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New Skinny Bundles on the Horizon

television-sony-en-casa-de-mis-padresAll of a sudden I am seeing the term skinny bundle all over industry press. The term refers to web video programming offered by a company that is already somehow in the telecom business, with the inference that it’s probably only available to their own customers. The line between skinny bundles and OTT programming like Netflix is likely to get blurred over the next year as a few of the skinny bundle providers make their packages available to everybody.

It seems like all of the largest cable companies and telcos either have skinny bundles or are working on them. In a recent blog I talked about the Comcast skinny bundle they are calling Stream TV. It’s a lineup containing mostly major network channels plus HBO. It’s likely to be controversial because Comcast wants to exclude usage on the bundle from any data caps while counting data usage for watching Netflix and other OTT offerings.

As has been anticipated since they bought DirecTV, AT&T plans to launch their skinny bundle in January. The company hasn’t released the details yet but recently gave some hints about what might be in it. For one thing, through DirecTV the company has the ability to air current season shows, including the latest episodes. AT&T may be offering different options to wireless and wireline customers. CEO Randall Stephenson was quoted recently saying that the bundle will “turn some heads”, but I guess we’ll have to wait until January to see what that means.

Their chief rival Verizon Wireless launched Go90 earlier this year. The package is an interesting mix that Verizon says is aimed at Millennials. Verizon describes the package as halfway between YouTube and Netflix. It has a lot of unique content produced by YouTube stars but also carries some traditional programming content. The service is currently free to Verizon wireless subscribers but is expected to soon have a premium tier.

On the landline side, Verizon offers a package called Custom TV. That bundle is sold in combination with 25 Mbps Internet service for $65 a month, and includes a lineup of about 35 channels plus a few additional add-ons options available. The package has been so popular that Verizon reports that one third of their new customers in the second quarter of this year opted for the skinny bundle. While Verizon says that might hurt revenue targets, they affirmed what many have thought in that they expect sales of skinny bundles to increase the bottom line. It makes sense that the skinny bundles, while smaller, are more profitable than the giant bundles of hundreds of channels.

CenturyLink has also announced that they will launch a skinny bundle in early 2016. They say that their main motivation is to sign up new customers without the need for a truck roll, and so they might offer both a skinny bundle as well as the full TV line-up over the web. This will save them on settop boxes and other costs associated with being a full-service video provider.

There are other companies also considering skinny bundles. For instance, Frontier has reported that they are talking to programmers about skinny bundle options. There was an announcement in October that Tim Warner Cable was trialing a skinny bundle but I haven’t seen any press on that since then. CEO Rob Marcus has been quoted several times in the last six months saying that he doesn’t think his customers are looking for a cheaper alternative.

We’ll have to wait a while to see what kind of interest the public has in the skinny bundles. The companies like Verizon that have already launched skinny bundles are not reporting customers counts for the new products, making it hard for the rest of the industry to understand the customer demand.

The skinny bundles are clearly an attempt to try to keep cord cutters on the big company networks. But just about all of these big companies publicly say that cord cutting is not a concern for them. There has to be some concern that offering smaller bundles will invite customers to downsize, but if what Verizon admits is true, it might be that there is more profit in skinny bundles than in the giant cable packages – in which case you can expect to see more skinny bundle options.

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The Industry

Sports Will be the First Victim of Cord Cutting

The common industry wisdom is that sports programming is the most powerful weapon of the cable companies since it provides content that cannot be found anywhere else. But from what I have been reading lately, I think perhaps that sports programming might be the first victim of cord cutting and skinny bundles.

There is no doubt that there are a lot of rabid sports fans in the country. And to satisfy this base the programmers have come up with a slew of sports networks. Not only is there the ESPN suite of channels, but we have channels that specialize in golf, tennis, and a number of other sports. And there are local sports networks in every major market.

But except for NFL football, which is in a universe of its own, there are a lot fewer sports fans than you might imagine. In a recent poll that asked people what channels they would most like to have on an a la carte basis, no sports network including ESPN registered as even a 30% choice. Sports fans find having sports programming to be a necessity, but the fact is that a large majority of people would gladly do without sports networks if that lowered their cable bills.

And now along comes cord cutting and skinny bundles. Cord cutters are those that abandon all big cable packages in favor of either no programming, or programming offered on-line. Skinny bundles are slimmed-down channel line-ups being offered by telecom providers as an alternative to their bigger channel alternatives. Add this to people who are down-sizing from large line-ups to smaller packages and there is a lot of change going on in the cable industry.

