Bundling and the Future of Television
July 29, 2015 • Gary Myer
The era of Internet television is here and, for the first time in the evolution of the medium, the amount of money that media companies should expect to make is less than the previous generation of video delivery technology. Scary times, indeed. But it needn’t be.
If not managed properly the television business will follow the evolutionary track of the music business. Music used to be a lucrative and high margins industry. Labels bundled multiple tracks on an album to sell popular hits with the rest of an artist’s catalog. But with Apple’s recent domination of the music distribution business, and its business model based on iTunes selling mostly individual tracks for download, the recorded music business has shrunk to half its annual peak of $40B in gross sales in 1999.
Before comparing the television business to the music business, we need to identify the chief impediment to consumers: bundled services. The bundled services offered by broadband providers — the “triple-play” or “quad-play” packages of broadband Internet, television, home phone, and mobile phone service — are a terrific source of revenues to service providers. These bundles, created to push consumers into more services to generate more revenues, provide a unique (and unfair) pricing advantage to the cable/telcos. The bundles enable them to offset margins of one service against margins in another service. For some consumers, bundled services make sense. But increasingly, for a large segment of consumers, these services are not what consumers want.
Try buying a group of services without, say, phone service — the price is increased on the remaining services. It is one of the reasons why the FCC recently approved new net neutrality rules that will treat the Internet like a public utility. This type of bundling should no longer be a competitive advantage against new online video providers (OVPs).
But the real analogy to the music business is in the packaging of the television service. If you are a fan of Mad Men you need to: (1) purchase a service bundle that includes pay-TV, (2) subscribe to a basic cable programming package (music album analogy) which (3) includes the AMC channel (along with hundreds of other channels and programs that you may or may not care about). Finally, you’ll probably (4) want to pay for a DVR option so that you can record episodes.
However, like the music business, the days of television content bundling are numbered. Netflix, Hulu, AppleTV, Amazon Prime, Vudu, HBO Now, CBS All Access, Sling TV and Sony (the OVPs) are all currently offering over-the-top (OTT) Internet-delivered television/video programming, either to their own devices or via third-party digital devices. Taking the unbundling trend even further, to the individual program level, NBCUniversal recently announced plans for a subscription comedy video service to reach younger audiences directly online.
Meanwhile, mistakenly thinking that millennial flight from pay-TV is due to cost, and following Sling TV’s lead with lower-priced “skinny bundles,” DIRECTV and Verizon are also offering smaller, lower-priced programming packages. Unfortunately, in each case, the service provider is guessing which new, smaller content bundle will appeal to the demographic.
Unfortunately, the new alternative to the bundling and packaging of television/video content that is taking shape is the opposite extreme. The bundles of channels/programs are being broken up into individual apps representing each and every channel. While content creators are delighted to go direct to the consumer, viewers are left on their own to find content with a multitude of non-standardized user interfaces and experiences (UI/UX).
While the supply side of the television universe is constantly being fed with new original content and new episodes of renewed popular shows, the demand side — where consumers live — is inadequate. With content freed from their packages/bundles, there is a new need to provide a uniform, intuitive UI/UX to search, navigate and discover programming from the sea of individual à la carte programs.
The current x-y program guide schedule grid provided by the multi-channel video program distributors (MVPDs) was designed over 20 years ago for linear-scheduled programming distribution, and will not work with hundreds of thousands of à la carte programs.
Unfortunately, nearly all of the Internet video providers adopted a format of randomly displaying unrecognizable screen-space-hogging posters of each of the individual programs/movies. Why? Perhaps because Apple started that format with AppleTV. But even Apple can be wrong occasionally.
Critical to an unbundled future is the role of content aggregation and curation. There needs to be an aggregator and curator of the television/movie/video content that have been set free from the linear grid. Since there is such a huge quantity of content, both in libraries and in new material entering the market, mere awareness becomes a key to discovery and navigation. How are viewers made aware of thousands of individual pieces of content? Certainly not with 10–15 poster images on the screen at a time.
Social media will provide the bridge to the new à la carte, on-demand paradigm by augmenting traditional program guides and search. Trends and online communities will dictate programming viewership. After all, our collective need to remain current with the zeitgeist will still rule the TV ratings. Just look at ABC Family’s Pretty Little Liars, generating more than 100 million tweets to date, with 1.9 million tweets during one episode alone.
Lastly, but just as important, are the economics of the TV business itself. Instead of the historical advertising upfronts and the sometimes shotgun approach to traditional advertising buys, new data analytics can be used to expertly match advertising to consumer demographics, and precise viewership data can effectively drive higher CPMs. Multiple options can be offered to consumers for each program: subscription packages, or subscription/transactional video on-demand, all with or without advertising. Professionally planned for, and properly implemented, there is no reason to see revenues decrease in this new environment.
Does unbundling change the economics of the television business? It can, but it doesn’t need to be a negative change. A few of us, and a handful of the content providers and channels, have already started the process of proactively managing this change so that the next phase of TV’s evolution is even better, and more profitable, than the last.
Thanks to Rick Erikson for his help in the preparation of this article.