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Never say never: why TV networks are suddenly ready to unbundle

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I got a lot of flack when I suggested in May that a network like AMC may be in a good position to unbundle from cable, and charge consumers for a Netflix-style service that would be available to anyone, even cord cutters. Many smart people said that it would never happen, and that any such move would drive cable networks out of business.

Fast forward five months, and it looks like the question isn’t so much if, but when: Over the last few days, cable networks and broadcasters have made a massive commitment to new online distribution models. First, [company]HBO[/company] said that it will sell an online-only service in 2015. Then [company]CBS[/company] followed by actually launching such a service the very next day. Just hours later, a [company]Univision[/company] executive committed to talking the channel to cord cutters as well. And earlier this month, the [company]NBA[/company] announced that it reached a deal with [company]ESPN[/company] to show live games outside of the cable pay gates.

The great unbundling has begun, and even close industry observers were taken by surprise. So why is everyone suddenly getting ready to unbundle? Here are three theories:

It’s all about leverage

One of the theories that you are hearing a lot since the trifecta of unbundling announcements hit this week is that it isn’t actually about the consumer at all, but about the never-ending negotiations tango between networks and TV service operators. RBC Capital Markets and others argued Friday that CBS may just want the $6 price for its online service out there so it can go to TV operators and ask for more money as well.


It’s a compelling argument, and it wouldn’t be the first time that a consumer service or feature was used as bargaining chips in these negotiations. [company]Dish[/company] for example built a monster of a DVR, capable of recording any primetime show on any broadcast network without consumers actively scheduling any of these recordings and then automatically skipping over all of the commercials. But when Dish’s renewed its contract with [company]Disney[/company], it agreed to curtail the automatic ad skipping in exchange for online rights to Disney’s content.

However, there is also some fallacy in that argument. That’s because CBS and other networks really only achieve any leverage if their services actually gain some traction. Getting $6 a month from close to no one still doesn’t prove that you should get more than $2 a month per head from an operator with 20 million customers. But if CBS does sign up a lot of users, it will inevitably invite the scorn from operators, which are only willing to pay more if they get exclusive windows for their own TV Everywhere products.

It’s because TV Everywhere failed

Which brings us to another theory: Networks like CBS have all invested a lot of money into TV Everywhere products, which let consumers catch up on shows as long as they have a pay TV subscription. TV Everywhere has been riddled with problems since the beginning, leaving many customers frustrated as they scramble to find their cable password before a big game begins.

To their credit, networks and their technology providers have been making some progress on making TV Everywhere easier to use, but it’s still far from being a mainstream product. At the beginning of the year, only 17 percent of consumers even knew what TV Everywhere was.


There are some exceptions, with HBO Go most notably being one of them. The cable network’s authenticated catch-up service has become a household name, at least for more tech-savvy users looking to get the latest episode of Game of Thrones or True Blood. Ironically, many of these users aren’t actually HBO subscribers, but instead borrow their passwords from friends and family members. HBO hasn’t cracked down on this practice in any meaningful way, but anyone within the industry is well aware of it — and I’d bet that it was one of the factors that convinced HBO executives to start charging for internet-only access.

There’s something bigger going on

TV Everywhere may have struggled to get traction, but there is no denying that consumers are moving towards online services, and a lot faster than many had predicted. For years, the mantra of many in the industry has been that the American household watches five hours of regular TV a day, but little to no online video, and that mainstream consumers simply weren’t cutting the cord, now or ever.

However, in late 2014, it’s becoming increasingly clear that consumer behavior is massively shifting:

All of this may not led to consumers collectively deciding to drop cable tomorrow, but it is pointing towards a world where online services are simply more attractive, and more used, than traditional networks. TV executives aren’t blind to these changes, and this past week, we have seen some of them start to react.

12 Responses to “Never say never: why TV networks are suddenly ready to unbundle”

  1. neal fondren

    The elephant in the room for the broadcast nets is the whole exclusivity issue. Just as newspapers lost exclusivity with all AP and other syndicated content being available everywhere, the B’cast nets have allowed local affiliates to have exclusivity. That would quickly end.

    It seems that retransmission consent leverage tilts heavily in favor of the cable operator who is seeing the market exclusivity of a local affiliate greatly diluted.

  2. mfocazio

    One more thing. I’ve done some consumer research (sadly I can’t share the actual study) but one of the things we found was that it wasn’t the COST of the Pay TV package that made people feel it wasn’t a good value, it was the sense of “wasteful” spending on “stuff I never watch” – piling on another 120 channels actually made the problem WORSE for many people.

    One interesting thing we found was that the price elasticity for individual networks pulled MUCH higher than we expected, especially when presented in a “day pass” or “weekend pass” model. For example, we found that a $12.99 fee for 72 hours access to ESPN live streams was perfectly fine for most of the cord cutters.

