Report: TV Viewership Patterns and Economic Realities Indicate Difficult Path for “Skinny” Bundles

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So-called “skinny bundles” of TV networks face long odds of success given the dispersion of actual TV viewership, cross-ownership of broadcast-cable TV networks by media conglomerates and underlying economic realities, according to a new analysis by MoffettNathanson.

The conclusions align with points I made in last Friday’s podcast and previously, as I’ve asserted that the “Swiss cheese” channel lineups found in skinny bundles will lack broad appeal. This was a central finding from recent Bernstein research as well. Conversely, bulking up channel lineups with more TV networks (as Sony has done with its new PlayStation Vue service) eliminates the opportunity for a cost-savings value proposition that would resonate most with would-be cord-cutters or cord-nevers.

The MoffettNathanson analysis looks at the weekly reach percentages of broadcast and cable TV networks, their actual viewership, affiliate fees paid by pay-TV operators, and the ownership structure of these networks by larger media conglomerates.

The weekly reach of the 4 broadcast TV networks is clustered between 38%-43%, while the top cable TV networks are much lower, with the top 5 as follows: USA (16.9%), ESPN (16.8%), TNT (16.8%), TBS (15.9%) and FX (15.6%). Broadly speaking, every conglomerate has a mix of higher and lower reach networks, with Disney, Time Warner, A&E and CBS having the highest concentrations of high reach networks.

The analysis found “modest correlation” between a network’s reach and its actual viewership. It also found little correlation between viewership and the affiliate fees pay-TV operators pay to carry these networks. Certain sports and news networks (e.g. NFL Network, Fox News, ESPN2) had the biggest divergence between fee levels and viewership.

All of this feeds into understanding why service providers looking to create low-cost, high-value skinny bundles have a very difficult challenge. For instance, MoffettNathanson estimates the 15 networks included in Sling TV’s base package cost Dish itself $15.42 per month, leaving just $4.58 per month of gross to cover all of Sling TV’s costs and generate a profit. And note because Sling TV is missing all of the high-reach broadcast TV networks, its appeal will be severely limited. Any add-on package including broadcast TV networks would not come cheap given prevailing retransmission consent fee levels.

By contrast, Sony’s PlayStation Vue’s lowest “Access” tier of service includes 53 networks for $50 per month that MoffettNathanson estimates cost Sony $21.79 per month. But neither it nor the other 2 expanded tiers include ABC or ESPN, the second-highest reach cable TV network. However, all tiers include many low-reach cable TV networks Sony was likely forced to take, which reinforce viewers’ perceptions that they’re paying for a lot of stuff they never watch and don’t need.

No surprise, cross-ownership of broadcast and cable TV networks by conglomerates result in negotiations where it is virtually impossible for skinny bundle providers to gain economic access only to high-value TV networks. MoffettNathanson estimates the full cost for all the cable TV networks (high and low reach) that would get pulled along with the 4 broadcast TV networks is at least $34 per month, blowing away the possibility of a low-cost, high-appeal skinny bundle. It also illustrates the challenge Apple has ahead of it if it wants to pursue a skinny bundle strategy anchored by broadcast TV networks.

There is a lot of buzz these days about skinny bundles, standalone OTT services and a la carte. There is no question that all the technology pieces (e.g. broadband, devices, software, etc.) now exist to enable any/all of these models. But the key challenges remain the structure and economics of the TV networks and their owners. The business models and competitive structures that have been built up over the years are now the main barriers to more tailored consumer offerings.

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