OTT in Focus: Skinny TV Bundle Getting Wider Attention

26 Sep, 2016 By: Erik Gruenwedel

Is the TV consumer going on a diet?

Distributing television via smaller channel bundles over the Internet — otherwise known as a “skinny bundle” — is evolving from an antidote to subscription streaming to a mainstream strategy for capturing millennial consumers and cord-cutters who reject traditional pay-TV.

Average monthly revenue generated from pay-TV subscribers accessing the 120-channel bundle topped $161 in 2015, up 35% from $119 in 2010, according to SNL Kagan. But the veritable cash cow has hit a snag. More than 800,000 pay-TV subscribers terminated service in the second quarter (ended June 30), according to Kagan. The domestic pay-TV ecosystem now totals less than 96 million households, from a high of more than 100 million.

“It is a bit of an acceleration and the biggest quarterly loss that we’ve seen,” Kagan analyst Ian Olgeirson told the Los Angeles Times. “We are seeing a gradual increase in the decline rate.”

Content owners and suppliers are gradually looking to satisfy these wayward customers. Indeed, when NBC Universal in September renewed a distribution deal with AT&T, it agreed for the first time to license content to DirecTV Now — the telecom’s online TV service slated to launch in the fourth quarter. Sony Interactive Entertainment and Time Warner-owned HBO and Cinemax signed an agreement that for the first time brings both premium channels to online TV platform PlayStation Vue — without a mandatory pay-TV subscription.

Sling TV, the industry’s first online TV service launched in 2015 by Dish Network, last month bowed its first national TV ad campaign featuring actor Danny Trejo lecturing about cable package shortfalls. It is offering new subscribers who purchase select consumer electronics at Walmart.com two months of free service, in addition to streaming access on Vudu.com to 20th Century Fox movies Taken (theatrical version), Cast Away and Dr. Seuss’ Horton Hears A Who!

“For Dish and AT&T, skinny bundles represent a low-end offering in their spectrum of service tiers, specifically targeting [consumers] that are hypersensitive to the cost of the larger bundles or that want to consume TV on connected devices,” said Brett Sappington, senior director of research for Parks Associates.

Declining Pay-TV Subs

What began 20 months ago as an experiment featuring the first-ever standalone access to ESPN along with 19 other well-known pay-TV channels, Sling TV now has more than 600,000 subscribers paying from $20 a month — subs and revenue Dish uses to offset declining linear viewers.

Satellite lost 26,000 subscribers in the second quarter (ended June 30), led by Dish. Kagan reported that factoring in the estimated 764,000 customers for Sling TV, the trailing 12-month MVPD decline was reduced to 853,000 subs from an estimated year-to-date loss of more than 1.6 million.

AT&T’s shifting focus from the U-verse platform to the $49 billion DirecTV acquisition contributed to it losing 391,000 U-verse subs. Overall, telecom losses increased exponentially, with video down nearly 1 million subscribers since mid-year 2015.

Kagan reported cable operators lost 298,000 total video customers in Q2, cutting losses 13.6% year-over-year. This was the sector’s fifth consecutive year of diminishing losses in the second quarter.

Indeed, Comcast Cable narrowed its loss to 4,000 subs to end the period with 22.4 million video subs. The nation’s largest cable operator lost 69,000 video subs during the previous-year period. The drop represented the company’s best quarterly result in more than 10 years.

“On a trailing 12-month basis, we have now added about 90,000 video customers, a remarkable improvement in the face of significant competitive and technological change,” said chairman/CEO Brian Roberts.

Hulu Live

Among skinny TV bundles, few are attracting as much attention as Hulu Live — the platform slated to launch in the first quarter of 2017 from corporate parents Disney, Fox and Comcast.

With a speculated monthly price of around $35, Hulu Live would be more expensive than Sling TV and Charter Spectrum TV Plus. The service this year got a fiscal boost when Time Warner acquired a 10% minority stake for $583 million in Hulu, which valued the SVOD service at around $5.8 billion — reportedly three times what it was worth in 2012. As part of the deal, Time Warner announced Turner properties such as TNT, TBS, CNN, Cartoon Network and Turner Classic Movies would be involved.

“The investment in Hulu reflects Time Warner’s continued commitment to supporting innovative digital services that allow consumers to access high-quality content however they want it across a variety of platforms,” the media company said in a statement.

Executives at Disney, which is licensing content to Hulu Live and DirecTV Now, including ESPN, ESPN2, ABC, Freeform, Disney Channel, Disney XD and Disney Junior, have stated that online TV underscores a changing ecosystem.

“The consumer is largely going to dictate that, but I think it’s important to point out that by us being on these platforms at prices that make sense to us, we’re really quite neutral in terms of shifting from a traditional MVPD consumer to an over-the-top consumer,” CEO Bob Iger said in August.

