Last week Charter, the second-largest U.S. cable TV operator, announced plans to launch “Spectrum TV Essentials,” a $15/month package of 60+ entertainment channels. According to Charter’s press release, Spectrum TV Essentials will be “made available exclusively in Charter’s footprint to Spectrum Internet customers who don’t already subscribe to Spectrum video services.” This means targeting broadband-only subscribers who have either cut the cord or never subscribed. It’s unclear how Charter will handle a prospect looking to downgrade from an existing multichannel TV bundle to Charter’s new skinny bundle (or “virtual pay-TV service,” as these bundles are often called).
Regardless, the way Spectrum TV Essentials is currently constructed/priced it is likely to have relatively narrow appeal and limited long-term value. It can be compared most to Philo TV, another inexpensive entertainment-only service. Charter has agreements with Viacom, Discovery, A&E, AMC and Hallmark to carry their networks, but NOT CBS, Disney, Fox, NBCUniversal or Turner, at least currently. So a ton of popular TV networks/programs will be missing, raising, once again the “Swiss cheese” problem of inexpensive skinny bundles that have too many holes in their programming lineups to have broad appeal. Such is the nature of striving to keep subscriber rates low; many expensive networks must be excluded.
In fact, the most glaring holes in Spectrum TV Essential’s lineup are lack of local/national broadcast TV (ESPN’s absence is right up there as a big hole too). Even in today’s highly fragmented TV landscape, broadcast TV’s big 4, in the aggregate, still draw the biggest primetime audience. Research supporting the must-have nature of broadcast TV has been available for at least 2 1/2 years. Trying to pitch a new linear TV service to viewers - no matter how low the price - without broadcast TV in this hyper-competitive video world is akin to “bringing a knife to a gunfight.”
Other virtual pay-TV services have taken this truism to heart and are succeeding - most notably YouTube TV and Hulu Live TV (DirecTV Now also absorbed the lesson but has seen its subscribers recently whipsaw due to promotion/pricing/churn issues). YouTube TV in particular knew from day 1 that a mid-priced bundle ($35/mo initially, now $40/mo), including broadcast TV and ESPN and others, would have broader appeal than a low-priced, stripped-down offering.
YouTube TV has now expanded to 98% of the U.S. and may have gained another 400K-500K subscribers in Q4 ’18. There’s little doubt YouTube TV is losing money, but it’s highly strategic for Google in its long-term pursuit of TV ad dollars. Meanwhile, the original skinny bundle - Sling TV - which doesn’t include broadcast TV, has started to flatline subscriber growth.
All of this is before talking about the vast array of inexpensive entertainment options that Spectrum TV Essentials’ prospects are already likely using - Netflix, Amazon, Hulu SVOD, YouTube, The Roku Channel, and countless others to come (Disney+, WarnerMedia, NBCUniversal, etc. - all of which have led to these viewers being cord-cutters and cord-nevers in the first place.
Charter is on the right track strategically in offering a virtual pay-TV option to its broadband-only subscribers, but on a limited track because of how it has chosen to execute. Robust virtual pay-TV businesses are money losers short-term but highly strategic long-term if positioned in service to larger corporate goals. Super skinny bundles like Spectrum TV Essentials are likely neither - they won’t lose their owners a ton of money short-term, but they’ll only achieve narrow traction and therefore little strategic value long-term.
As VideoNuze readers know, I was a big proponent of Comcast taking control of Hulu, with one of the key benefits of a deal that Comcast would instantly become a major player in both virtual pay-TV and SVOD - offering material new value for Comcast’s broadband-only subscribers as well as real long-term optionality in the fast-changing video industry. Instead it will be Disney that will derive these benefits by becoming a 60% owner of Hulu. Disney will absorb Hulu’s significant short-term losses in its pursuit of long-term gain.
In virtual pay-TV, the axiom, “go big or go home” now fully applies.