The cable business is changing dramatically, and network executives are fighting to figure out their place in it.
The consensus among panelists at the 2014 NeuLion Sports Media & Technology conference in New York last week is that the big cable bundle that has been the backbone of the cable industry’s business plan for decades is under more stress than ever.
During third-quarter earnings calls last week, the country’s biggest distributors, from DirecTV and Dish Network to Time Warner Cable and Cablevision, reported big subscriber losses. A top executive with one of the country’s broadcast networks — 21st Century Fox’s Chase Carey — used his company’s earnings call to describe the cable bundle as “fraying at the edge.”
That doesn’t mean the industry is about to adopt an a la carte business model, where consumers can pick and choose the channels they want to watch. But distributors are starting to focus on smaller, lower-cost bundles as a way to retain those cord-cutting subscribers, as well as pick up new ones.
Networks that own sports rights, which typically are the most expensive on TV, risk seeing their subscriber numbers drop if distributors make smaller bundles available without them. Currently, TNT is in 96 million homes, ESPN is in 95 million homes, Fox Sports 1 is in 85 million homes and NBC Sports Network is in 82 million homes. These distribution numbers and the hefty license fees sports networks command have helped channels fund their rights acquisitions.
Now, sports networks are trying to figure out how these bundles will look, which networks will be grouped on them and how they can remain on them.
“Mini-packs are key to bring in a viewer that never was going to buy cable,” said David Levy, president of Turner Broadcasting System. “We’re making sure that we are in those mini-packs. Sports certainly helps drive that.”
Speaking on the conference’s same opening panel, CBS Sports Chairman Sean McManus said such a change to smaller bundles of channels would have little effect on the biggest companies in the sports media business.
“There are going to be sports networks for the next 100 years,” McManus said. “If they start to unbundle the cable universe, it could change our business model, it could change the way we do business. But we’ll adapt.”
CBS already has been adapting. Last month, the broadcaster launched an over-the-top subscription video service called CBS All Access. Last week, the broadcaster said it planned to launch an over-the-top streaming video news feed called CBSN.
“It’s hedging our bet with a number of different people out there,” McManus said. “It gives us a hedge against companies like Aereo, who are trying to take our signal for free and not pay for it. [Aereo closed its Boston office last week.] It gives us a hedge against the new technology and it also gives us a hedge against the cable, satellite and telephone providers.”
Time Warner also announced plans to launch an over-the-top service for HBO next year that
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Fox’s Randy Freer (top), MLS Digital’s Chris Schlosser (riht) and CBS Sports’ Sean McManus were among the executives addressing the “fraying” cable bundle and over-the-top networks at the NeuLion Sports Media & Technology conference last week.
Photos by: MARC-BRYAN-BROWN (3)
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would be priced around $15 per month.
“The over-the-top business is something that we should all play in,” he said. “It’s another way to monetize content. We’re embracing it. We don’t think it’s a threat to the business. We think it’s an add-on.”
Distributors don’t believe these services, which are priced around $6 per month, will cause people to drop their cable service — at least not yet. But they view the launch of over-the-top services as an opening to introduce smaller, lower-priced packages — something distributors have wanted to do for several years. If programmers can move to an a la carte style offering with over-the-top, operators will look to experiment with their bundles.
“Ultimately cord-cutting and going over the top is something we do believe is going to happen and we are preparing ourselves for it,” Cablevision CEO James Dolan said during his company’s third-quarter earnings call. Cablevision lost 56,000 video customers during the quarter.
Charter Communications President and CEO Tom Rutledge took a similar stance during his company’s earnings call last month. “To the extent that programmers voluntarily break up the very fat basic bundle that they have put together contractually, (that) would be an opportunity for us to actually build a more compelling product.”
Right now, the over-the-top services that are up and running, like NFL Now, 120 Sports and WWE Network, still feel like they are in an experimental mode, figuring out business models that work and content that consumers want.
While networks and leagues say they want to support the cable industry’s business model — one that is primarily responsible for the decade-long escalation in rights fees — they also are interested in dealing directly with their fans.
“The deeper you get into this, the more you realize the opportunity that’s created by the fraying bundle,” said Fox Networks Group President and COO Randy Freer. “The closer we can get to consumers as an industry, the better long-term opportunities we’re going to have.”
Major League Soccer is a good example of that. The league sold its over-the-top rights to ESPN earlier this year. Neither ESPN nor MLS knows how the offering will look yet. But they do know that they want to reach fans outside of the cable bundle.
“For our young millennial fans, very often, the mobile phone is the key device,” said Chris Schlosser, MLS Digital vice president. “It’s important that we deliver our games directly to that phone.”
The key, network executives say, is figuring out how to prop up the cable model while experimenting online.
“There was a rush to go on the Web for free; now, there’s a rush to say that we’re going to offer our content directly,” said David Zaslav, president and CEO of Discovery Communications. “As content owners, we’re going to have to figure out right pricing and how to do it in a way that doesn’t destroy the existing model.”
