nScreenMedia OTT multiscreen media analysis

Why making pay TV more competitive could accelerate its decline

Number of channels watched versus receivable 2008-2013

Fox’s CEO believes minority TV channels need to be dumped from pay TV in order to make it more competitive with skinny bundles. Ironically, this could create a situation where skinny bundles become a viable option for far more people than they are today.

The pay TV bundle grew at time when there simply was no alternative if consumers wanted more content than the few local broadcast available. However, a funny thing happened when subscribers were given access to all these extra TV channels. No matter how many channels the industry provided, subscribers still only watched 17 or 18. The channels each person watched included mainstream providers plus a few less popular minority channels

Today, of course, there is another way to deliver content: The Internet. And skinny bundles are trying to appeal to consumers knowing they only watch a small fraction of the channels available to them. According to James Murdoch, Fox CEO, this could signal the gig is up for the big bundle and the many minority TV channels it provides.

Speaking at the Sanford C. Bernstein Strategic Decisions Conference, Mr. Murdoch sees responding to the emerging skinny bundle trend as a key issue for traditional pay TV operators. He singled out the service Hulu announced it would launch early next year as an example of what pay TV must deal with. He said the service will offer fewer channels than the conventional bundle at a lower price.

He thinks reducing the number of channels is key to making pay TV more competitive:

“just the amount of stuff that’s out there that just nobody watches and the sort of plus-one channels and the other bits and pieces, all of them incremental spin-offs. That is going to be a really hard question for the [pay TV operators] to say what do we decide not to have.”

How many people use the less popular channels single out by Mr. Murdoch? Not many. Cozi TV, which is available in 55 million homes, is watched by just 0.25% of them during prime time.  The channel has a zero rating and share in A18-49 demographic.

Dumping small channels like Cozi TV and adopting the skinny bundle sounds like a solid plan for pay TV operators. Consumers are now painfully aware that they are paying $80+ a month mostly for things they do not want or use. They are also aware the Internet gives them a much more customized experience. This is creating a high demand for more control over the pay TV packages they buy.

ideal cost of an a la carte packageDigitalsmiths found that three quarters of consumers would like the ability to select only the channels they want. And when asked to construct their own package most chose 18 channels and were comfortable paying $41 a month for it.

Skinny bundles are closer to where most current subscribers would like to be, but they don’t allow consumers to pick their “perfect 18” channels. In other words, to move to a skinny bundle a consumer will have to give up a few channels they like. If Mr. Murdoch is right, however, that situation could change rapidly.

If operators dump minority TV channels and push slimmer bundles, the disenfranchised channels will be forced to go direct to consumer over the Internet. And that, in the end, could create a situation where more consumers can cut-the-cord and get the right mix of channels online. Select a skinny base bundle of popular channels, and augment it with direct-to-consumer minority content.

Why it matters

Skinny bundles pose a threat to pay TV

The fact that consumers must give up channels to move to go skinny is a barrier to cord-cutting

If pay TV slims bundles down to be more competitive with skinny bundles, minority channels will be forced to go direct online.

This will allow more people to get all the channels they want online and cut-the-cord

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(2) Comments

  1. The problem is the “SPORTS” Channels, Especially ESPN.
    Most viewers DON’T Watch them, But pay dearly for ESPN and other Sports Channels in their ” BUNDLE”
    They Need to be put in a “SEPARATE” Package, along with ALL Sports Channels.
    Then all the other channels would be reasonably priced, watched and enjoyed.
    Cord Cutting would Slow down, People would go back to Pay TV and everyone would be Happy !!

  2. Pingback: Google Wants To Tap Television Second Golden Age

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