The Downside to Bundling

bundleIt’s so common for triple play providers to bundle their services that it’s become the standard product of the industry. There aren’t any great stats on the percentages of bundles sold at the big cable companies, but I’ve seen speculation that it’s north of 70% of all residential customers. Certainly, with that kind of success it’s not hard to see why triple-play providers like bundles.

Back when bundles were first created all of the talk in the industry was that bundles would make customers ‘stickier’ – meaning that customers with a bundle were less likely to churn to another provider. The original lure of the bundles for customers was that they saved money over buying each product a la carte – and customers saw savings when they bought bundles.

But in much of the country the cable companies have won the competition battle. They now offer data speeds in most markets that are faster than their competition, and so customers no longer have an equal choice between two providers. We can see this by watching the huge ongoing shift of DSL customers to cable modems in the cities – just last year Comcast added almost 2 million new customers, most formerly from DSL.

I suspect that customers don’t look at the bundle in the same way they did years ago. If customers don’t have a real competitive alternative then the bundles are no longer saving them anything. When you consider the impact of a decade of high rate increases, one has to think that most homes are finding the bundle to become more of a burden than a boon. I just saw a statistic yesterday that showed that the average price of just the cable TV portion of the bundle has increased from $70 to $103 since 2011.

My guess is that bundles have lost their appeal for most customers. The stickiness that the cable companies crowed about can feel like a trap to somebody who wants to downsize. The industry has been abuzz for several years about the big movement towards cord cutting. But none of the articles I have read on the issue mention how hard it is for somebody to drop cable TV while keeping a data connection.

I’ve written in this blog a number of times about how Comcast forces me into buying basic cable TV in order to get a fast broadband product. I didn’t want that cable product on day one and I have tried over the years to ditch it. But I’ve always been told that I would have to drop my data speeds to a really slow product in order to buy standalone data. So what I have is a forced bundle – one with no options for breaking the bundle into the components and only buying what I want.

There are bundles in the industry that are not as rigid as mine, but which instead impose a harsh monetary penalty for breaking the bundle. Customers don’t know what they pay for any given piece of the bundle. But if you try to break a bundle, you find out that there was very little value assigned to whatever product you want to ditch and, thus, the savings when breaking a bundle are never as large as expected.

This phenomenon certainly has to be a contributing factor for homes not buying data from Google Fiber. It’s been widely reported that many people really like the cable products the big companies put out these days. The products are much improved over past years with cloud DVR, slick remotes and the ability to watch programming from anywhere on any device. But breaking a bundle to keep cable TV and then buy data from somebody else comes with such a significant financial penalty that it’s hard to justify.

Where bundles were once used to attract customers in a somewhat competitive environment, they have turned into anchors around customers’ necks. I have to think that a lot of the low rankings that the cable companies get on customer satisfaction surveys comes from the resentment over bundles. Nobody likes feeling of being forced to buy something they don’t want. From time to time I see articles ruing that we don’t have a la carte cable programming so that we can buy the channels that we want. But the fact is, that for most of us, we no longer even have many options for a la carte products that are not in a bundle.

One thought on “The Downside to Bundling

  1. Good blog post!

    In a recent study we commissioned with Heavy Reading that interviewed technology and product leaders at communication service providers, 81% of respondents agreed that
    “Voice in our portfolio helps drive adoption/growth of other services.” So, in the face of declining voice revenue and the idea it’s long term trend may be to become a free embedded app, voice still has a role in the overall portfolio. You can get a copy of that report here: info.alianza.com/heavy-reading

    A 2013 report from Digital TV Research also reported that multi-play dominates: 86% of total subscription revenues by are some type of bundle by 2018.

    On your speculation of 70% of customers taking a bundle, a recent report from Leichtman Research Group said that 68% of broadband subscribers and 59% of all households get a bundle of services. Google Fiber recently launched voice…in part because some of their target market want a bundle (and there’s some margin-rich uptick on selling cloud voice).

    Like

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