February 20, 2018

The Fattening of the Skinny Bundle

Live TV streaming services – such as Sling TV, DirecTV Now, YouTube TV – are stepping up to meet the demands of Cord Cutters and Nevers (Cord Nils, if you will). This growing list of live TV services, with the allure of ‘a la carte TV,’ have led many to predict the demise of traditional television.

While traditional TV is in secular decline, its end will not happen overnight. True, six-in-ten consumers now prefer a ‘build it yourself’ TV plan, this according to new TDG research, but paying separately for each channel can quickly become cost prohibitive: thus the logic of the skinny bundle. Unfortunately, subscribers who rely solely on the Internet for pay-TV are finding it increasingly difficult to create a truly customized viewing experience at a ‘skinny’ price.

Are skinny bundles already showing their soft underbelly?

Skinny Bundles Are Getting Fatter
Most live streaming services prominently promoted their skinny bundles and low introductory pricing to launch and build their customer bases. Today, however, they appear to be banking on the audience transitioning to fatter, more expensive subscription packages, with the lure of more channels and shows.

  • Last week, YouTube TV proudly announced the addition of key Turner networks to its service, including CNN, TNT, TBS, Adult Swim, Cartoon Network, truTV, and Turner Classic Movies. Buried in this same announcement was a 14% price increase in base cost, from $35 to $40 per month. And YouTube TV only has one entry tier.
  • In July 2017, Sony’s PlayStation Vue ditched its lowest-priced, $30 per month “Access Slim” package, forcing consumers to buy higher-priced options, starting at $40 per month.
  • DirecTV Now’s entry tier (the “Live a Little” package) is currently at $35/month, though AT&T has hinted at a price increase during 2018. The fact that AT&T can bundle mobile with a live TV service gives it a competitive advantage, as mobile can subsidize the losses of its vMVPD service. AT&T is unique in this position, explaining in part why Verizon is closely eyeing its own vMVPD service.
  • FuboTV continues to add channels (especially local broadcast stations) as fast as possible, meaning its (only) base package $45/month for just over 70 channels.
  • Sling TV remains the only true skinny bundle on the market, with two entry points ($20 or $25/month), both of which lack broadcasting stations. Though Dish is the parent company of Sling TV, its core service (DBS pay-TV) is losing subscribers at a significant clip, so it cannot subsidize the low (or lost) profit margins with a cash-cow serve as does AT&T. Even without adding additional channels to these two basic tiers (instead stuffing them into value-added packages), one has to wonder how much longer Sling TV can continue operations without ultimately increasing costs.

If vMPVDs continue to add more channels to their base packages, they will end up replicating the ‘fat’ bundles of the legacy TV providers and ultimately be forced to raise retail prices. Live streaming pay-TV services should proceed with caution, since freedom of choice and lower prices are the foundation on which they were built. This trend towards fatter bundles threatens to slow and, ultimately, limit vMVPD growth.

Creative Cord Cobblers Can Make It Work
While vMVPD’s are busy adding more channels and raising prices, others are creating services to meet the needs of the 63% of adult broadband users that prefer to build their own TV services. Back in 2016, David Nevins, President and CEO of Showtime, helped coin the term “cord cobblers,” describing them as “individuals and households who creatively manage their content consumption with an assortment of subscriptions that work uniquely for their needs.”

Now businesses such as CobbleCord are popping up to help consumers construct the perfect individualized streaming service through personalized recommendations to cobble their package together.

Cord cobblers are also using major SVOD services such as Amazon Channels, where Prime members can add specific networks on an a la carte basis, each with its own fee. Channels include linear services such as CBS All Access and premium channels such as HBO, Showtime, and Starz, as well as more niche offerings including Daily Burn, PBS Kids, and Sundance Now. Viewers wanting multiple linear channels will still need to add separate direct-to-consumer subscriptions from other major networks, though Amazon Channels is adding networks at a rapid clip.

Conclusion
To realize their potential, live streaming services need to offer consumers more choices and control to customize their viewing experiences, not fatter bundles and higher prices.

Brad Schlachter is a Senior Advisor for TDG and is a highly accomplished digital marketer and advisor for leading entertainment and technology focused organizations. Prior to TDG, Brad served as the marketing lead for Motor Trend OnDemand, the premier OTT destination for gearheads and was the VP of marketing at Hallmark Labs for the launch of their family-friendly SVOD service. He currently lives in Los Angeles, CA.

Photo credit: The Cord Cutting Report

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