The year started with HBO Go and CBS and then Sling TV, and now we’re learning about new streaming packages from Sony and Apple TV. Certainly many more will be coming. The packages include top channels like HGTV, TBS and AMC -- and, incredibly, channels like ESPN and HBO, which many consider the critical linchpins holding the traditional cable bundle together.
Pundits are now predicting this is the start of the long awaited “un-bundling” of the TV world, where viewers abandon their legacy television packages and eventually only buy TV networks and programs on an a la carte basis -- much like what has happened to the music business. For myself, I’m not so sure that things are going to immediately unbundle that way, at least not in the near term. However, I do think that television networks may soon face a very difficult game of musical chairs.
Virtually all these new bundles have fewer channels and lower fees than the average TV subscription that most consumers buy. With a smaller bundle and a smaller subscription fee, either few channels get the same fee they have today, and many channels that get fees today get none -- or most or all of the channels that get fees today continue to get fees, just smaller fees. In musical-chairs parlance, that means either fewer chairs or smaller chairs, or both.
The “music” of the TV industry is the big deals that cable, satellite and teleco companies cut with the TV programmers. While those deals are long-term, they are based on subscriber counts. If the counts go down, so do the fees. If these new packages replace any legacy packages, fees will go down. The more replacements, the more the fees drop.
If the world of TV is either fewer chairs or smaller chairs, and if fees go down from a loss of legacy carriage fees, things could get tough. TV companies have a lot of long-term fixed costs. Programming deals, which are only getting more expensive these days, are not variable costs that can be dialed down if the audience is smaller.
The fact that many TV companies are also producers of their programming will help, both in the management of costs and in providing those shows to the new entrants in the streaming business. However, things are certain to get dicey as the revenue mix changes.
Even more dangerous in this game of musical chairs is what happens to the legacy bundle if companies start subsidizing premium streaming video services to gain or retain customers in an adjacent business, such as retail, banking or mobile teleco. Those businesses might use TV packages just as banks used to use “toasters”: as a giveaway to get customers. This certainly seems to be Amazon’s strategy with its Prime Video service. Such companies will buy content, but they’ll probably continue to just go straight to the talent and producers, bypassing the networks. That could take a lot of “chairs” out of the game.
It’s quite possible that the future of TV might be a shrinking bundle and a game of musical chairs. What do you think?