There are a few signs in the industry that we are edging away from the traditional triple play bundle or telephone, cable TV and broadband. The bundle was instrumental in the cable company’s success. Back in the day when DSL and cable modems had essentially the same download speed the cable companies introduced bundles to entice customers to use their broadband. The lure of getting a discount for cable TV due to buying broadband was attractive and gave the cable companies an edge in the broadband marketing battle.
Over time the cable companies became secure in their market share and they created mandatory bundles, meaning they would not sell standalone broadband. Over time this spit the broadband market in cities – the cable company got customers who could afford bundles and the telco with DSL got everybody else. Many of the cable companies became so smug about their bundles that they forced customers to buy cable TV just to get their broadband. I’ve noticed over the last year that most of the mandatory bundles have died.
The bundle lost a little luster when the Julia Laulis, the CEO of CableOne, told her investors in February on the 4Q 2018 earnings call that the company no longer cares about the bundle. She said what I’m sure that many other cable companies are discussing internally, which is that the bundle doesn’t have any impact in attracting customers to buy broadband. On that call she said, “We don’t see bundling as the savior for churn. I know that we don’t put time and resources into pretty much anything having to do with video because of what it nets us and our shareholders in the long run. We pivoted to a data-centric model over five, six years ago, and we’ve seen nothing to derail us from that path.”
Her announcement raises two important issues that probably spell the eventual end of bundling. First, there is no real margin on cable TV. The fully loaded cost of the product has increased to the point where the bottom line of the company is not improved by selling cable. The only two big cable providers who might see some margin from cable TV are Comcast and AT&T since they own some of the programming but for everybody else the margins on cable TV have shrunk to nothing, or might even be negative.
I’ve had a number of clients take a stab at calculating the true cost of providing cable TV. The obvious big cost of the product is the programming fees. But my clients tell me that a huge percentage of their operational costs come from cable TV. They say most of the calls to customer service are about picture quality. They say that they do far more truck rolls due to cable issues than for any other product. By the time you account for those extra costs it’s likely that cable TV is a net loser for most small ISPs – as it obviously is for CableOne, the seventh largest cable company.
The other issue is cable rates. High programming rates keep forcing cable providers to raise the price of the TV product every year. We know that high cable prices are the number one issue cited by cord cutters. Perhaps more importantly, it’s the number one issue driving customer dissatisfaction with the cable company.
I have to wonder how many other big cable companies have come to the same conclusion but just aren’t talking about it. Interestingly, one of the metrics used by analysts to track the cable industry is average revenue per user (ARPU). If cable companies bail on the bundle and lose cable customers their ARPU will drop – yet margins might stay the same or even get a little better. If there is a new deemphasis on bundles and cable TV subscription the industry will need to drop the ARPU comparison.
It’s not going to be easy for a big cable company to back out of the cable TV business. Today there is still a penalty for customers who drop a bundle – dropping cable TV raises the price for the remaining products. We’ll know that the cable companies are serious about deemphasizing cable TV when that penalty disappears.
I think we’ve got quite a ways to go, if ever, before bundling would naturally disappear.
It doesn’t seem to be on the agenda at all for AT&T, at least: AT&T CFO: “Where we can get AT&T fiber, a video product and a mobile product (together), churn rates just drop.” :: FierceTelecom, 4/24/19
Just for the record, my belief is that they’re all (telcos, cable) desperate to get back to the glory days of $100-200/mo ARPU and a lot of what we see today is light insanity that’s 100% focused on reclaiming that.
Bundling (biz school version) is totally dedicated to max ARPU. I don’t know the theory that well but I’m pretty sure it falls apart when the components are, themselves, too cheap or the package gets too expensive or there’s too much noise in the system.
You need someone kind of dazzled by bright lights and with some extra money in their pocket and maybe not too concerned about what seems like more…but not *so* much more money every month…kind of like a little casino in your tv or a fun lottery where every day you win six hours of HGTV, Blue Bloods, and Pawn Stars.
When there are other better choices your friends are talking about you don’t “get” in your bundle or when the $200/mo really is hurting,…it’s not such a happy meal. I kind of think the cable networks are figuring out they’ve overstayed their welcome and their audience is changing.
Here’s a survey that says (a) old people luuv them their teevee, and (b) young people add streaming to baseline cable, so they love tv too.
https://www.broadcastingcable.com/news/cord-keepers-dominate-in-new-study-of-pay-tv-subs
That is at odds with the idea that cable’s moving away from bundling, so my money is on the idea that the cable networks know something the surveyers don’t… yet.
This is a little different from my biz-school-style view of bundling, which is that it’s a way of extracting more money from the customer by offering what looks like a bargain in multiple, largely decoupled categories (fries and burgers and toys) so that you’ll spend more in aggregate, usually buying things you only had a marginal interest in but wouldn’t buy for full price if as pieces, separately (happy meal).
Bundling is a classic way to get people to buy cable channels they have no interest in, and it’s the source of the $200/mo insane cable bill. And, its demise is real, solid evidence that cord cutting is a complete existential threat to cable. And, its demise is real, solid evidence that we are awash in a sea of high quality content and vomiting a bunch of QVC and sports junk into a big expensive package no longer passes for a business strategy.
Of course, they spin it positively. Interesting times 🙂
Another possible consideration is that this is a strategy play on behalf of the Cable Cos to position their argument to a pro-industry FCC to preempt franchise fees to increase their profit margins?