    The basic mindset is different, more isn’t more, more is wasteful, and to constantly be reminded of all the channels you don’t watch (most people watch 8 to 10 channels, that’s it) actually exacerbates the sense of poor value.

    We’re headed to a hybrid model – cable will remain a better value for the heavy TV watcher, but for the occasional watcher or “season pass” buyer, it will still come out to about the same monthly cost, but with a fundamentally different delivery and monetezation model. You’ll spend the same for less programming, but with no or easily skippable ads, possibly delivered 12 to 24 hours after broadcast and that will be perfectly fine – even desirable.

    • wscaddie56

      Seems unlikely to me that $13 for 3 days would be seen as a good deal, that works out to $130 per month! I’m thinking $10-15 per month is more like it for the family of ESPN networks. $5 per month for a single network, ie CBS or AMC.

  3. mfocazio

    Some very solid comments here, with good insights. One thing that I’d like to add to the mix is that while CBS makes a point of better ARPU for streaming+ due to unskippable ads, all of the meaningful growth in video distribution services had been for ad-free options (like Netflix, HBO Go, Amazon prime). TV Everywhere/Ad-Full growth is quite stunted by comparison. I won’t go too long into it here, but we also need to consider that Rentrak and Comscore have made serious inroads into the audience measurement space and in some areas of online distribution, they have either attained the same authority as Neilsen or are close to it. This “sample size 100%” measurement model will present major challenges not only to Neilsen, but to sellers of ad space. Interesting times!

  4. Woody Mahan

    CBS is charging for content that is available for free OTA. They make their money from advertising. I think the idea is to try and set the price per “channel” so high that it is actually cheaper to just pay for a cable bundle. I think it’s all about getting ABC, NBC, FOX, and others to charge $6 a month so they can drive everyone back to the cable model that has been flooding their bank accounts for the past 35 years.

  5. It has flabbergasted me for some time that HBO hasn’t introduced a standalone service. Here’s a channel that knows it has content that people are willing to pay for and has seen the enormous success Netflix has had without working on a cable box, and instead of seizing the massive opportunity, they’ve just sat on their hands. The reason they are launching the service seems to be because they finally understand they can position themselves for huge success as the cable bundle disintegrates.

    Univision seems to be in a similar boat. They see the opportunity to become the Spanish version of Netflix, and they can’t help but take the opportunity.

    I think CBS is different though. The service they’ve launched doesn’t even include the popular streaming platforms. I get the feeling that it’s mostly about getting more leverage in agreements. That’s not to say there aren’t factions at CBS fighting to create something more than just an enhanced version of the 24/7 channel. There are aspects of the service that point towards that idea, including the commercial-free library of past shows.

    I’ve always expected HBO to be first, followed by the other premium networks (Showtime, Starz, Epix). They know they have a market ready and willing to pay for their product. Next, the niche channels that have passionate followings. This includes something like the Tennis Channel, NFL Redzone, Golf. The non-linear nature of sports tournaments particularly lends itself to streaming anyway. Instead of only showing the top current match, they could have every major match available and the person just chooses what interests them the most.

    At that point, Discovery or A&E would wise up and launch a consolidated version of their multiple channels. When you own multiple channels that have decently similar audiences, it will soon become a no brainer.

    At that point, there will likely be some mergers or acquisitions leading to a few more streaming channels. I don’t think the market can really support too many distinct services, so we’ll just have to see how that plays out. Disney will be its own thing. Sports might consolidate, or the leagues might separate into their own separate services.

    It’s going to be a domino effect. When everything is in the bundle, most channels would be stupid to leave the bundle. But those on the edge who think they can do better outside will jump ship, and suddenly channels that are in the bundle will find less value in it, jump ship, and so on. At some point, there’s no bundle left at all.

  6. They only are doing it because we are finally unbundling with or without them.
    We were in control the whole time. Just now someone, netflicks gave us another choice.

  7. Ken McDowell

    That’s where the cable/telcos will keep their profit margins climbing. If they start seeing their profits falling from these unbundled services you can be sure they will be charging more for the pipe that sends these services into your homes. And just as in the case of Netflix they’ll start charging the networks extra for all this bandwidth they will be using. The cable companies have all the leverage and they always will. They own all the infrastructure that provides all these services.

  8. John Thomas

    When discussing this topic, what most people with little knowledge about how the entertainment industry works miss is the issue of programming rights. AMC doesn’t own online streaming rights to 99% of the content that it airs. So it’s really much more complicated than this sadly simplistic article suggests.

  9. Jack Scalfani

    We still have not addressed data caps. This will not work if isp’s keep slamming us with data overage charges. We can’t have growth with data caps. The cable/data provides know this. They plan to make a killing in penalties.