companies behind those UH networks are putting more and more energy into their streaming services content that

you're not necessarily gonna get your hands on. Is that a concern for you in the long term. I think it's some concern, But there I think there's different approaches in this space. There are some that are taking approach where they want to make it much more complementary to the content that's available on traditional TV. You know, for example, UM Disney obviously took that approach with Disney Plus and

in the ESPN Plus. I think there's a lot in terms of what AMC is doing that's very similar to that, where it's sort of a premium upgrade to what you get on the traditional UM TV service. Uh, that's great from our perspective, it's another we we love to offer

those things through filo and give people more options. I think that there is definitely um an emphasis that Wall Street is placing on the successity services that's causing companies to really feel like they need to go out and try to make them successful to kind of buoy their

stock price. UM I'm not sure that necessarily translates to what makes the most sense in the long term, and so you know, ultimately I'm not I feel like the model all that a lot of are pursuing today, UM will change and so UM for that reason, I wouldn't say we're like overly concerned about it. Um. You know, the traditional ecosystem provides a lot of value uh and makes a lot of sense on a bunch of different

economic and user experience dimensions. And so I think that ultimately, UM, you'll end up with something that's more of a blend that's in between again, like perhaps like the main channels are on filow and then you can sort of get the you can add on to that and get a deeper experience through kind of upgrading to one of these plus you know offerings as well. UM. But we'll see, you know, it'll be interesting to see how it all all plays out. One last question, what will this new

year mean for Filoh? Is this going to be a big year for you guys? Yeah, I mean every year we try to make a big year where you know, fast Gregg startups, so we are always starting to kind of move as quickly as we can. I do think that kind of that one way. The one thing that I'm quite excited about is that you can kind of I think I think you'll be able to look back into and divide the history of Filo into into two phases. The first phase was just to build what you got

from cable, but sort of with superpowers. So you know, it's the channels that you've got before, but you can watch them on any device, and you can start anything over from the beginning, and you haven't unliving the TVR and you can watch you know, multiple streams, and it's searching, discovery is much better. You know, you know, all of these things that are similar to what cable did, but you can do it better with Filo and and cheaper. Um. I think phase two is really to start to say, look,

we need to reinvent what TV is. You know, the idea of TV, what like a TV channel is now hasn't changed and since it was first like the first broadcast channel was broadcast in whatever, nineteen thirties whatever, you know, it's still a seven network on a schedule, which makes sense when you have literally a broadcast tower on the top of the tallest hill around sending out the signal

to everyone who's getting it in real time. But in the age of the Internet, there's really no reason why it needs to work that way technologically, and certainly not

from a product perspective. So I think there's a lot of things we can do now to really reinvent the TV experience, to make it more dynamic, to make it more personalized, to make it more social, to make it more connected, and a lot of that stuff we are just getting to launching in the product you know now in the near future, and I think that that will start to make television and filo look completely different than

what it looked like on traditional cable. And I'm very excited about that because I think that's the ultimate promise of moving to streaming as a technological platform, and we it's not. It hasn't really happened yet, So I think that that will that's really exciting and will start to really changing how we all think of television. Aut looking forward to seeing how that future takes shape. Thanks for your time today, Andrew, Yeah, thank you. M H. This

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