Does Disney's Streaming Venture Spell the End for Pay TV Bundles?
In the end, bloated, costly pay-TV bundles, which consumers have despised for years, could be killed off by a mouse. Disney's announcement this week that it will launch two Internet-based streaming-TV services -- one for sports and one for family fare -- is a declaration of independence from cable and satellite companies that would have subscribers pay for hundreds of channels they may never watch.
It's the most significant advance for cord-cutting since HBO broke free with its own streaming service a couple of years ago. That service, HBO Now, has grown to more than 2 million subscribers.
"People are married to specific brands," said David Miller, an analyst with Loop Capital in Los Angeles. And Disney has some of the biggest, most-beloved brands in the media business, including its namesake movies and TV shows, ESPN, ABC, Pixar, Marvel Studios and Lucasfilm.
"It all depends on how the streaming services get priced," Miller told me. "Is it $4.99 a month? $9.99? $16.99?"
My guess is that the family-oriented Disney stream, set to debut in 2019, will have to be priced competitively with the likes of HBO and Showtime, meaning somewhere near $12 a month.
The ESPN stream, on the other hand, will have more latitude. What I've heard repeatedly from sports fans is that they want to cut the pay-TV cord but can't because they'd lose access to their favorite sports programming.
A robust ESPN streaming service could demand as much as $25 monthly, I'm told. For sports fans, this would still represent a savings from the average $100 cable bundle -- adios, Hallmark Channel; sayonara, Nickelodeon -- even with the added cost of a broadband Internet connection.
To be sure, Disney offering sports and kids' shows via streaming apps won't kill off the cable industry.
"We're talking baby steps," said Brian Wieser, senior media analyst with Pivotal Research in New York. "But with each passing year, there are more and more ways to access desirable content."
Disney's move will accelerate that pace.
The pay-TV industry lost 762,000 TV subscribers in the first three months of this year, according to market researcher MoffettNathanson. That's the biggest quarterly drop ever.
An estimated 13% of U.S. homes now have broadband connections for streaming services but no pay-TV package, according to the consulting firm SNL Kagan. It puts the number of "broadband-only" homes at about 15.4 million.
Meanwhile, more than three-quarters of Americans and Canadians say they want to pay only for the channels they watch, according to a recent study by TiVo, the digital-recording company.
If given a choice, American TV viewers say they'd be willing to pay an average $28.31 monthly for their 20 favorite channels, TiVo found. That gives an idea how the typical consumer values available programming.
The reality, obviously, is that people will pay more -- or they'll limit their choices. That's what I did.
I didn't cut the cord until HBO went solo. That's the only channel I watch with any frequency. So it made sense for me to start my a la carte TV adventure there.
HBO Now costs $15 a month. My Spectrum broadband connection runs about $50 monthly. I have full access to Amazon's extensive video offerings as an Amazon Prime member.
I receive CNN, AMC and a couple dozen other cable channels via Sling TV, a skinny-bundle streaming service that starts at $20 a month.
Add it all up and that's well over TiVo's sweet spot of $28.31. But considering that I paid closer to $150 monthly before I cut the cord, I figure I'm doing pretty well, and I'm missing out on nothing that's important to me.
It's likely an ESPN streaming service will have an equally powerful impact as HBO's digital offering -- and a move to digital seemed inevitable as the surge in cord-cutting put a dent in ESPN's bottom line.
Still, Michael Nathanson, senior research analyst at New York-based MoffettNathanson, told me he expects Disney to tiptoe toward offering ESPN's full lineup of sports via streaming app.
"It's an add-on network that should complement, not substitute for, the main offering," he said. "Most of the biggest games will still be on the linear service." That is, they'll be watchable only on ESPN's TV channels.
My hunch is that, like HBO, Disney will come to realize it can have the best of all worlds by offering the same product as part of pay-TV services as well as online. When that happens, people will be able to choose for themselves the platform they prefer.
That's the real breakthrough here: choice.
Fat pay-TV bundles still will make sense for people who want the greatest number of channels at the lowest possible price. If having hundreds of channels is how you define your home-entertainment domain, the big bundle will remain your best deal.
Keep in mind, though, that average cable bills have risen nearly four times faster than the inflation rate in recent years, and there's no sign of that changing. If anything, pay-TV companies will reach even deeper into subscribers' pockets to make up for the growing number of people cutting the cord.
Expect more pay-TV companies to get into the skinny-bundle game to keep disgruntled customers within the fold. For instance, half the number of channels as a regular bundle at half the price.
Finally, more streaming options. CBS said this week that it expects a combined 4 million subscribers for its stand-alone All Access and Showtime streaming services by year's end. It also plans to launch a sports-only service.
Disney said it may add to its digital offerings with streaming services devoted solely to Marvel and "Star Wars."
An ad-free FX streaming service is in the works. Roku devices last week added a service called Brown Sugar, which actress Pam Grier, a spokeswoman, touted as "just like Netflix, only blacker."
Quality programming at a reasonable price on the customer's terms -- this is what a la carte advocates have been seeking for years.
HBO, home of dragons, showed that it's possible.
Disney, home of Mickey Mouse, is set to show that there's no turning back.
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