“Skinny bundle” has become a catch-all term in the industry for new, leaner iterations of traditional linear MVPD service. Truth be told, most of the new packages that have emerged to date are a little heavier on volume and price than “skinny” would suggest.
YouTube and Hulu are expected to carry most if not all of the basic channels owned by the parent companies of the Big Four networks, at a price range of $35-$40 a month. That’s a long list given the holdings of Fox, NBCUniversal, and Disney. Hulu’s lineup includes the seven major channels of partner Time Warner, plus the core six A+E Network outlets. And there are more to come for both Hulu and YouTube.
DirecTV Now starts at $35 a month for more than 60 channels, or $70 a month for 120-plus options. Add in the cost of the broadband service needed to live-stream all of this video, and the monthly price tag creeps closer to the $100-plus of a traditional MVPD package. Dish Network’s Sling TV is the slimmest of the bunch so far, with its base offering of 30 channels for $20.
The slimming of the 250-plus pay-TV bundle that has fueled showbiz earnings for the past two decades has prompted a tough evaluation of channels and spending priorities among the largest cable programmers.
Yet some argue that the key to combating cord-cutting is less about shuttering the weakest networks and more about giving consumers even more choice of channel packages. The consumer-friendly ideal of à la carte pricing remains a pipe dream — because such a construct would be economically untenable for both distributors and programmers. But there is likely to be demand for more themed packages along the specific lines of entertainment, news, and sports.
“Shutting down weak networks doesn’t really solve the price-value problem of pay TV,” says BTIG Research analyst Rich Greenfield. “The real problem is that you have 88 million homes paying $4 a month for regional sports networks even if they don’t care about sports.”
ESPN and other pricey sports nets are in most of the new bundles because of the all-or-nothing distribution muscle wielded by sports leaders Disney and Fox. Carriage deals with the largest MVPDs also include provisions that require ESPN, for one, to be included in each MVPD’s most broadly distributed channel package. That makes it harder for MVPDs to create non-sports channel packages, although industry observers predict these kind of distribution strictures will change over time with more competition overall.
For now, however, the digital MVPDs are essentially playing by the same rules as their larger traditional rivals. The lower price point of the new services raises the question of whether they can be profitable on their own. Programmers are commanding their regular carriage fees with the new entrants — anything less would be suicidal in relation to their existing MVPD contracts.
So what’s the motivation for the digital MVPD startups? Google wants to bring more high-end traffic to its YouTube platform. DirecTV parent AT&T wants to drive more wireless customers with packages that include DirecTV Now. And the Hulu partners — Fox, Disney, NBCUniversal, and Time Warner — have chosen to dive into the digital MVPD business to help set the floor prices for content in the OTT arena. Samsung, Amazon, Apple, and a number of smaller operations are hovering on the sidelines.
“The interests here are more strategic than economic,” says Anthony DiClemente, media and internet analyst for Nomura Instinet.
But if new packages and platforms help stanch the decline of subscribers in the overall pay-TV ecosystem, the benefits will be significant to programmers.
“Eventually our feeling is we’re going to hit a tipping point where we start to see an upward trend [in subscriber growth],” says David Zagin, president of distribution for A+E Networks. “As these new MVPDs have moved in with new opportunities, we see traditional MVPDs are doing a better job of marketing their product.”