Despite pledging $1 billion toward consumer-direct distribution with the minority-stake purchase in BAM Tech, the online tech arm of Major League Baseball Advanced Media (MLBAM), Disney’s goal remains steadfast ensuring pay-TV brands, notably ESPN and Disney Channel, stay relevant across the media landscape.

“We really think [BAM Tech investment is] smart strategically because we obviously need this capability to take product onto similar platforms,” Iger said.

CBS All Access

Notably absent from the “skinny” bundle evolution has been CBS. That stance is changing. The Tiffany network’s cautious approach to alternative distribution and how its content is monetized outside the traditional broadcast ecosystem is why CBS programming has largely been absent from online TV.

“We don’t care where you watch it or when you watch it — we want to get paid appropriately,” CEO Les Moonves told a media group last year.
When Sling TV launched, CBS was not included. Instead, the company approached online distribution on its own with the rollout of CBS All Access. The $5.99 service enables subscribers to watch CBS content on-demand, including complete back seasons of current and catalog shows.
This month, All Access bows original series “Big Brother: Over the Top.” Next year, the service will be the exclusive distributor of a spinoff of “The Good Wife” and “Star Trek: Discovery” — the first new “Trek” series in 10 years. Moonves recently told an investor group he is confident All Access will soon have streaming access to NFL football.

With All Access targeting broadband-only households and consumers moving away from pay-TV, COO Joseph Ianniello said the platform is attracting a younger audience used to on-demand (versus live) content and content available on mobile devices.

“They watch twice as much content and they’re watching longer sessions, so they’re really engaging with the content,” he told an investor group recently.

Indeed, for every 1 million subs All Access generates, CBS makes about $100 million in revenue.

“That has a lot of utility,” Ianniello said.

Sling TV

Sling TV recently announced it is making available Starz OTT, the $9 subscription-streaming app featuring access to the pay-TV channel’s studio (Disney, Sony) movies and original TV shows, to Sling Orange ($20) and Sling Blue ($25) subs. The deal gave Sling subs access to the Sept. 10 broadcast premiere of Star Wars: The Force Awakens.

“The addition of Starz and Starz Encore’s extensive movie library and original programming like ‘Power’ and ‘Outlander’ makes Sling TV an even more attractive option for movie buffs and TV lovers,” Glenn Eisen, CMO of Sling TV, said in a statement.

Sling TV also secured access to SEC Network and ESPN3 — the former a Power Five college football conference featuring the University of Alabama — the nation’s perennial No. 1 ranked football school.

Amazon Channels

Often included in speculation regarding online TV, Amazon remains largely on the sidelines. Last December, the e-commerce giant launched Amazon Channels (formerly Subscription Streaming Partners), which provides Prime members with the ability to add third-party video subscriptions to their existing membership. The platform includes access to more than 60 services, including Showtime, Starz, A+E Network, AMC Network, Acorn TV and NBC Universal’s comedy-based streaming channel, Seeso.

Amazon offers free trials on all subscriptions, with special Prime member pricing, latest episodes available simultaneous with broadcast, one-account billing and self-service cancellation — combined features available to subscribers individually.

Online TV All Wet?

While media companies hurry to catch a ride on the online TV market bandwagon, critics remain. NBC Universal CEO Steve Burke contends the concept sounds better than the reality. Speaking Sept. 14 at the Bank of America Merrill Lynch investor brokers conference in Los Angeles, Burke said the traditional cable bundle has always represented the best consumer value when examining the content proposition.

NBC parent Comcast is the No. 1 pay-TV operator and has long sought to thwart third-party digital distribution with in-house solutions, including TV Everywhere, Xfinity On Demand and the X1 set-top box. Burke said cutting the monthly channel bundle programming cost in half would still result in an online TV proposition costing consumers $60 with less choice.

“If you’re a consumer that gets 200 channels, I’m not sure why huge numbers of people are going to run out and get excited about paying $45 for 25 channels. From a consumer point of view, it doesn’t make sense,” he said.

Still, Burke said his job at NBC Universal is to maximize the structure and cash flow of each distribution channel. And if third-party interests create online TV, NBC is going to sell to those distributors.

“We want to make sure we make as much or more selling to an OTT [distributor] as we do selling to an MVPD,” he said. “And if there’s incremental revenue, that will be good for NBC Universal. Having been around the cable business for a while, it feels like every so often there’s a new thing that will completely revolutionize and change cable, and right now [there’s] a lot of discussion about OTT. I think OTT is going to happen. But I think it’s a pretty challenged business model, and I’d be surprised if it flies out of the gate with a big number.”

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, concurs, adding online TV is intended — thus far — primarily as a supplement to pay-TV targeting broadband-only homes.

“Eventually, as cord-nevers grow in numbers, skinny bundles will constitute an alternative, but we have another decade of tweaking before that will [happen],” he said.