Our last post looked at broadcast networks. Here, we shift our attention to low- and mid-tier cable networks. Consumers who are trying to save money on their cable bills are increasingly moving to “skinny bundles” that have fewer channels. As consumers go on a cable bill diet, they are effectively dropping channels. But while skinny bundles are cheaper for consumers, they will be the death of some cable channels.
For years, consumers have asked, “Why am I paying for so many stations that I never watch?” And for years, cable and satellite companies have ignored these complaints, opting instead to take a one-size-fits-all approach and add more and more channels to the basic cable package. According to research out of UC Berkeley, the average cable bundle doubled in size between 1995 and 2005. A recent study by Nielsen found that the average U.S. household receives almost 190 TV channels — yet watches only 17.
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Something had to change. In 2015, something did. At the beginning of the 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.
A closer look at these skinny bundles reveals a hard truth: They exclude many of the low- and mid-tier networks, such as Oxygen, BBC America, IFC, Destination America, Nat Geo Wild and WGN America. Gone are the bundles with close to 200 channels and, with them, the carriage deals on which so many cable networks have relied.
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How big an impact these skinny bundles will have on cable networks depends on the extent to which consumers adopt them. 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.
Based on our proprietary survey, we modeled two plausible scenarios. The first one predicts what will happen over the next four years given expected demographic changes (e.g., more millennials with more buying power) and continued growth of subscription video on demand (SVOD) services like Netflix. The second scenario is more complex and contemplates the extent to which consumers are likely to take advantage of the new virtual MVPD offerings.
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