The big-ticket, all-or-nothing pay-TV bundle has been remarkably resistant to disruption up to now. But the threads are finally starting to fray.
One such thread was revealed in a report by the Wall Street Journal this week on the growth of cord-shaving among pay-TV subscribers. Using Nielsen data, the Journal calculated that the top 40 most-distributed networks in 2010, including CNN, ESPN, TNT and Discovery, have lost an average of 3.2 million subscribers over the four years since, or about 3 percent of their total distribution.
Network executives quoted by the Journal insist the apparent falloff reflects a change in Nielsen’s methodology in 2012 to include broadband-only households in its sample more than it reflects an actual decline in the number of subscribers. But as the Journal points out, the trend began in 2010, two years before Nielsen made the change.
Moreover, as the Journal also points out, the decline among cable networks is mirrored by an increase in the share of pay-TV subscribers who are signing up for basic service only:
Basic plans that include little more than local broadcast stations now make up some 12% of pay-TV subscriptions, up from 8% to 10% a few years ago, according to estimates by some industry executives.
In many cases, those basic cable packages presumably are being supplemented by over-the-top content from Netflix, Hulu Plus, Amazon Instant and others. In essence, consumers increasingly are willing and able to assemble their own, a la carte bundles, through a mixture of traditional and OTT channels, and eschewing pre-packaged bundles dictated by the networks.
Another force tugging on the bundle is mobile. Verizon is planning to launch a multi-channel, linear OTT service on its mobile platform by the middle of next year. But don’t expect to see the full pay-TV bundle migrate to mobile.
“No one wants to have 300 channels on your wireless. Everyone understands it will go to a la carte,,” Verizon CEO Lowell McAdam said at an investor conference last month. Instead, Verizon will offer “a bundle with major broadcast providers” plus “a collection of custom channels.”
While that might seem like a threat to Verizon’s FiOS TV service, McAdam doesn’t see it that way. “Nobody makes much money at this point in distributing content.” he said, adding that a slimmed down bundle of 20 custom channels delivered over the internet would be ideal. Millennials, he added, “really do want to look at this content on their iPads” and other mobile devices.
AT&T is also eyeing a mobile pay-TV service if and when it closes its pending acquisition of DirecTV. While AT&T has not discussed its plans in detail, whatever it launches is not likely to include the full DirecTV bundle. Instead, its mobile service is likely to be built atop exclusive, unbundled content, such as NFL Sunday Ticket.
DirecTV last week renewed its deal with the NFL for the package of out-of-market games for a hefty $12 billion over eight years, reflecting the significant value such exclusive content has to AT&T. The telco, in fact, made the acquisition contingent on DirecTV’s ability to renew its exclusive deal for Sunday Ticket.
The networks, who have benefited the most from the practice of bundling, are not giving it up without a fight, however. As Viacom’s recent deal with Sony to make 22 of its networks available for a planned OTT service aimed at PlayStation consoles makes clear, the networks are still keen to keep the bundle together as pay-TV migrates to new platforms.
In Canada, in fact, a government proposal to mandate a la carte for pay-TV has been greeted with near-panic by the networks. In comments filed with the Canadian Radio-television and Telecommunications Commission (CRTC), which is considering the so-called pick-and-pay proposal as part of a broader overhaul of TV regulations, Viacom threatened to pull all its networks from Canadian pay-TV platforms should pick-and-pay be adopted.
The CRTC has not yet issued its recommendations, but Prime Minister Stephen Harper, facing reelection, has embraced populist sentiment by endorsing pick-and-pay, adding to the panic.
Even without a government mandate, however, the centrifugal forces tugging at traditional TV bundle are starting to tell.
