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The Winners and Losers of the Rise of TV’s “Skinny Bundle”

This year, the TV tides are actually changing … probably

(Getty Images/Ringer illustration)
(Getty Images/Ringer illustration)

It’s finally (maybe) happening. The walled garden known as pay television is (perhaps) crumbling as television watchers (might) dump their pricey cable subscriptions in favor of cheaper alternatives. Yes, media watchers have been fantasizing about Comcast: Judgment Day since last decade, but this year the TV tides are actually changing. (Possibly.)

Here’s the evidence: In the first quarter of 2017, traditional pay-television subscriptions fell by 2.4 percent year over year, the largest percentage ever according to The Wall Street Journal. And that was before online streaming services from YouTube and Hulu launched in April and May. Those new offerings are part of an ever-expanding number of “skinny bundles,” collections of television channels that are cheaper and less comprehensive than the hundred-plus networks that come jammed in old-school cable packages.

While it might feel like everyone you know uses the “beg, borrow, steal” method to gain access to their favorite shows, there are still 99 million American households with traditional pay-TV subscriptions (the type you get from Comcast, DirecTV, or Verizon Fios, for example). Cable isn’t going anywhere, but the amount of cord-cutting that’s already happened has thrown the fortunes of the world’s biggest media empires into question. The economics of television are predicated on the notion that everyone will always want to watch more TV; now that we’re collectively watching less (or at least paying for less), the industry simply won’t be able to prosper the way it has in the past. Here’s a look at who stands to make out best in the new television landscape, and who’s in trouble.

Winners

Tech Giants

Surprise — Silicon Valley is about to leverage a media disruption that it caused to achieve even bigger financial gain. Google now has its cable competitor in the form of YouTube TV, while Facebook and Amazon are starting to snap up the rights to live sports. Apple is investing in original content and trying to reframe the TV-watching experience around apps rather than channels. As the traditional pay-TV ecosystem disintegrates, all these companies stand to acquire subscribers, production talent, and highly valuable live-streaming rights that previously would have been locked up on cable. That means more opportunities for them to drive revenue, whether by charging customers to access content or serving them the ads that are transitioning from television to digital spaces.

Broadcast Networks

In order for a bundle to be skinny, it can’t include all the channels of a normal cable package. But in nearly every case, it’s going to include broadcast networks such ABC, NBC, and Fox (CBS has a stand-alone streaming service that allows it to play hardball in rights negotiations). These networks have the most popular shows on television, as well as most major sports playoffs and championships. Even if television watching migrates from cable to online, the broadcast networks are still an essential part of the picture — what’s more, they can probably charge industry newcomers higher carriage fees for the right to stream their broadcasts.

Sports Leagues

Both the NBA and the NFL suffered ratings declines in their most recent seasons (during the regular season, at least), and pro football in particular may face challenges recovering its viewership amid an oversaturation of the sport. In the old pay-TV world, falling ratings would mean leagues have less leverage to keep negotiating sky-high rights deals with broadcast and cable networks. But tech companies, more concerned about growth than immediate profits, might be willing to lay out huge sums in order to air major sporting events and the monetizable eyeballs they attract. Consider how Netflix took over the stand-up comedy genre with ease this year by paying outlandish sums for one-hour specials from major comics. The bigger tech giants could do the same with sports — and even if they don’t, their presence in the bidding process will have the effect of driving up the value of rights deals.

Casual TV Watchers

If TV is essentially the background noise for your evenings, great news: That noise is about to get way cheaper. The average cable bill now sits at around $103, while skinny bundles range in price from about $20 to $40. For the viewer that’s not overly picky about what they watch, a Netflix + Sling TV/Hulu Live TV/YouTube TV pairing can provide plenty of entertainment at a relatively low cost.

Losers

Sports Networks

ESPN’s recent troubles are well-documented, and they’re at least in part because of cord-cutting. Most skinny bundles include the sports giant, but not all of them do. ESPN president John Skipper has already admitted that people trading down to cheaper bundles is one reason the channel has been shedding subscribers in recent quarters. That problem is likely to grow later this year as media companies like Viacom, AMC Networks, and Discovery Communications plan to start offering even skinnier bundles that leave off the sports networks and cost $20 or less. Disney CEO Bob Iger doesn’t think there’s a bundle of channels you can put together at a low enough price that would actually appeal to a lot of customers. If he’s wrong, ESPN’s financial problems will only grow over the next year.

Niche Networks

As pay TV grew and grew during the ’90s and 2000s, media companies kept creating more and more spinoff channels to boost their bottom lines (and people’s cable bills). But in a world where people are opting to pay for 20 to 30 channels, there’s simply no room for MTV Live or the American Heroes Channel. The curiosities buried deep in the cable lineup simply can’t survive in this landscape. Already this year NBC has took the Esquire network off its cable package (it will live on on its digital platform) as well as crime channel Cloo. Executives at Viacom and Discovery have said they intend to focus their energies on their five or six flagship channels, leaving the future of their lesser-watched properties in question.

Cable and Satellite Companies

It’s true that companies like DirecTV, Dish Network, and soon Comcast are offering customers cheaper bundles compared to the classic bloated cable packages. But their hope is to persuade people who never paid for television to buy a skinny bundle, not to see their current customers downgrade. However, the ongoing collapse of the traditional pay-TV market indicates that this strategy is backfiring — cable subscribers are exiting the market in droves, either adopting skinny bundles or simply using on-demand services like Netflix. Services like Sling TV and DirecTV Now can help staunch the bleeding, but they don’t change the fact that the cable industry is worse off than it was before it had to resort to slimmed-down bundles.

Hard-core TV Watchers

In the same way that streaming music is a confusing, expensive headache if you want access to every new album on launch day, keeping track of which television shows air where will only get more exhausting as more streaming options emerge. If you’re content to stick with one service, streaming is pretty cheap, but in order to see everything you’ll have to stack a number of subscriptions that could end up equaling the price of a typical cable/internet bundle. What’s more, the squeeze on niche networks will cause a lot of programming to be canceled as more channels are shuttered. Believe it or not, there are probably dedicated viewers shedding tears because Oxygen and its reality-TV fare is being canned by NBC.

Too Early to Tell

Netflix

A proliferation of user-friendly streaming services that are accessible on any device could be bad news for Netflix, which has led the streaming space since its inception. But Netflix has long argued that rivals such as Hulu, Amazon, and HBO Now are not substitutes for its own service, and it will probably use the same rhetoric against skinny bundles. So far the logic has held true. Netflix has continued to steadily add subscribers, and it’s shielding itself from the threat of increased churn by investing heavily in original content. We’ll have to wait and see if new, cheaper options make Netflix seem redundant in the eyes of customers.