To The Moon

YouTube TV is among the most successful live OTT services around.

Over-the-top (OTT) streaming offering YouTube TV has reached a milestone of 5 million subscribers and trial customers, making it one of the most popular nontraditional live TV services in the U.S. Owned by Alphabet $Alphabet(GOOG)$ , five-year-old YouTube TV has differentiated itself from the competition with unique features such as a cloud-based DVR, real-time statistics for live sports, and more.

Now that an increasing number of people are cutting the cord and moving to internet-based television, here why this might this be the right moment for Alphabet to break YouTube TV out as a stand-alone operation.

YouTube TV succeeded where Google Fiber failed

YouTube TV is not Alphabet's first foray into the live TV arena. That (somewhat ignominious) honor goes to Google Fiber, the cable services company that was first announced in 2010 with bold ambitions of shaking up the industry. Google Fiber promised to install fiber-optic networks in communities across the U.S., providing homes and businesses with fast gigabit connections capable of handling a slew of operations, including live TV stations piped over the internet. Sure, it still required cable-like hardware, but that infrastructure was built to handle the demands of data-intensive high-definition video streams.

More than a decade later, Google Fiber has never really taken off. While the company has established itself in a handful of markets across the country, several missteps have marred the rollout. Needless to say, Google Fiber's TV subscription business didn't hit significant numbers, and the firm stopped taking new TV sign-ups in 2020, offering customers YouTube TV or rival fuboTV instead.

Of course, rather than dismissing Google Fiber's TV ambitions as a failure, perhaps a more generous reading is that it had to walk so that YouTube TV could run. After all, from the very beginning, YouTube TV eschewed the need for any specialist equipment -- all a viewer needed was an internet connection and a smart TV, PC, or mobile device.

Cord-cutting is ramping up

While 5 million YouTube TV viewers is a notable figure, it pales in comparison with the volume of consumers who still pay for cable TV. According to the Leichtman Research Group, the top seven U.S. cable companies -- including Cox and Comcast-- have 40.5 million subscribers combined. However, the research outfit also says such firms collectively lost about 825,000 TV customers in the first quarter of 2022, up from 780,000 for the same period a year prior.

While it's feasible a lot of those who've left traditional cable may have simply given up live TV for good, it's also workable that many will have migrated over to OTT services like YouTube TV and its ilk. Indeed, while Netflix or HBO Max (part of Warner Bros. Discovery) are useful forbinging shows, viewers still have to look elsewhere to catch live sports and other such event programming. And as YouTube TV has shown over the last half-decade, it seems to be well positioned to capitalize on that growing market.

Choosing the right moment

Since cable players still represent a majority of the live TV market, cynics could argue that it's not the right time for YouTube TV to go out on its own. And when you consider that right now, YouTube TV has the financial backing of Alphabet -- plus the cross-promotion of YouTube proper -- the unit is somewhat insulated from the spending power of cable operators that consider it a threat. Still, if not now, when?

Consider the possibility that live TV trends continue on their current trajectory and that, in another five years, YouTube TV is not just one of the biggest OTT brands, it but also among the largest TV service players, full stop. Would that put Alphabet in a difficult position with U.S. lawmakers? After all, many are already calling for large tech companies to be broken up because of their dominance over multiple industries. An independent YouTube TV, rolled out now while still a relative minnow, could be one less target on Alphabet's back in the future.

It will be interesting to see where YouTube TV goes next. As mentioned, the division has introduced some genuinely innovative features, many of which it likely couldn't have developed without Alphabet's deep pockets. But as the streaming industry continues to draw subscribers away from legacy cable, YouTube TV could be well placed to lead the charge -- if Alphabet allows it.