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"Pay TV subscriber levels have gone down and we expect that trend to continue," says says David J. Heger, senior analyst at Edward Jones. Currently there are an estimated 10 million households without a pay TV subscription. But cable companies still have huge numbers on their side with roughly 100 million households still shelling out each month for a TV package; a reality not lost on the networks and studios that create the shows we love to watch. "The cable TV model has been phenomenally lucrative for content producers," Heger notes. Rather than cannibalizing those customers, he says, "networks like HBO are looking to expand by capturing some of those households with no pay TV service." This means that they're not going to undercut the cable providers when it comes to pricing. Indeed, most expect the standalone HBO service to cost the same $15 or so that cable companies charges for the channel.
Consumers looking to cut the cord are also going to find that these new streaming services come with limitations. Sony's offering is an all or nothing package of about 75 channels that doesn't include HBO or ESPN. Dish Network's Sling TV web bundle will have no DVR capability and the small 3-day replay window that is limited to only a portion of the included channels.
As these new offerings illustrate, un-bundling–the holy grail for cord-cutters who'd rather pay for channels a la carte–isn't likely to become widespread. HBO is one of very few networks with both the viewer demand to make a standalone offering compelling for large numbers of consumers and the deep pockets to provide the customer service and billing infrastructure such a move requires. Channel bundling is largely dictated by the content providers themselves. It's no coincidence that Sling TV's lineup includes not just ESPN, but the Disney Channel and ABC Family. They're all owned by Walt Disney Co. which almost certainly made the inclusion of the latter two networks a requirement for allowing Sling TV to carry ESPN.
Comcast and Time Warner Cable, in the midst of a lengthy merger review, are highlighting these new types of services as evidence of a vibrant and highly competitive video landscape. Yet the FCC is much more concerned, and rightly so, about the merger's ramifications for broadband access. And this is the ace in the hole for cable companies. None of these video offerings work without a fast Internet connection. Control of that connection, limited to a small number of operators who don't even compete in the same markets is the main reason most consumers won't be dropping pay TV anytime soon.
Cable companies have shrewdly adjusted pricing to heavily promote packages that offer some combination of TV, phone and Internet service on the same plan. SNL Kagan estimates that 2/3 of pay TV subscribers have at least two bundled services. It's easy to see why. On Comcast's home page for example, an Internet-only package with 105Mbps download speeds is advertised for $60. Yet you can get the same Internet speed along with a pared down channel bundle and 12 months of free HBO for just $5 more.
This isn't to say that the landscape isn't changing. The huge growth of Netflix has shown how quickly consumers are willing to adopt a new service model. Eager to avoid the mistakes of the music industry, content providers are aggressively looking to provide viewers with the content they want to see on the platforms they want to use."People are asking for smaller channel packages," notes Ian Olgeirson, principal analyst at SNL Kagan,"so we're seeing more experimentation with bundle options." Expect to see these types of offers expand in the near future. But as long as the disparity between cord-cutters and subscribers remains this wide, don't look for content providers to turn their backs on their pay TV partners.
