OTT News, March 2017

There is a lot of activity going on with web-based video. There are offerings that are starting to look like serious contenders to traditional cable packages.

Comcast Integrates YouTube. Comcast has made a deal with Google to integrate YouTube into the Comcast X1 settop box. This follows last year’s announcement that Comcast is also integrating Netflix. Comcast also says they are working to integrate other SVOD platforms.

Comcast is making a lot of moves to keep themselves relevant for customers and to make the X1 box a key piece of electronics in the home. The box also acts as the hub for their smart home product, Xfinity Home.

One has to think that Comcast has worked out some sort of revenue sharing arrangements with Google and Netflix, although all details of these arrangements have not been reported. The most customer-friendly aspect of these integrations is that the Comcast X1 box is now voice-activated and customers can surf Netflix and YouTube by talking to the box.

Sling TV Adds More Sports. Sling TV has made another move that will make it attractive to more customers by adding the Comcast regional sports networks (RSNs) to their line-up. This includes CSN California, CSN Bay Area, CSN Chicago and CSN Mid-Atlantic. These networks carry a lot of unique sports content that is not easily available anywhere else on-line today. The networks carry pro basketball, pro baseball and a number of college sports. For example, CSN Bay Area is the home station for the popular Golden state Warriors. CSN Mid-Atlantic is the home station for the Baltimore Orioles.

I know in talking to my sports-centric friends that the narrow sports content on-line is the number one issue holding them back from switching to an OTT package. There are still other networks that Sling TV would need to add, like the Big Ten Network and the NFL Channel, to be a totally rounded sports provider. But they have already added a credible sports line-up that includes all the ESPN channels, the SEC Network, the ACC Network, NBA TV, the NHL Channel, the PAC12 Network and a few other sports networks like Univision TDN.

YouTube Launching an OTT Line-up. Cable TV just got another new OTT competitor. The new service is called YouTube TV and brings a fourth major OTT competitor along with Sling TV, PlayStation Vue, and DirecTV Now. The platform is going to launch sometime in the next few months, with no firm release date yet. The basic product will be $35 per month and allows customers to turn the service off and on at will.

YouTube TV will carry the typical network channels as well as ESPN, Disney, Bravo and Fox News – a line-up that sounds similar to its competition. The service will come with unlimited cloud DVR storage. It will allow 3 simultaneous streams per account and 6 user profiles per account. They will first launch in a few major urban markets (probably due to the availability of the local channels for various network channels).

If YouTube has any advantage in the marketplace it’s that they are becoming the preferred content choice for a lot of millennials. The company says they now are delivering over a billion hours per day of content. Millennials are leading the trend of cord cutters (and even more so of cord nevers), and if YouTube can tap that market they should do great.

Dish Network Predicts OTT will Replace Traditional TV. For the first time, Dish Networks Chairman and CEO said he thought that OTT programming is the real future of video. Until now the company, which owns Sling TV, has said that their product was aimed at bringing video to cord cutters.

But Sling TV and the other OTT products are getting a lot better. Sling TV now has over 100 channels that provide a wide set of options for customers. And these channels are not packed into a giant must-take line-up like traditional cable packages, and instead provide a number of smaller packages that a customer can add to the Sling TV base package. Sling TV and the other providers also make it easy for customers to add or subtract packages or come and go from the whole platform at will – something that can’t be done with cable companies.

Certainly Sling TV has made a difference for Dish. The company has been bleeding satellite customers and had customer losses for the last ten quarters. But the company had a small customer gain of 28,000 customers in the fourth quarter due to the popularity of Sling TV. The company does not report customers by satellite and OTT, so we don’t know the specific numbers.

OTT is Not Easy on the Consumer

Fatty_watching_himself_on_TVThis article compares the channel line-ups for Sling TV, DirecTV Now and Playstation Vue.  I think it provides the best demonstration I’ve seen yet of how confusing it’s going to be for consumers to choose an OTT option.

The process of choosing an OTT provider is only going to get harder in the future as additional OTT providers enter the market. In the coming year we are going to be seeing Google / YouTube with a similar on-line option. Hulu has announced that they will soon be launching a live-streaming alternative. There is a strong rumor that Amazon is considering an OTT option and has already announced they are pursuing live sports. And various articles I’ve read hint at a few more new OTT providers in 2017.

Comparing OTT channel line-ups is a lot more work than comparing the line-ups of your cable company vs. one of the satellite providers. While satellite providers aren’t required to maintain the same rigidly-defined line-ups as the cable companies, the two sets of line-ups are still reasonably comparable.

Cable company line-ups are defined by the FCC cable rules that require a basic and expanded basic line-up. Contracts between cable companies and programmers has led to uniformity and there are not major difference between cable companies. Cable companies are free to offer additional premium tiers and packages, but even those are largely the same between cable companies. The satellite providers know that their basic package is competing against the expanded basic line-up, so they include roughly the same channels in their 50 – 75 channel packages as the cable companies.

The OTT companies have a different set of challenges. The programmers are not required to sell them any content, and so the OTT companies must negotiate with each programmer individually. These have to be interesting negotiations because the OTT providers want to put together the skinniest bundles they can get while still offering what consumers want. They are then free to bundle channels in any way that the programmer contracts will allow. Since each OTT providers negotiates a unique arrangement with programmers there are going to be major differences between the line-ups from different OTT providers.

The programmers, however, either want to sell multiple channels or else they want a revenue stream that insures them of some decent profits. Programmers understand the math, which is that they are losing money for every customer that moves from traditional TV to a smaller OTT offering. This puts them into an awkward position. It’s obvious that the cord cutting phenomenon is gaining momentum. But if the programmers help to create really attractive OTT packages they are then helping to accelerate cord cutting for consumers.

As I’ve written before, many of the programmers are able to tolerate the growth of OTT since they are selling a lot more new content overseas than they are losing to cord cutting. Many of them acknowledge that there are cable channels that only exist because of the monopoly the handful of programmers have over the industry. They know that the cord cutting phenomenon is going to mean the death of less popular cable networks.

But back to consumers. You can see in the comparison in the link I posted above that between the first three major OTT providers it’s not easy to even visualize what you get in the various packages. The options between the three providers are significantly different, and all of these options have some glaring holes from programmers that have not yet allowed their content into these OTT bundles. It’s hard to imagine how complex this comparison is going to be with 3 – 6 more options by the end of 2017. I think a lot of consumers are going to come to web sites like this and be intimidated by the choices and will delay cutting the cord.

It’s likely that over time the various OTT providers will find niches in the market. Certainly if they all end up with the identical sets of channels there won’t be a lot of difference between them. But I would expect the ones that will be successful in the long-run will find a demographic niche that will give them an advantage. But for now their line-ups are a messy hodgepodge since they are cobbling together line-ups from the channels that they are able to acquire. This is going to make for a number of confusing products for the first few years of this new industry until they all figure it out.

Some OTT Statistics

sling-tvAs usual the quarterly Digitalsmiths and TiVo recent Video Trends Report contains a ton of interesting statistics about the industry. The following table shows the number of households that subscribed to the various OTT services during the third quarter of each of the last four years.

 

‘                                              Q3 2013          Q3 2014          Q3 2015          Q3 2016

Netflix                                     41.7%              46.4%              49.9%              51.8%

Amazon Prime                        12.9%              17.9%              19.9%              24.8%

Hulu                                          9.4%                9.6%              12.1%                9.9%

HBO Now                                                                                  4.3%                5.2%

YouTube Red                                                                                                      3.1%

Shomi                                                                                                                2.7%

CBS All Access                                                                           2.1%                2.1%

Sling TV                                                                                      1.0%                1.7%

Play Station Vue                                                                         1.3%                1.6%

Blockbuster                               1.8%                1.2%                 1.0%                1.0%

Other                                         1.5%                1.4%                 1.7%                1.8%

Nothing                                    51.8%              47.3%               43.7%              38.1%

Netflix has continued to dominate the industry and has grown to cover an additional 10% of all homes nationwide since 2013. Hulu increased market share in 2015 but is back down again. But expect Hulu to grow again since they are picking up a lot of new content from its owner programmers. In four years Amazon Prime has doubled, although there is a lot of debate about how many people actually watch the video service since it comes free with the Prime shipping program.

