For years, the business model cable companies have revolved around is of the “here’s a whole bunch of stuff you don’t watch alongside some stuff you do” variety and, understandably, many consumers don’t care for paying for items they don’t remotely bother with. But times they are a-changing and in an attempt to stop cord-cutting, the concept of “skinny bundles” has evolved – or, as Fox’s COO Chase Carey says, cable packages “have to be concocted with the consumer in mind.”1 A skinny bundle, then, is an attempt to woo consumers with cheaper packages featuring less of the programming they don’t want. So what does this mean for TV?
The concept of skinny bundling was born in early 2015. At the beginning of that year, so-called virtual multichannel video programming distributors (MVPDs), including Dish Network’s Sling and Sony’s PlayStation Vue, launched. These new products offer consumers a select group of channels delivered over the Internet at a discounted price. Shortly after Sling and PlayStation Vue launched, Verizon introduced its own offering, go90. Apple, long rumored to be interested in the TV space, is still formulating its plan.4
Over the summer the share value of the likes of Disney, ESPN, Time Warner and Viacom fell markedly as consumers declined to re-sign contracts and take on another period of paying through the nose for hundreds of ad-infested channels they never use. ESPN alone has lost more than three million subscribers in the last nine months.2
Here are some basic facts2:
- US consumers pay an average of $92 a month for cable TV
- “Add-ons” for set-top boxes and routers brings the total average cost to $125 per
- This for hundreds channels – many of which are dross
- Subscribers regularly watch just 17 channels out of the 500 they have to pay for.
When consumers don’t have a choice, these types of business models thrive. But once the Netflixes of the world established their dominance, cable companies realized it was time to change things up.
Example: Apple TV’s current skinny bundle ecosystem
In a move as recently as Aug ’16, Dish Network introduced “Flex Pack,” allowing customers to buy a basic bundle and one additional channel pack for $39.99 a month. The basic bundle includes 50 networks like AMC, CNN, Food Network and FX, but won’t include broadcast networks like ABC, CBS , NBC and Fox or cable juggernauts like ESPN or Fox News. Those channels will only be available in separate add-on tiers, each ranging in price from $4 to $10 extra a month. The broadcast tier, for instance, costs $10. Customers can also add on premium networks like HBO and Showtime.3 Said Warren Schlicting, Dish’s EVP of Marketing, Programming & Media Sales, “people are sick and tired of our industry and these giant bundles. What we are trying to do is give the customer choice.”
The downside to a skinny bundle is that they often exclude many low- and mid-tier networks such as Oxygen, BBC America, IFC, Destination America, Nat Geo Wild and WGN America. L.E.K. Consulting surveyed consumers to determine their interest in skinny bundles and to find out which features, channel combinations and price points appealed most to them. The bottom line was that, for those types of networks, the future is uncertain. Worst-case scenarios show revenue declines so large as to call into question the ability of low- to mid-tier cable networks to remain profitable without making drastic changes.4
And that, friends, is the skinny.