By Shalini Ramachandran
The accelerated pace of cord-cutting has set off a race among
media companies to be included in new "skinny" streaming bundles
that are reshaping the American television landscape.
Cord-cutting was at a record pace in the first quarter as
consumers continue to ditch pricey pay-TV subscriptions and seek
more online alternatives. Over the past five years, nearly 8
million U.S. households have abandoned traditional pay TV,
according to Wall Street research firm MoffettNathanson.
Earnings reports from Discovery Communications Inc. and Walt
Disney Co. last week underscored the trend, stoking investor
worries about the long-term sustainability of the cable
subscription revenues that have long powered media companies'
growth.
To drive new revenue, media companies have been hustling to get
their flagship channels into new streaming bundles. But new
entrants' preference for slimmer, cheaper packages is splintering
the age-old cable bundle.
With Dish Network Corp.'s Sling TV, AT&T Inc.'s DirecTV Now
and Sony PlayStation's Vue being joined by live TV services from
Hulu and YouTube TV in the past month, some clear network winners
and losers are beginning to emerge in the new streaming pay-TV
world.
Major channels such as TNT, Nickelodeon and Discovery Channel
are finding themselves left out of some new services -- a stark
departure from traditional cable and satellite TV providers that
have long carried every major network to stay competitive with
rivals.
"This is when the marketplace will separate the wheat from the
chaff," said CBS Corp. Chief Executive Leslie Moonves earlier this
month.
Broadcast networks and sister cable channels owned by Disney,
21st Century Fox and NBCUniversal are in all of the new streaming
bundles, while cable channels from the likes of Viacom Inc.,
Discovery and A+E Networks are having more trouble getting in. That
is in part because some of the new entrants prioritized broadcast
and sports networks over purely entertainment channels.
Time Warner Inc.'s networks can't be found on YouTube TV, even
though its TNT channel carries NBA and college basketball
games.
CBS, whose broadcast network isn't carried by Sling TV or
DirecTV Now, has poured resources into its own streaming service
and hasn't prioritized gaining carriage on every new offering,
holding out for better terms.
The cord-cutting phenomenon traces its roots to 2010, when
pay-TV growth dipped below new household formation for the first
time, according to MoffettNathanson. From a peak of 100 million
homes, pay-TV subscriptions declined in a slow trickle for years
until an acceleration in recent quarters. The firm estimated that
traditional pay-TV subscribers declined a record 2.4% in the first
quarter from a year earlier.
AMC CEO Josh Sapan estimated earlier this month that Sling TV,
DirecTV Now, YouTube TV and Sony have added between 2 million and
2.5 million customers so far, mitigating but not making up for
defections.
Adding to pressure on networks, some consumers are cord-shaving,
or downgrading to cheaper packages from traditional operators.
Several traditional operators' slimmer bundles leave out some
well-known networks such as ESPN and Nickelodeon, for instance.
ESPN said that if those bundles grew in popularity to become the
operator's most or second-most distributed packages, ESPN would
have to be included contractually.
The confluence of events has left media companies scrambling to
explain their plans for growth to Wall Street.
After Disney reported a slightly increased pace of subscriber
declines at ESPN, Disney CEO Bob Iger promised new streaming
services focused on certain sports or teams. Given that ESPN's
flagship programming won't be offered, those services are "likely
to be a niche offering, which may limit the benefits," wrote
Barclays analyst Kannan Venkateshwar in a research note.
Over the last several decades, TV programmers and cable
providers invested together to ride the growth of U.S.
subscriptions. Pay-TV distributors asked media companies to create
more channels, which helped distributors justify annual rate
increases and handed more profits to media companies.
Fierce competition among cable, satellite and phone companies
benefited TV networks because no distributor wanted to be stranded
without a set of networks offered by a rival.
Now, new entrants like Hulu are prioritizing entry retail prices
under $40 a month, even if it means forgoing channels like
Nickelodeon or AMC. Instead, they are touting technological
differentiators such as personalization and vast digital
video-recording storage.
During talks with cable programmers like A+E and Discovery,
YouTube TV said it would only offer certain networks in a more
expensive tier -- a move that would have triggered contractual
clauses with traditional distributors to allow them to do the same,
some people familiar with the talks said. "The downside risk was so
enormous that all of us independently said 'no thank you,'" one
media executive said.
Moreover, the streaming cable-TV services aren't as concerned
about profits yet. Analysts say it is unlikely YouTube TV can make
money off subscriptions alone at its $35-a-month price. It may be
more interested in making a play for premium TV-ad inventory.
For Hulu, creating competition in the content marketplace
benefits its owners -- Comcast Corp., Fox, Disney and Time Warner
-- even if it loses money.
Some investment bankers say that the new entrants' "Swiss
cheese" model for content is dampening prospects for mergers among
big media companies, which are loath to acquire any straggler cable
networks that could weigh down carriage negotiations.
Companies including Viacom, AMC, Scripps, A+E and Discovery that
have been left out of certain streaming bundles are advocating for
traditional pay-TV providers to offer an entertainment-only bundle
priced around $15 a month with no expensive sports channels.
Charter Communications Inc., the second-largest cable company,
is deeply engaged in those discussions, some media executives said,
and could launch such a streaming bundle to customers in its
service areas by year-end.
Executives said a tech startup called Philo, which has been
offering streaming services on college campuses, has also been in
detailed discussions about creating such a package.
There should be a bundle between $8 and $12 a month, said
Discovery Chief Executive David Zaslav last week, because the
current streaming bundles are "overstuffed turkeys."
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
(END) Dow Jones Newswires
May 14, 2017 09:14 ET (13:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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