What springs out most from the chart is how the industry is diversifying. In just the last year YouTube Red and Shomi sprang to fifth and sixth place in the industry. And 2014 saw the introduction of Play Station Vue, SlingTV, CBS All Access, and HBO Now. It’s also striking to see the number of homes that don’t watch OTT content drop from 52% in 2013 to only 38% today.

You may be surprised to see Blockbuster still active on the list. While all their stores have closed, the Blockbuster brand is still being used to market OTT movies and is now integrated into SlingTV.

The ‘Other’ category is interesting. On last count there were over 100 different video pay services on the web, yet outside the major OTT players these services together are only seen in 1.8% of households.

This next chart shows what people pay for OTT content, comparing 2014 and today

Monthly Expense                  Q3 2014                      Q3 2016

$1 – $2                                     2.0%                            3.6%

$3 – $5                                     2.3%                            3.2%

$6 – $8                                    33.4%                          16.5%

$9 – $11                                  21.7%                          30.1%

$12 – $14                                  8.1%                           10.0%

$15 – $20                                 14.0%                          15.8%

$21+                                           6.8%                          10.7%

Use But Don’t Pay                    11.1%                          10.1%

In just two years the average bills have crept significantly upward. Currently over 2/3 of homes report paying more than $9 per month for OTT service, while in 2014 that was only 51%. Probably more interesting is that 26% of homes pay more than $15 per month for OTT content. My household is in this category and we have subscriptions to Netflix, Hulu, Amazon Prime (including Starz), and SlingTV.

The percentage of households who told an interviewer that they watch but don’t pay for OTT content dropped slightly, but represents about the same number of people from 2014 to 2016.

 

ESPN and the Cable Industry

espnI’ve been writing periodically about ESPN because they seem to be the poster child for what is happening to cable TV and to programmers in the country. It’s been obvious over the last year or two that ESPN is bleeding customers, and the many articles about them concentrate on that issue.

ESPN is a good bellwether for the industry because they are carried by practically every cable TV provider, and because their contracts require that the channel be carried in the expanded basic tier – the tier that generally has between 50 and 75 channels. Only a few tiny rural cable systems don’t carry ESPN since they carry only a small number of channels.

When ESPN loses customers it can only come from one of two reasons – people that cut the cord and drop cable altogether or from cord shavers who downsize to the smallest basic cable package. Basic cable is the small package of 10 – 15 channels that includes the local network affiliates, government channels and a few cheap throw-ins like shopping channels.

But it’s not easy to figure out the real number of cord cutters and cord shavers. The largest cable companies report total subscriber numbers each quarter but they don’t report on the packages that customers buy. Various analysts estimate the number of cord cutters each quarter, but they differ on these estimates – and I haven’t seen anybody try to estimate the number of cord shavers.

Nielsen tracks the number of customers of each cable network and that tells us how the various cable TV networks are faring. The latest article on ESPN comes from Sports TV Ratings, a website that tracks subscribers to the various sports networks. That site shows that ESPN lost 621,000 subscribers just last month (October 2016). That is an astounding number since ESPN has roughly 89 million customers – it’s a drop of 7/10’s of a percent, which annualized would be over 8% of ESPN customers.

But that number may not be a huge aberration. FierceCable reported earlier this year that ESPN had lost 2.2 million customers between February and August of this year, which is a clip of 440,000 lost customers per month. And the network has lost more than 11 million customers since its peak in 2013 when it had almost 100 million customers.

Trying to count cord shavings gets even more complicated because of OTT content. The cited drop of 610,000 ESPN customers is from the Nielsen numbers for carriage on cable systems. This doesn’t include online content which includes ESPN. For instance, the basic package on Sling TV includes ESPN and Goldman Sachs estimated that Sling TV will have almost 2 million customers by the end of this year. There are a number of new OTT offerings just hitting the market that will include the network, but for now Sling TV has most of the online ESPN subscribers.

ESPN has an advantage over many other networks in that it probably can add back customers by selling to people directly on the web. And so perhaps the network can find an equilibrium number of customers at some lower threshold than today. But this is not going to be true for a lot of other content. As an example, in October the Golf Channel lost 600,000 subscribers and The Major League Baseball Channel lost 515,000 customers – and those kinds of networks have very limited appeal on a standalone basis. That is the real story behind the losses at ESPN – the vast majority of cable networks are bleeding customers right now.

Some of the content providers are not too worried about the drop of US cable customers since they are picking up far greater numbers of new customers worldwide right now. But networks that are US-centric – sports, news, weather – are in for a rough ride over the next few years as the industry settles out to a new and lower norm. I think we can expect to see a transformation of sports programming as the numerous sports networks bleed customers. This probably means more emphasis on live programming and fewer sports networks.

The Death of the Big Cable Bundles

TelevisionThere is a ton of evidence that customers no longer want the traditional 200 – 300 channel cable packages. For example, we’ve seen the number of customers of ESPN plunge by millions over the last year to a far greater extent than the overall erosion of the cable industry. The ESPN phenomenon can only be caused by cord shaving – or customers downsizing to smaller packages.

We got more evidence of this last week when Verizon CEO Lowell McAdam said that 40% of cable packages sold on Verizon are now skinny bundles. He said that if he had a preference that Verizon would only offer skinny bundles. He doesn’t believe there is customer demand for the larger packages.

This makes sense and we have had the statistics for years to tell us this. A study by Nielsen earlier this year showed that the average person watches around 17 channels to the exclusion of others. That’s means that the average household is wasting a lot of money paying for channels they don’t want.

Other studies tell us the same thing. A Gallup poll earlier this year said that 37% of households don’t watch any sports. And yet sports programming has become the most expensive component of the big cable bundle. And it’s only common sense that within the 63% who watch sports that a lot of them must be just casual sports fans or fans of only one or two sports.

And the trend has to be downward for the channels on traditional cable. In May of this year Nielsen reported that almost 53 million US homes watch Netflix. Another 25 million watch Amazon Prime. Another 13 million watch Hulu, and since they beefed up their lineup and slashed their price the number of viewers is bound to climb.

Unfortunately skinny bundles are not universally available everywhere. Only the largest cable companies have been able to negotiate for the right to sell smaller bundles so far. And among the large cable providers only Verizon and Dish Network are really pushing the skinny bundles. There are also a few skinny bundles on the web, like Sling TV, but every time I look their packages are getting fatter.

I can’t help but speculate what would happen if every household was given the choice tomorrow to downsize their cable bundle and monthly cable bill. Leichtman Research Group announced a few months ago that the average cable bill in this country is now $103.10. That’s an astronomical number, and if that is the average a lot of homes are paying a lot more than that. Contrast this with new the Dish Network skinny bundle that offers 50 channels for $39.99 per month.

The skinny bundle that is doing so well at Verizon isn’t even cheap and starts at $55 per month – but it’s a lot less expensive than the big traditional bundles. And the Verizon price is reduced significantly for customers buying a triple-play bundle.

I just wrote a blog last week that talked about how Wall Street is becoming unhappy with cable programmers. At least one analyst has downgraded Discovery Networks and Scripps. We might finally be seeing is a whole host of issues coming to bear in the industry at the same time. Cable bills are finally getting too expensive for a lot of homes. People are becoming more interested in content that is not on traditional cable. And the programmers are losing a little bit of the total lock they have had on the industry.

It’s hard to say when, or even if the industry is going to break in any significant way. There are still just under 100 million homes paying for some version of cable TV. And the overall effect of cordcutting has only been shaving that by a little over 1% per year. But if the Verizon trend becomes the norm and most customers start preferring skinny bundles then the industry will still be transformed. ESPN has lost 10 million customers since 2013, but over half of those losses have been in the last year. The same thing has to be happening to many other of the less-popular cable channels, and at some point the math just isn’t going to work for the programmers.

