The Skinny Cable Line-up

Fatty_watching_himself_on_TVIt’s going to take some time to see if Sling TV can fix their technical issues and be successful as an on-line TV product. But perhaps they have started something that will be the wave of the future. The most interesting thing about Sling is that they have a skinny base programming package to which a customer can then add small packages of optional channels. Sling has put some of the most popular channels in the base tier, so there are likely going to be some homes that will find just the skinny line-up attractive. While this is not a la carte TV where a customer can pick what they want, it brings more options than what we are used to having.

Verizon just announced that they are going to offer a skinny option on their FiOS TV. The Verizon offering is not as skinny as the one on Sling TV, but the Verizon package includes all of the major networks, PBS, and other local programming within the base package. The base Verizon package has 36 channels and it looks like a customer must then choose two add-on bundles that have from 10 to 17 channels. The add-on bundles are by type of programming such as a kid’s bundle and a sports bundle.

Verizon is proposing to sell the base plus two bundles for $54.99 per month on a standalone basis, but it gets much cheaper when bundled with broadband and/or telephone. For example, a bundle of symmetrical 25 Mbps broadband and the TV is only $64.99, or $10 more than the TV alone. A customer can add telephone for another $10 per month. Verizon says they will let people switch the add-on bundles, so people aren’t going to be stuck with only two.

Of course, we have a way to go until service providers can easily offer the skinny packages. Just yesterday ESPN announced that they were suing Verizon to stop them from including their channels in the skinny bundle. A few other networks are also  unhappy with the proposed Verizon line-up and we will have to wait to see if and how the product actually makes it to market. The skinny line-up might need to wait until the FCC comes out with some rules for Web TV since the programmers are obviously going to be very careful to not allow products that produce real competition with their bread and butter traditional cable TV subscription base.

Like Sling, Verizon is not a la carte TV, but it is a start in that direction. Nielsen just released a report that shows that people barely watch the content they get in the big cable bundles. The average household today receives 189 channels but only watches an average of 17.5 of them. Interestingly, the number of channels foisted onto people has grown dramatically; in 2008 the average home received 129 channels but watched the nearly identical 17.3 of them.

Cable is expensive because it has millions of people paying for channels they never watch. I know the last time I had cable I programmed my remote to only surf the channels I watched and I skipped the rest. The Verizon package, while not exactly skinny, pulls down the number of channels received by a household to a more manageable 60 or so.

The most interesting thing about this change is that it’s possible that Verizon will make more money on this skinny line-up than they do selling the giant one. They must pay for all of those 189 channels that people get whether people watch them or not. One would think their programming cost for these smaller packages is going to be significantly reduced.

Verizon and other cable providers are also in the process of quietly dropping channels to reduce their cost. For example, Verizon recently dropped the Weather Channel since they believe that most people check the weather on their smartphones today and do not watch TV to see the latest weather. Going to the skinnier base line-up is going to give Verizon more ammunition to slice other channels (or at least not pay for them for a lot of their customers).

While this trend toward skinnier line-ups is just starting, if it is successful it is going to have a dramatic effect on programmers. The cable providers like Verizon are going to put as many of the most popular channels into these smaller packages and that is going to leave a lot of less popular networks out in the cold and facing reduced revenues. There are over a hundred cable networks that thrive today because they can count on getting a small payment of a dime or less per month from a hundred million customers. But if the movement to smaller packages is popular, a lot of these networks are going to see vastly reduced earnings, and over time many of them will fade away.

To the extent that more web TV providers can come up with packages that people want to watch, one can imagine cable companies copying the most popular ideas in order to keep the customers on their networks. As you can see by the bundle packaging above, the cable providers have a huge advantage over any online provider since the cost of a customer’s broadband rises significantly if they drop cable altogether.

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