Friday, October 17, 2014

cable TV threatened by unbundling

With HBO and CBS planning stand-alone streaming services, the oft-maligned pay-TV bundle has begun to loosen. But it’s not clear the brave new streaming world that replaces it will actually be cheaper for consumers.

By offering their networks directly to consumers via the Internet, HBO and CBS are cutting out the middleman—cable and satellite companies—and potentially undermining the backbone of the television business.

On the surface, this is seen as a win for people frustrated with rising monthly television bills and paying for lots of channels they don’t watch. Other networks are following the lead of Time Warner’s HBO and CBS, including Univision Communications Inc. and possibly Showtime, which is a unit of CBS Corp.

Walt Disney Co.’s ESPN is also developing online-only platforms that would be offered separate from traditional channels.

“It seems to me that a la carte, which seemed like a distant reality a few months ago, has become a much more viable option,” said Tuna Amobi, an analyst at S&P Capital IQ. “This is a watershed moment for the industry.”

But cord-cutters should be careful what they wish for. A future where television viewers subscribe to each channel individually could be cheaper for young people who only watch two or three channels, industry executives said. But analysts say that for households filled with people of differing tastes or fans of many channels, this future could make the average cable TV bill — which hovers at around $90—seem like a bargain.

Driving the change is the growing popularity of online streaming services from Netflix Inc, Hulu and Amazon.com Inc.’s Prime Instant Video. In response, many networks have started making their own content available online or selling it to such services, but usually after it debuts on their linear service.
Now, though, as the number of people either abstaining from pay-TV or opting for smaller packages with fewer channels grows, traditional networks are starting to hedge their bets. “There is no question that streaming, in terms of consumer options, is becoming a reality,” said Mr. Amobi.

Technology may be doing what consumer advocates and many lawmakers have long argued for—making programming available on an a la carte basis, which they believe will result in smaller bills.
Some analysts however, paint a grim portrait of an unbundled world. Laura Martin, an analyst at Needham & Co., estimates that unbundling would drain half of the revenue, or $70 billion, out of the television industry. Moreover, today’s hundreds of channels would shrink down to about 20, she wrote. That is because advertising would decrease substantially on channels with reduced audience reach, forcing consumers to pay the entire cost of running the channels, instead of splitting that cost with advertisers, as is done in basic cable.

Sports networks could be most at risk in an unbundled world. About half of the subscriber fees paid each month by consumers go to channels with sports, even though these channels account for less than a quarter of viewership, according to Nielsen data analyzed by Needham.

If ESPN were taken out of the bundle, for example, it might need to cost as much as $30—instead of the roughly $6 per subscriber it currently charges as part of the bundle, according to SNL Kagan—to recoup its losses from reduced distribution and continue to afford its content.

Programmers, meanwhile, are protective of the bundle because it allows for the pairing of weaker channels with strong ones. Content companies often offer discounts to distributors for taking weaker channels along with strong ones.

“All these things are so much more expensive when you separate them out,” said David Bank, an analyst at RBC Capital Markets. “You are going to have to pay more for less choice.”

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[I don't know.  Something about this article smells fishy.]

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