We’ve seen a similar phenomenon once before. We saw a gradual erosion of home landline telephones after the advent of the cellphone. But after a few years of gradual declines we saw a deluge of people dropping home telephones. You could barely turn on a TV without hearing about how having a home telephone was a waste of money, and so it became the popular wisdom that home phones weren’t needed. The same thing could happen with skinny bundles and the industry could be transformed in a short period of time if tens of millions of homes downsize their cable bundle. It is going to happen, we’ll just have to wait and see how fast and to what degree it’s going to occur.

OTT Latest – August 2016

tubitv_squareThe only way for cord cutting to become a true problem for the cable companies is for there to be so much content online that people feel comfortable walking away from the cable packages. If the last few months are any indication of where the OTT industry is heading, we soon ought to be seeing more people cut the cord. So far this year there has been an average of almost one new OTT roll-out every week and there are now over 130 subscription video services on the web. Here are just a few of the more interesting recent announcements in what is becoming a busy new industry:

Acorn TV. Priced at $4.99 per month (first month free) this service bundles the best shows from the UK, Ireland, Canada, Australia and New Zealand. The service is starting with 60 exclusive titles that include a lot of drama, police who-dunnits and dry British comedy.

Sling TV. The service has grown from very simple to having a wide range of options. They have added a ton of new programming such as Fox Sports and other Fox Shows, They brought in the NBC suite including the live NBC feed, USA, Bravo, SyFy and BBC America. They beefed up the sports offering with some regional sports networks. The NBC live feed will be the first place that local NFL games will be broadcast on the web. They have added E! and Oxygen to their Lifestyle package. And they’ve added BBC World News, CNBC and MSNBC to their World News Package. Overall this is starting to become as large and confusing as looking at cable packages!

Hulu. The company has confirmed it will soon be launching a skinny bundle. Much of the content is going to come from the owners of Hulu including a suite of packages from ABC / Disney including ESPN, a package from NBC Universal, and a package from 21st Century Fox. Plus Hulu is making a deal with CBS. This would make Hulu the first to offer all of the major networks’ feeds live online, with ABC, NBC, CBS, and Fox. The company has said that their base package will be around $35, and this makes it a true skinny bundle since it includes the networks plus other most-watched channels. As I was writing this blog Hulu announced they are ceasing all free / ad-based program and are now all-subscription.

Tubi TV. Tubi TV is taking a different approach from the other services and is free to customers and is ad-supported. The service carries a lot of content aimed at millennials, who supposedly are most interested in free content. The service includes Japanese anime 2-days after being aired in Japan as well as a lot of movies and various series of interest to millennials. The service has made deals with over 200 content provides including MGM, Lionsgate, Paramount Pictures and Starz!

Comcast brings in Netflix. In an attempt to keep viewers on their platform and under their channel guide Comcast has made a deal to bring Netflix into the fold. Netflix will appear in the lineup like any other network and customers can navigate using their remote control.

Speaking of remote controls, Comcast distributed a lot of new voice-controlled remotes in time for the Olympics in the hopes of keeping customers from cutting the cord. We’ll have to watch to see how customers like the new devices.

Networks go Directly Online. All of the major (and many not-so-major) networks are taking their content online, but with different business models. It will be interesting to see which of these approaches is the most popular.

Fox has announced that it is now online for customers using the Fox.com website or the Fox Now app. This is an authenticated service and customers have to be verified as a customer of a cable provider and already paying for the Fox programming.

ABC is re-launching its unauthenticated streaming service (free for anybody) and showing older series for free, supported with ads.

CBS has taken the premium subscription approach and is a monthly subscriptions for $5.99 it’s calling CBS All Access. The company is producing original content just for this platform including the next Star Trek Series.

