July 2, 2018
Cable companies are buying distributors and content creators in an attempt to cripple streaming services.
Now that AT&T owns Time Warner, the combined company can squeeze streaming services on both ends. First, by launching skinny bundle packages to compete with lower-priced options. Secondly, by the eventual restriction of content made available to third-party streaming services.
The Big Switch
The buyout of DirecTV by AT&T for $48.5 billion in 2015, made AT&T the largest U.S. PayTV operator with 25.3 million video subscribers. However, after steady cord cutting since the acquisition, subscribers have fallen below 20 million.
DirecTV is swapping out higher revenue subscribers for those favoring online skinny bundles.
In Q1 2018, the satellite division of DirecTV lost 190,000 subscribers, but added 312,000 streaming subscribers to DirecTV Now. The substantial price difference between these services means that the quicker subscribers change from satellite and cable to streaming, the more money AT&T loses.
However, once AT&T locks up enough subscribers they will likely increase pricing, decrease options, introduce contracts, and add more expensive packages in an effort to recapture the $100 per household revenue cable companies enjoyed in their heyday.
While media behemoths AT&T and Comcast aim to resuscitate the cash cow of cable television, Google, Amazon, and niche providers are crafting new services to capture fleeing cable subscribers and younger viewers.
The Rise of Skinny Bundles
Skinny bundles are also known as digital multichannel video programming distributors (DMVPD). These services offer between 30 and 120 channels viewable through broadband, wireless and mobile.
In the United States, the first-mover in the skinny bundle space was SlingTV. SlingTV, owned by Dish Network, currently has around 2.5 million subscribers.
DirecTV Now, owned by AT&T has around two million subscribers. While Hulu Plus and YouTube TV have around a half of million each.
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The Four Horsemen of Skinny Bundles
There are four main competitors in the skinny bundle market – Sling TV, DirecTV Now, YouTube TV and Hulu Plus. Monthly fees for these services range between $20 and $70 per month.
At opposite ends of the pricing spectrum are Sling TV (low end) and DirecTV Now (high end). Hulu and YouTube TV operate in the middle market.
The simplest and cheapest is SlingTV, which offers 30 channels for $20. DirecTV Now offers four pricing tiers ranging from 60 to 120 channels for $35 to $70 per month. Hulu and YouTube TV are priced at $40 per month, but to gain access to Hulu’s film and series library there is an extra $8 monthly fee.
Hulu is owned by four of the six major studios after Time Warner purchased a 10% stake in August 2016 for $583 million. Disney, Fox, and Comcast (Universal) each own 30%. Hulu’s partnership structure will likely change after the proposed acquisition of Fox is complete.
With financial backing of Alphabet, the parent company of YouTube and Google, YouTube TV should be posed to convert millions of its free-service consumers to skinny bundle subscribers. However, YouTube seems unable or unwilling to compete meaningfully against Netflix, Amazon or the traditional media companies in the online subscription video market.
As traditional media markets fragment into a myriad of OTT, PayTV, and online options, companies are scrambling to acquire content providers to stem the tide of Amazon, Apple, Google and Netflix.