In looking at both of these alternatives today there is a dearth of sports programming offered on-line. Sling TV has the ESPN suite of channels. But most other on-line packages have little or no sports programming. The people abandoning cable are obviously not the sports fanatics.

There are many industry experts that want to pretend that cord cutting is not real. And for most of the networks that sell content, it really much doesn’t if it is real. In the US there are still around 100 million people buying some sort of cable package and sales of content from most programmers is booming worldwide as the US market ebbs.

But the same isn’t true for sports. ESPN has almost no appeal overseas and, like most US sports, the network is very much an American product made for Americans. I think that looking at ESPN is probably the best measure of the change in the industry. It’s been reported that ESPN has lost 7 million customers over the last few years, which is significant – and they aren’t going to make that up by selling their content anywhere else.

And so it looks like US sports networks, or the sports they support, might be the first real casualty of the changes in the industry. Every time somebody cuts the cord or flips to a skinny bundle the sports networks are going to lose a customer. And these customers are almost impossible to replace. Take ESPN: they charge nearly $6 per household per month to the cable companies to carry their programming. But if only 25% of households would actually value them enough to subscribe to their programming, then on an a la carte basis they would have to charge $24. But the big catch is that probably only a very tiny fraction of that 25% of sports fans would agree to pay that much. There is no model for a standalone ESPN that can make as much money as they make today.

Something is going to have to give as the sports networks lose customers. The most obvious thing to give is the millions that ESPN and the other sports networks pay to sports leagues to get exclusive rights to their content. As the sports networks make less money those payments are going to have to drop.

Many think that would be a good thing for sports. It is these TV payments that have led to college football teams paying multi-million dollar salaries for coaches. It’s these same TV payments that have led to crazy realignment of college leagues, such as seeing Maryland join the Big 10 or West Virginia join the Big 12. Big time college football and basketball have become all about the money and this has gotten carried to ridiculous extremes in recent years. Big TV revenues are also what feeds the giant payments to professional baseball and basketball players.

There are some sports networks that won’t survive a downsizing of the industry. But if a network like ESPN can be disciplined enough to not outspend their revenues then they should be around for a long time. There are a whole lot of folks who are going to be in for a rude awakening when this day hits – and the day of being realistic about payments for sports content is going to happen within the coming decade. It’s hard to imagine what college sports budgets will look like if a huge part of their revenues disappear = and the people in charge of those budgets better start thinking about that now before it’s too late to do anything about it.

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The Industry

Some Interesting Cable Statistics

Digitalsmiths recently released their Q3 2015 Video Trend Report and there are some really interesting statistics to be gleaned from the report. This is a large survey given to 3,153 consumers in the US and Canada. I’d love to hear from any small service providers who thinks that the statistics for your own customers are much different than these.

Satisfaction with Current Provider: Only 53% of customers said they were happy with their current cable provider. 4.8% said they were going to cut cable service within the next six months, 7.2% said they were going to change providers, and 32% said they might change providers. We know from past surveys that many of the people who say they are going to drop cable don’t end up doing so, but these statistics show the general lack of satisfaction with whoever provides cable.

Size of Monthly Bill: This asked how much people spend on TV, Internet, and phone. 61% are spending more than $100 per month. 41% are spending more than $125 per month and 24% are spending more than $150. In 2013 56% of people spend more than $100.

Premium Programming: 24% of respondents buy HBO, 15% Showtime, 14% The Movie Channel, 10% Cinemax, and 10% Starz!. 12% of households buy a premium sports package.

Growing Awareness of Skinny Bundles: The survey defined skinny bundles as Hulu, HBO Now, Sling TV, CBS all Access, and the online Showtime. 63% are aware of these services, up from 56% in the first quarter of 2015.

Most Wanted for a la Carte: People were asked what channels they would most want to buy on an a la carte basis. Over 50% of the people would buy ABC, the Discovery Channel, CBS, NBC, the History Channel, and A&E. Over 40% would buy Fox, HBO, National Geographic, PBS, Comedy Central, and AMC. When asked how much people would be willing to spend in total for a la carte programming, the average was $40.50 with 22% not willing to pay more than $20 and only 4% willing to pay more than $81.

Feelings about Large Cable Packages: 34% of people are overwhelmed by the number of channels available to them. 83% of respondents watch 10 or fewer channels over and over again. That is down from 86% in 2013. Only 58% say that it’s easy to find something they ‘want’ to watch.

Pay-per-View Events: Only 10% of households have watched at least one PPV event, things like boxing or UFC fights (not movies), during the last year.

OTT Usage: 56% of households buy at least one OTT service like Netflix. 33% of households that buy OTT watch it more than 2 hours per day. 36% of households have used OTT per-rental services like Redbox or movies on Amazon Prime. 70% of those who use rental services watch content on a weekly basis. 80% of people using OTT report that it’s easy to find things they ‘want’ to watch.

TV Everywhere: Only 43% of respondents were aware that their cable provider offers TV Everywhere programming. Only 23% of respondents use TV Everywhere.

Social Media: 22% of respondents have posted on social media while watching TV. 34% have watched new programming based upon a recommendation from somebody they know on social media.

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The Industry

Programmers Hate Skinny Bundles

I read several reports from the current International Broadcasting Convention in Amsterdam that there is a lot of talk among programmers about a dislike of the skinny bundles that are being offered by companies like Sling TV. This is a convention of mostly programmers and companies that produce content. FierceCable reported on the convention and wrote an article titled Execs from Discovery, Roku and others warn the skinny bundle will hamper content creation.

I can understand the perspective of the programmers. Consider Discovery. They are one of the more egregious programmers when it comes to making cable companies take all of their content. Discovery benefits tremendously from the bundle because given a choice, many cable providers would elect to not carry at least some of the many Discovery networks.

There is no doubt that the move to skinny bundles is going to be bad for programmers like Discovery as they lose revenues on many of their networks. Discovery currently has 13 different networks in the US and a few more internationally. And obviously skinny bundles like Sling TV won’t elect to carry many, or even any, of them.

But Discovery and the other networks are trying to swim against the tide if they think there is any way to stop the move towards smaller line-ups. It’s what people want. Numerous studies have shown that most households only watch a very small fraction of the 200 or 300 channels that are delivered to them in the big bundles. And people in general are getting fed up with paying for all of them.

Netflix and Hulu got this all started by letting people watch individual shows rather than networks. And that is what people really want. They create a loyalty to a given show much more than to a network. Interestingly, Discovery takes advantage of this trend already and some of their series like MythBusters, How It’s Made, and River Monsters are available on Netflix.

The real question being raised in Amsterdam is if the trend towards skinny bundles is going to stifle the creation of unique content. It’s a good question and only time will tell. My gut says that it is not going to cut down on the making of good new content because there are profits to be made from coming up with a popular show.

What might change is who is making the content. There is no doubt that over time the move to skinny bundles will hurt traditional programmers like Discovery. They may have to shut down some of their networks if not enough people are willing to pay for them. But these networks were only created in the first place in the artificial environment where millions of homes were guaranteed to pay for a new network. One of the primary reason that the big bundles are breaking apart today is the greed of the programming conglomerates that created and forced numerous new networks on the cable companies. What we are now seeing is that with the Internet people have the ability to push back against the crazy big bundles they have been forced to buy.

So it is quite possible that a company like Discovery will lose a lot of money compared to what they make today, and perhaps as part of that transition they won’t produce as much unique content. But I think that somebody else will. We already see companies like Netflix producing new content. There are even rumors about Apple producing content.

As long as content can make a lot of money, people are going to take a chance for the big bucks. One has to remember that most unique content doesn’t make money today. Many movies don’t recover the cost of producing them if the public doesn’t like them. When these companies talk about creating new content, what they really are talking about is producing hits. One very successful series or movie can produce a huge profit for the producer of the content. As long as that big carrot is dangled there are going to be many who are going to chase the big dollars.

I really didn’t mean to pick specifically on Discovery and they are just an example. You could substitute any of the other large network conglomerates above and it’s the same conversation. The fact is, content delivery is changing and there is going to be fallout from that change. It’s likely over time that some of the existing large conglomerates might go under or disappear. That is the consequence of this kind of fundamental change. But it’s happened to many other industries over the last decades and there won’t be anybody lamenting the fall of a Discovery any more than people are nostalgic about Kodak. All people are really going to care about is that they can watch content they like and they aren’t really going to care much about who created it or who profits from it.