NBC has chosen to produce OTT content through its Seeso platform. This is going to consist of a number of different types of programming, with the comedy platform launched late last year. The comedy channel costs $3.99 per month. It includes older NBC comedy series as well as twenty new comedy series produced only for the Seeso platform.

Even smaller networks like CW now have an unauthenticated ad-supported platform called CW Seed that is showing older shows such as MadTV, Constantine and the O.C.

What’s Up With ESPN?

Maryland TerrapinsI’ve been following ESPN for a few years in this blog for several reasons. First, I’m a sports fan and I generally like what they offer. But as an industry person they are also interesting because they are the most expensive network for cable operators other than premium movie channels. They also have the distinction of being one of the few domestic networks that has no appeal overseas – they are strictly an American channel showing American sports.

And it is the last two reasons that might make them the bellwether of what might happen to cable networks over time. ESPN peaked in 2011 with just over 100 million paid subscribers. But they have been losing subscribers since then and they are projected to be down to between 87 and 88 million customers by the end of 2016. They lost 1.5 million customers just between February and May alone.

This has to be very troubling to a network that gets about 60% of its revenues from subscription fees. Most of the rest of their revenues come from advertising which also depends upon the number of eyeballs watching content on the network.  I’ve found a few web sources that estimate that the full ESPN suite of channels now costs cable companies around $8 per month, meaning the 12 million lost subscribers represent a lost $1.1 billion per years in annual revenues.

What is probably most troubling for the network is a poll from January of this year that shows that 56% of households would drop ESPN if they could save $8 per month on their cable bill. The results surprisingly were not that different by sex with 49% of males and 60% of females saying they would ditch the network if they could.

You have to wonder how to account for all of the lost customers. The cable industry points out at every chance that cord cutting is as not a significant phenomenon, and they are right. Cord cutting has manifested by stopping the growth of total cable subscribers and overall cable subscribers are still currently around 100 million.

So if the cable industry is currently not shrinking much, why is ESPN losing so many customers? The only answer has to be cord shaving. This is something that none of the cable companies will talk about, but cord shaving is where customers are downsizing to smaller packages of channels. Since most of the cable companies include ESPN in their expanded basic line-up (the line-up that is usually between 50 and 80 channels), then there has to be a lot of people downsizing from that tier of service. And the only place for them to go from there is down to basic cable – the lineup of 15 to 20 channels that includes network TV, local government and a few other very inexpensive programs.

ESPN is looking for ways to get back some of the lost customers. They are now part of the online Sling TV line-up. But Sling has recently moved ESPN out of the $20 starting tier into the $30 tier. ESPN is also reported to be getting ready to launch a standalone ESPN product online. They reason that there are sports fans willing to pay for the network that don’t want other standard cable fare. They might be right because I would consider an online standalone ESPN product if it isn’t exorbitantly expensive.

The funny thing is that ESPN isn’t acting like a network in trouble. For example, they just recently bought new rights to Big 10 sports for $1.1 billion dollars over the next six years. They are actively engaged in discussions with other sports leagues, and are preparing to renew older sports content relationships.

So certainly ESPN is not yet in trouble, but they are starting to show us what can happen to networks in the future as customers cut the cord or downsize packages. ESPN is not the only network losing subscribers and cord cutting and cord shaving are going to impact a lot of them as those trends continue to grow. Cable networks with more generic content are making up for losses of American subscribers by booming sales of content overseas. But that is a luxury not available to sports networks, news programming and anything else that doesn’t have a worldwide appeal.

Cord Cutting is Getting Harder

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One thing that cable operators might have going for them is that the OTT market is changing in ways that make it a little less attractive to cord cutters. It turns out that it’s getting harder to be a cord cutter, and certainly more expensive.

For a while it looked like Netflix and Hulu would offer a real alternative to cable TV, and for many people they still do. But the things we used to like about those two services are changing rapidly. Hulu is a great example. Around 2011 they made a deal with over 20 sources of content like NBC, ABC, USA, Syfy, Fox, and many others. But those were 5-year deals that are now coming to an end and Hulu is about to lose a lot of the content that attracted people.

