New York (CNN Business)Skinny bundles of TV channels have emerged in the last few years as a cheap, streamlined alternative to the bloated and expensive cable packages of old. But those bundles have started to put on a few pounds lately.
Within the past year, several major streaming television services — including YouTube TV, AT&T’s DirecTV Now and Dish’s Sling TV — have raised prices on their skinny offerings. Each provider offers a package worth about $40, which comes with about 50 to 70 channels. Dish and AT&T offer cheaper, smaller packages, too.
Companies are in search of a sweet spot, a collection of TV channels that will win over more viewers and drive more revenue. They hope to build a formula that can turn these burgeoning packages into a profitable business.
Some analysts see the price hikes as an understandable and even prudent decision. Customers probably won’t be driven away by that increase, said Tuna Amobi, a media analyst at CFRA research. After all, $40 is still a lot cheaper than the $100 or more a viewer can expect to pay for a top-of-the-line traditional cable package.
Although cable TV still has a big audience — about 90 million households — it is losing members every year. Skinny bundle providers are wooing a younger generation of cord cutters, along with people who never subscribed to traditional cable at all.
Skinny bundles started gaining traction in 2015, when Dish (DISH) introduced Sling TV. At the time, Sling offered about a dozen channels for $20 per month.
In the years since that launch, the entire skinny bundle market has amassed more than 5 million households, according to S&P Global Market Intelligence.
That growth has come hand in hand with more channels — and price increases. The basic Sling TV package, for example, now carries nearly 30 channels for a $25 monthly fee. That’s double the channels for a 25% price hike — a good deal for some, but not necessarily for customers who only care about a few stations and want to pay rock-bottom prices.
Sling TV President Warren Schlichting has attributed the increase to rising programming fees. Other services, including YouTube TV, launched in February 2017, have made similar moves. YouTube TV tacked onto its price tag an extra $5 this spring after it added TNT, CNN and TBS.
The selection of channels on these services is growing. Last month, Discovery announced that Hulu will start including the Discovery Channel, TLC, Animal Planet and a couple of its other networks as part of Hulu With Live TV, which the streaming service launched in May 2017. That cable-like package also includes Hulu’s on-demand library, and costs about $40 per month.
A Hulu spokesperson says that the company doesn’t plan to raise prices when the Discovery channels are added in December. (AT&T, which owns CNN, also has a 10% stake in Hulu.)
A business in search of profit
Analysts say the changes in channel offerings and prices reflect how these companies are planning for the long term. Profitability is a problem — in an interview last month with The Wall Street Journal, AT&T (T) CEO Randall Stephenson said that DirectTV Now hasn’t yet turned a profit. He also floated the possibility that the company could raise prices even further.
Ian Olgeirson, an analyst at S&P Global, said his firm expects these companies to keep tinkering with prices and channels so they can maximize viewership.
“They are in an experimental phase,” he said. Companies want to feature more channels requested by viewers so they can attract more customers, while also figuring out exactly what people are willing to pay for the product.
Amobi, the CFRA analyst, added that the large media companies that own a lot of these services also can afford to subsidize them for now, in the hope that profits will come soon enough.
For all that experimentation, it’s not yet clear what kind of place skinny bundles will occupy in a field flooded with all kinds of options.
S&P Global, for example, projects that skinny bundle-type services will be in 15 million households by 2022. Although that’s triple the amount that exist today, it’s small compared to the number of households that have traditional cable-type services. The S&P data projects that while the increase in skinny subscribers should help slow the decline of households that subscribe to any type of multichannel service, the overall numbers still indicate a slow, steady decline.
Olgeirson cited a couple of obstacles that his firm expects will prevent skinny services from exploding. In addition to price hikes, he also expected traditional bundle operators to respond to the growth with more flexible packages of their own.
There’s also another factor that no skinny bundle may truly be able to address, no matter how much providers play around with price and channel access. Live TV services don’t necessarily satisfy the desire of someone who has grown up with access to programming on-demand and without commercials, Olgierson said.
In other words: If you can watch “The Office” on Netflix (NFLX) without commercials, why watch it live on TV with them?
“The virtual services, they fill a hole,” Olgierson said. “They don’t remove that entire need for consumers to look elsewhere.”
by Jill Disis, CNN Business
