Sponsored By
The traditional fat video bundle is transforming. Competition from over-the-top (OTT) content, eroding subscriber numbers and skyrocketing programming costs are spurring the cable industry to re-examine the bundle.
A panel of experts discussed this transformation at the American Cable Association (ACA) 2016 Summit, held earlier this month in Washington, D.C. These insiders predicted that bundles will get smaller and evolve to include more than video.
Shalini Ramachandran, the panel's moderator and staff reporter for the Wall Street Journal, noted that even with competition from OTT content, some 99 million homes in the United States still pay for bundled video. In light of those numbers, is the fat bundle really under threat?
Rich Greenfield, managing director, media and technology analyst with BTIG Research , argued that the industry's definition of a video subscriber masks the true erosion of viewership. "We call anyone who subscribes to any form of multichannel television a subscriber," Greenfield said, adding that a cord cutter who buys a $5 per month add-on is still considered a video subscriber.
"The real proof is looking at the programmer side of the equation. Programmers are certainly losing subs," he said, noting that earnings announcements from cable networks this quarter all contained a similar disclosure: "Our affiliate revenue growth is now being offset by subscriber losses." Prior to this year, subscriber losses were downplayed, he said.
"There's no doubt that smaller bundles are fine with consumers," Greenfield added. "There's so much content over the top that it's easier for consumers to scale back the fat bundle."
Bundles are also becoming more diverse. "A bundle won't just be entertainment channels," Greenfield said. "Think about Amazon. You get not just shipping to your home, but you also get music and video. The bundle will evolve into things that you don't currently offer."
Gene Kimmelman, president and CEO of Public Knowledge , noted that the relationship between cable transmission companies and content companies is also transforming. "Historically there were a lot of tensions. It was about splitting money and who made the most. But there was tried-and-true method and process for how you negotiated this," he said.
"Broadband is really shaking things up," Kimmelman said. He sees a "revolution" on the programming side where the model of selling the largest number of channels bundled as tightly as possible is becoming "obsolete." Instead, Kimmelman predicts a mixture of selling some video distribution; selling much more broadband distribution; and selling it in different ways, formats and with "different slicing and dicing."
Cincinnati Bell Inc. (NYSE: CBB) sees the appeal of this approach. On the heels of ACA's Summit, the small service provider began selling its new MyTV skinny bundles, in addition to its traditional video tiers. MyTV subscribers purchase a starter package for $18.99 a month, plus at least one add-on package, which range in price from $6.00 per month for genres such as Lifestyle, News & Info, and Pro Sports to $25 per month for the Essentials pack, which includes channels such as ESPN, Fox News and Bravo.
MyTV provides customers with many more pricing choices, explained Michael Morrison, Director of Fioptics Services for Cincinnati Bell, during the discussion. "We have a $20 dollar lifeline package, but our next offer is $65. That's not a whole lot of choice. We are hoping this fills in the middle," he said. "Slimming down the entertainment options to give customers a better price relationship is very important. Customers don't want to pay for something they don't watch," Morrison added.
He expects the service to be popular. About 80% of focus group participants said they would seek more information on the MyTV bundles, much higher than the 25% positive response rate Cincinnati Bell generally sees for new offerings, Morrison reported.
Other initial launches of skinny bundles have met resistance from programmers. When questioned, Morrison was quick to say, "We are in full compliance with our contracts." One difference between the MyTV launch and others is that Cincinnati Bell did not put channels such as ESPN in a genre tier, but rather in its Essentials package. "We fully believe we will be hitting our penetration minimums," Morrison said.
This transformation of the video bundle may also benefit independent programmers. "We are getting in the skinny bundles,” said Alexander "Sandy" Brown, President and CEO of ONE World Sports Network. "People recognize the price value relationship."
Brown expressed frustration over the difficulty that independent channels face regarding distribution. ONE World Sports Network performs "significantly higher than a number of channels that are being rammed down the operators' throats," Brown said. "If you look at the bigger MVPDs with independent sports channels, you can probably count them on three fingers. Maybe two. I think that's wrong."
Kimmelman further cautioned against continued escalation of programming costs. "I don't think prices can keep going up and up without people looking for partial alternatives."