Hulu is being hit from all sides. NBC is pulling most of its content and has launched its own OTT product that is hinging on the popularity of the new Star Trek to draw customers. BBC has pulled the very popular Doctor Who and other programming in favor of its own OTT product. Even CW is pulling shows like the Flash, Arrow, Vampire Diaries, and Jane the Virgin and has launched its own OTT service.

The same has happened to Netflix. Long-time subscribers complain that there is half the content on Netflix as there was years ago, and it’s true. Content providers have slowly been withdrawing content and making it harder for Netflix to obtain both TV shows and movies. Netflix makes up for this with original content, but that content isn’t for everybody.

With the plethora of OTT options, it’s getting expensive to be a cord cutter. A cord cutter probably can’t pick only Netflix and/or Hulu and be happy – or at least not as happy as they were a few years ago. To get a wide variety of OTT programming, a cord cutter is going to have to subscribe to multiple OTT products, and at the end of that process might easily be spending as much for programming as they did with the cable company.

Consider Sling TV as an example. Sling launched with a very simple set of options. They launched with a basic package of 15 channels for $20 per month – these were channels that people miss when they cut the cord – ESPN, the Travel Channel, the Food Network, TBS, and the Disney Channel. They had an add-on package for $5 to add more sports channels.

But Sling TV has morphed to become a lot more complicated and a lot more expensive. They now have two basic packages each priced at $25 per month. One called Sling Blue is sports-oriented including Fox Sports and NBC (for the Olympics). The original package has been renamed Sling Orange and has also been bumped to $25. Both together are $40, and there are now several $5 add-on packages such as news and sports. Sling is looking at adding more content, but in doing so, they are now at or above the price that this same content can be received on satellite. But with satellite cable you get a lot more channels than Sling. The new Sling TV prices are starting to feel like a programming alternative, not a cord cutting savings option.

Hulu also has more expensive options now. They will soon be offering a package that includes live network programming starting at $35 per month. For $50 per month customers can store up to 20 hours of Hulu content in cloud DVRs.

Cord cutters now have much harder choices than even just six months ago. If they cobble together a half dozen OTT sources they can easily be paying more than they were with cable. If they limit themselves to one or two sources of content like Netflix or Hulu they will see their content choices shrinking and their monthly fees increasing.  This all has to be good news to the cable companies – a lot of homes are going to like the OTT options less than they did a year ago.

What if Skinny Bundles Don’t Work?

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Tony Goncalves, the senior VP of strategy and business development for AT&T said last week that he thinks that pay-TV’s experiment with skinny bundles can’t last. He said that the economics are not there for it today and that his expectation is that over time that there will be pressure on skinny bundles to grow back into fat bundles. What if Gonzales is right and skinny bundles don’t work?

It’s clear that the traditional cable TV model is broken. Programmers seem to have lost their collective minds and are raising the cost of programming more each year to the point where many of my clients have seen several years in a row with programming cost increases over 10%.

And those big cost increases for programming turn directly into big rate increases on their cable products. For most cable companies it takes a 6% to 7% overall annual rate increase on cable just to cover the increased cost of programming. One doesn’t have to do much math to see that cable rates will be over $100 per month in just a few more years of continual rate increases.

Meanwhile customers cite the cost of a cable subscription as the number biggest factor that makes them consider alternatives. A lot of households are attracted to the idea of downsizing to a skinny bundle and adding Netflix or Amazon to reduce overall spending while still providing decent viewing options.

You can look at the early skinny bundles like Sling TV to see what Gonzales is talking about. They started with a small line-up of some of the most popular channels, but since then have added more and more options. It’s now possible to spend almost as much with Sling TV as with a traditional cable subscription, but getting a lot less channels. But a lot of customers seem to be finding the skinniest Sling TV options to be good enough. It includes ESPN and some of the more popular channels like the Food Network.

I know a lot of small telcos and cable companies are really hoping that customers like skinny bundles. Their biggest fear is that they continue to lose voice customers and that as customers continue to drop traditional cable that they will be left with only broadband as a product. I advise companies to do a simple test – look to see what your existing data rates would be if your only product was data. Most of them don’t like the answer, which often shows that data rates might have to climb to over $100 per month to keep companies whole.

