One in every five US households does not have a pay-TV subscription today, according to eMarketer. Some estimates put that figure even higher, at about 25% of households. That's up from less than 15% not even ten years ago. The main reason, of course, is the proliferation of OTT video services such as Netflix Inc. (Nasdaq: NFLX) and Hulu LLC .
But there is another reason: Cable TV monthly subscriptions go up a few percentage points every year, frustrating consumers. Operators argue they need to recoup investments in network upgrades, new set-top boxes, head-end equipment for services such as HD and VoD, and most importantly, in carriage fees for the channels they offer on their lineup.
This is a particularly contentious issue, with bitter negotiations often spilling out into public statements and sometimes full-page advertisements accusing the other party of being overly greedy. Sometimes channels get dropped for months while the two parties try and find a solution.
Pay-TV providers have found that it was easier to push downstream, i.e., simply raise prices on consumers, rather than fight the content providers. But increasingly, consumers are pushing back by cutting the cord. Operators are now trying to find new business models that allow them to win back, or at least hold on to these households.
In the past year, creating a slimmed down version of the pay-TV package seems to have emerged as a solution. A number of operators are trying to create smaller, more cost-effective packages that allow for a relationship to be maintained even with households concerned about the price of their cable bill. Here's a quick summary:
Comcast: Comcast's Stream is a $15/month service, targeted to broadband-only customers. It includes the major broadcast networks, HBO, "thousands" of VoD titles and Comcast's Cloud DVR service. It is offered in the greater Boston and Chicago regions at the moment, but is expected to be rolled out nationwide over the next year. The service is compatible with web browsers, smartphones and tablets, but only works on a Comcast network.
Comcast Corp. (Nasdaq: CMCSA, CMCSK) also just launched Xfinity Prepaid Services, allowing households to sign-up for TV or Internet service and "refill" their subscription on a weekly or monthly basis. These come without a credit check or contract and are aimed at the 10 million people in the US without a bank account or with inconsistent household income. The prepaid service is available in Illinois, Michigan, Georgia, Florida and Indiana today, and will be rolled out to the rest of the MSO's footprint in the coming year. Customers will need to get a starter kit ($80 for SD only/$120 for HD) and then pay a monthly fee ($45 for 45 SD only channels/$90 for 140 channels including HD). Comcast also offers a weekly payment option of $15 and $30 for the above packages.
DISH: DISH Network's Sling TV service streams a bundle of cable channels to subscribers for $20 per month and is contract/commitment free. The package includes ESPN, AMC, Disney Channel, TNT, History and HGTV. Subscribers can also add-on more channels for an additional $5 per package. Sling TV is compatible with iOS and Android devices, laptops, Roku, Amazon Fire and the Xbox One. It does not however, offer any of the broadcast channels. As of June 2016, the service had more than 700,000 subscribers according to research brokerage firm MoffettNathanson LLC , and is helping
Dish Network LLC (Nasdaq: DISH) somewhat balance the mounting losses of its regular pay-TV subscribers. (See Is Dish Going Down the Drain?)
AT&T: AT&T will be launching its own slim TV streaming service at the end of 2016 (DirecTV Now), offering a range of content options including much of what is available from DirecTV today. It will also feature premium add-ons and will be compatible with a variety of Internet-connected devices. AT&T Inc. (NYSE: T) has not provided much detail (not even the channel lineup) but did say that local broadcast channels should be included.
Verizon: Verizon's Custom TV package offers a 35-channel base with CNN, AMC, HGTV and local networks coupled with Internet access. Customers also get two add-on packages that are genre based (Sports, News & Information, Pop Culture, etc.). Verizon Communications Inc. (NYSE: VZ) was involved in licensing dispute with ESPN as a result, but this has now been resolved. The base package costs $65 and add-ons are $10 each. (See Verizon Skinnies Down With FiOS.)
Cablevision: Cablevision's "Cord-cutter" package offers an over-the-air antenna coupled with Internet service and access to its WiFi hotspots for $44.90 or $34.90. The price difference is dependent on the tier of Internet service you choose. Cablevision Systems Corp. (NYSE: CVC) can also add in HBO Now for an extra $15. (See Cablevision 'Cord Cutters' With New Package.)
Frontier Communications: Last year, Frontier Communications Corp. (NYSE: FTR) rolled out TiVo's Roamio DVR with over-the-air (OTA) support as part of its video offering. The TiVo can receive both broadband video services and OTA broadcast signals. The package starts at $20, including broadband access. Frontier also throws in a year of Amazon Prime for a one-year commitment. (See Frontier Tags TiVo for OTT/OTA Trial.)
As you can see, this "slim" strategy has been adopted by a number of providers. But not everyone is happy: Some customers find they aren't really saving all that much when everything is added up. One problem slim subscribers find is that they still want HD channels, sports, DVRs, interactive guides, etc., included, which is difficult if the price point is to be substantially lower than the "full-fat" packages.
Another important issue is the way channels are packaged, particularly by the big media companies like Walt Disney Co. (NYSE: DIS) or Viacom Inc. (NYSE: VIA) Typically they bundle less valuable channels with the really essential, highly popular ones. This helps them create the most value in their opinion, subsidizing new channels by lumping them with the highly popular ones. But it makes it very difficult to create small channel lineups that suit individual customers at a viable price point.
It's interesting to see US operators turning to OTA broadcasts. OTA is well established in Europe: UK digital broadcast platform Freeview is in 19 million homes in the UK, for example. But that's because Europe has a history of OTA broadcast services. In fact, Freeview is a standardized platform specifically developed by broadcasters, and includes 60 channels delivered free to the consumer. No such package exists in the US, and creating it would be difficult given the industry structure and existing licensing. Still, OTA services do allow for consumers to get free access to their local channels, which are the most highly valued.
It's an important initiative in my opinion. I don't think slim packages will eliminate cord-cutting, but it could help retain some percentage of households that would otherwise have been cord-cutters. And the longer the operators can maintain their relationships with these customers, the better it will be for them in the long run.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation