nScreenMedia OTT multiscreen media analysis

TV programmers must be in skinny bundles

Future of TV banner

The number of companies with skinny bundles in market, or that plan to launch one, swelled to 8 on Friday. Though it is not clear if these services will be successful, TV programmers still need to work with them.

vMVPDs are multiplying

Verizon appears poised to enter the world of the virtual MVPD (so called skinny bundles) if a report in Bloomberg is to be believed. Like Comcast, Verizon has quietly been acquiring the rights to deliver linear TV channels online, which would allow it to launch a national virtual MVPD service. There are now four such services launched (Sling TV, PlayStation View, fuboTV, and DirecTV Now,) one in beta (YouTube TV,) one committed to a 2017 launch (Hulu,) and two contemplating launch (Comcast and Verizon.)

Though the launched vMVPD services have only attracted an estimate 2M subscribers, it shows there is at least some demand for a more flexible approach to pay TV services. Three-quarters of consumers say they want to pay for only the channels they use. vMVPD services don’t deliver this, but they move their customers considerably closer.

The programmer’s dilemma

This creates a dilemma for TV channel programmers. Viewers are declining through pay TV services, with much of the time transferring to online providers. vMVPD services are looking to capture these viewers as they transfer online, but it is not clear if they will be successful.

There is no channel provider more acutely aware of this dynamic than Disney’s ESPN.

ESPN between a rock and hard place

ESPN has witnessed a huge decline in its audience over the last 5 years. In 2011, the cable sports leader reached 100 million homes in the U.S. Today, it reaches 88M, and lost a reported 621,000 homes in just one month in the fall of 2016.

ESPN Households 2008-2017Where are all the viewers going? The household penetration is declining as consumers take advantage of other TV sources. Those not interested in ESPN are moving to cheaper, lighter pay TV packages that omit cable channels altogether. Some are cutting the cord and surviving on a diet of SVOD services, perhaps blended with over-the-air broadcasts. Some of those that are sports fans are moving to vMVPDs where they can continue to watch ESPN, FS1, and others.

The number of viewers to ESPN’s best shows are falling much faster than the household penetration. It’s top rated 6PM broadcast of SportsCenter has seen viewers fall 12% between 2015 and 2016. The plentiful supply of game clips and summaries available on YouTube is likely the reason. Some viewers don’t want to wait until 6PM, and watch the highlights on their favorite connected device as soon as they are available.

ESPN cannot afford to allow license and advertising revenue to dwindle away. It still needs to pay $7.6B in sports license fees in 2017.

What’s a programmer to do?

Disney Chief, Bob Iger, isn’t sure what a virtual MVPD (aka skinny bundle) is, or if this type of service will be successful. Speaking at the Deutsche Bank 2017 Media, Internet and Telecom Conference, he said:

“Is there a fantastic or perfect skinny bundle out there, I actually don’t know… .What their components are? I don’t know, but I think they are going to serve a customer that isn’t necessarily that interested or can’t be served by the big bundle…”

In other words, he doesn’t know if vMVPDs will be successful, but is not prepared to sit on the sidelines and wait to find out. The company has licensed ESPN to each of the vMVPDs that have launched, and appears in the basic bundle of all them.

Many TV channel providers share ESPN’s predicament. They see audiences leaking away to online providers. They aren’t sure vMVPDs will allow them to recapture the viewers, but dare not risk waiting to find out. To maximize audience, they need to be in the base vMVPD bundle, but those spots are few. They will have to fight to get in them as providers work to keep the base bundle price relatively low. And, perhaps for the first time ever, this could put downward pressure on the amount they receive in license revenue.

Why it matters

The number of virtual MVPDs are increasing with 8 either in market, scheduled to launch, or preparing an offering.

At the same time, traditional TV programmers are seeing viewership decline as their customers head online.

This is pushing the TV programmers to work with vMVPDs, even though it’s not clear the services will be successful.

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(2) Comments

  1. ESPN is who created the NEED for Skinny Bundles.
    There are Millions of Viewers who NEVER watch sports.
    When are the Providers going to create Sports “ONLY” packages for sports viewers ?
    Viewers will have the choice of watching Normal channels, sports, or both.
    NOT having sports shoved down their throats, and making them leave the regular providers.
    This will solve ALL the problems.

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