And so the hope in the industry is that there will be some decent margin on skinny bundles. Selling skinny bundles would basically recalibrate cable TV as a product. While the costs for providing skinny bundles might grow quickly, starting over with a base rate of $25 or $30 can mean many years of providing affordable options for customers.

I’ve heard that the NCTC is negotiating skinny bundles for the small cable providers. Everybody is hoping there will be several options and that cable operators can make some decent margin on the skinny bundles. If so, I have a number of clients who will be aggressive in moving people from today’s giant packages down to the skinny bundles.

But if Gonzales is right and the math doesn’t work then I think we can all just watch cable start fading away over the next five years. We are starting to see the same kind of changes in the marketplace with cable that we saw for many years with telephone service. Consumer advocates are not advising people to drop traditional cable. Even Walmart has come out with a package that is inviting people to drop cable. As more outside forces tell your customers that the big cable packages are a bad idea the cord cutting movement will gain momentum if there isn’t an alternative product to offer to customers.

OTT Update – April 2016

television-sony-en-casa-de-mis-padresIt continues to be a very busy year in terms of companies launching or modifying online packages of programming.

DirecTV. Probably the biggest new announcement is that AT&T and DirecTV have announced a suite of online packages. This is not surprising after they have seen the success of Sling TV launched by Dish Networks. The two satellite companies have an edge over everybody else trying to launch OTT packages due to the apparent ability to use the content they buy for satellites onto the internet.

Pricing hasn’t been announced yet, but there are three packages being mentioned:

  • DirecTV Now is promising to replace online what you buy today from the satellite. So expect this to be packages with prices similar to the satellite packages. The biggest question will be how much local programming they are going to able to include in the package. This package is interesting in that there has always been a lot of homes that could not buy satellite due to the inability to see a satellite well or due to restrictions of some kind on using a dish.
  • DirecTV Mobile is a smaller set of programming to be aimed at smartphones, although anybody can watch it. DirecTV is promising this will be affordable.
  • DirecTV Preview will be a free service that is ad-sponsored. It will contain content from AT&T’s Audience Network and Otter Media. This seems similar to Verizon’s Go90 app.

Sling TV. Sling TV has continued to add packages of options to its base offering. But their big news is that they have made a deal with ABC to add ABC local content to the web. This is the first case I know of where a local network will be made available to anybody on line. This is being included by Sling TV as part of a Broadcast Extra package that adds additional channels for $5 per month.

One of the main draws for people on network TV is local programming – news, weather and sports. It will be interesting to see how Sling handles this. I know when I lived in the Virgin Islands that the only network TV available on the island carried news from New York City and I don’t think anybody there watched it.

Sony Vue TV. Sony has reconfigured their Vue TV from a $50 per month package down to a skinny bundle for $30. Sony didn’t have much luck with the $50 price tag and recently lowered it to $40.

The Sony offering is interesting in that it uses the Playstation 4 game console and the service comes with a built-in DVR. Rather than carry live network programming the new Vue offering provides next day access to a number of network TV series.

The biggest drawback of the offering is that there are not nearly as many homes with a Playstation 4 compared to other OTT packages that can be viewed on any device. Furthermore, the offering only supports one TV with one box.

Facebook. It was announced a month ago that both Facebook and Twitter were trying to obtain the rights to show Thursday night NFL football. But Facebook withdrew and the football is going to Twitter.

But this doesn’t mean that Facebook doesn’t have big aspirations as a video platform. They are putting a lot of effort into Facebook Live which they think can be a viable competitor to YouTube. It’s easy for my generation to forget that sites like YouTube has become a video powerhouse and Facebook wants to do something similar. Surveys have suggested that the platform that people adopt when young will influence how they watch video for life.

Facebook is also considering creating a skinny bundle that combines Facebook Live with some of their own content. With over a billion members on the platform they certainly have a good starting point.