October 24, 2018

Thoughts on the Future of Skinny Bundles & Sling TV

Last week, the vice president of product marketing and management for Sling TV, Jimshade Chaudhari, said during an interview that the fatter channel bundles offered by competitors (DirecTV Now and its ilk) are “repeating the sins of pay TV past.”

Wait a second. SlingTV added 130,000 subscribers in the first half of 2018, while DirecTV Now added 660,000.

Hmmm.

First, let’s set the stage for this discussion.

  • Sling TV was introduced in January 2015, now three years old. DirecTV Now was introduced in November 2016, now two years old.
  • Sling TV has long held the lowest rung among virtual MVPDs, with the least expensive entry service and package without ESPN. DirecTV Now came in with a channel lineup more robust than Sling TV but less so than Sony Vue. The goal was to strike a middle ground between competitors.
  • Sling TV added only 130,000 subs in the first half of 2018 (44K in Q2), bringing total subs to 2.34 million subs, while DirecTV Now added 660,000 subs (390K in Q2) to a total of 1.81 million subs.

If these trends continue, DirecTV Now, despite coming to market a year later, will top Sling TV Now in Q1 2019 as the most popular virtual pay-TV service, with Hulu with Live TV and YouTube TV climbing fast. As Dave Munson at Fierce Cable characterized it, “Dish Network’s pioneering Sling TV service is in danger of being left in the dust.”

Indeed, which makes it all the more interesting that VP Chaudhari would publicly criticize other vMVPDs. Then again, does he have a point?

So Just What Is A ‘Skinny Bundle’?
‘Skinny’ in this context is widely interpreted to mean a very limited package of pay-TV channels streamed to the subscriber via an app, and (in theory) at a cost substantially less than ‘fat’ legacy bundles. Its attraction is less for less: significantly fewer channels for a significantly lower monthly cost.

At the moment, only Sling TV, Philo, and AT&T Watch can thus rightly be called ‘skinny bundles,’ with prices of $25/month or less after a free trial or promotional discount period. Conversely, DirecTV Now, Sony Vue, Hulu with Live TV, and YouTube TV offer entry prices in the $40-$45/month range, with much larger channel bundles more akin to basic pay-TV services. Put simply, most of the leading virtual pay-TV services now characterized as ‘skinny bundles’ are anything but skinny.

This is not a debate about which package stands to draw the most consumers. It’s a question of whether full-featured vMVPD services like DirecTV Now can rightly be called ‘skinny.’ Simply because they are delivered online via an app doesn’t make them a skinny bundle.

Some have called these ‘mesomorph’ bundles. I love borrowing scientific terms to describe media phenomenon (e.g., the rise of quantum media), but in this case I think the word ‘medium,’ while much less buzz worthy, is more appropriate (that’s what ‘mesomorph’ means, after all). These bundles live somewhere between skinny and fat bundles; in the middle, if you will; Goldilocks’ services that are not too soft and not too hard, but just right.

Why Is This Distinction Important?
Some consumers want more for less, some less for less, and skinny bundles are meant to serve the latter, while medium bundles best serve the former. The distinction is important because the two services speak to different consumers with different needs. For those developing, marketing, and selling these services, being able to more finely target products and messaging is key to long-term success.

Of course, designing effective channel bundles has always boiled down to sufficiency—that is, which assortment of channels at which price point would a subscriber find sufficiently compelling. The more-for-less folks may see a medium bundle as the right package at the right price, while the less-for-less folks may be more comfortable with a skinny bundle.

Do Skinny Bundles Have A Future?
Sling TV’s Chaudhari seems to think so. “I think we’ve nailed it as this point…. [Sling TV] can be a profitable business and we’re focused on that,” Chaudhari said. How can he be so confident given Sling TV’s recent slide in subscriber growth? Because he believes there is a legitimate market for truly skinny bundles distinct from more moderate virtual offerings.

While DirecTV, et al., are better suited for more-for-less Cord Cutters — former legacy pay-TV subscribers that enjoy a robust channel package but at a lower price than traditional services — Sling TV is more compelling to the less-for-less folks, a combination of super-cost-conscious Cord Cutters and Cord Nevers. As Chaudhari said, “We fundamentally believe we have a different model than our competitors.”

Again, confusing the two markets as one in the same is to miss the point, especially in an age when younger consumers are turning away from pay-TV in general. TDG believes the opportunity for legitimate skinny bundles is very real, and the more that virtual services like DirecTV Now ‘morph’ toward the middle, the larger the opportunity for skinny bundle providers.

Does Sling TV Have a Future?
And he’s right, if by “competitors” he means not just medium virtual bundlers but new skinny entrants such as AT&T Watch. Unfortunately, it seems that Sling TV remains focused on competing with DirecTV Now, et al., and paying little attention to new skinny bundle entrants like AT&T Watch. As AT&T is rapidly building its more-for-less DirecTV Now subscriber count, it has also teed up a $15/month skinny bundle for its mobile subs — the very same consumers that would find Sling TV compelling.

Is there a better channel through which to reach these younger, less-for-less consumers than through an existing mobile subscription? I think not.

But Dish Networks and Sling TV also have a mobile card to play, and that’s why TDG believes Sling TV does indeed have a future. But it hinges on how quickly the company can execute its plans to deploy 5G nationwide, upon which it can, like AT&T, bundle not only mobile but fixed 5G with Sling TV.

Conclusion
We now have three levels of pay-TV bundles in our vernacular: skinny, medium, and fat. Whether they are delivered over the Internet ultimately becomes moot, as all pay-TV services will eventually be delivered via an app (as TDG predicted five years ago, and as several major operators have recently acknowledged).

Each bundle type has a unique addressable market, requiring different packaging, pricing, and messaging. For skinny bundle providers like Sling TV, the target is the less-for-less crowd, largely younger adults who have yet to subscribe to a pay-TV service, be it legacy or virtual, and super-cost-conscious legacy Cord Cutters. For medium bundle providers like DirecTV Now, the target is the more-for-less crowd that reject the costs associated with fat legacy bundles.

Sling TV has a legitimate opportunity among the first group, but must be cognizant of the threat posed by new entrants such as AT&T Watch. Importantly, in order for Sling TV to survive, Dish Networks must rapidly deploy 5G nationwide — something that remains more of a pipe dream than reality. Without a 5G network, Sling TV will ultimately lose out to skinny bundle services offered by mobile providers such as AT&T.

Stick with TDG and stay ahead of the curve.

 

Since founding TDG in 2004, Michael Greeson has designed and fielded over 40 quantitative consumer research projects and authored/co-authored more than 50 reports on multi-screen/multi-platform video and the connected consumer. He serves as President and Director of Research at TDG and lives in Fort Collins, CO with his lab, Zoe.

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