Will 2015 mark the death of the pay-TV bundle? Probably not, but events of the past few weeks have suggested that it may be on life support.
Less month, Verizon made good on its promise by CEO Lowell McAdam last fall that the telco—whose FiOS TV service is the sixth largest MVPD in the U.S.—would provide customized, “smaller” channel bundles that would include not only the four commercial broadcast networks but some of the most valuable cable properties, including ESPN.
ESPN responded with a lawsuit against such plans, claiming that these packages violated existing distribution agreements. “ESPN is at the forefront of embracing innovative ways to deliver high-quality content and value to consumers on multiple platforms, but that must be done in compliance with our agreements,” it said. “We simply ask that Verizon abide by the terms of our contracts.”
Verizon responded by saying it believed it was in its rights to offer such plans. “Consumers have spoken loud and clear that they want choice, and the industry should be focused on giving consumers what they want,” the company said in a statement. “We are well within our rights under our agreements to offer our customers these choices.”
Verizon’s moves are not only seen as a “shot across the bow” to the original multichannel pay-TV marketplace, they also are an effort to stay relevant in a media environment in which television viewing on the traditional TV set is declining, as reported by Accenture in its report “Digital Video and the Connected Consumer.”
“We are seeing a definitive pendulum shift away from traditional TV viewing,” said Gavin Mann, Accenture’s global broadcast industry lead. “TV shows and movies are now a viewing staple on mobile devices of all shapes and sizes, thanks to improved streaming and longer battery life. The second screen viewing experience is where the content creators, broadcasters and programmers will succeed or fail.”
The networks saw this coming a number of years ago and responded with their own over-the-top and viewer-authentication TV Everywhere services as well as Netflix competitor Hulu, which is supported by ABC, Fox and NBC. In our story, we profile the networks’ latest offerings, which include a combination of repackaged programming and real-time streaming. Since surveying this market a year ago, a few changes have signaled its increasing importance, including the entrance of several new players and the demise of Aereo.
The threat to the cable video bundle, in some ways, represents a dilemma for cable operators and illustrates the slow but inexorable decline of the importance of cable providers’ video offerings and in favor of their broadband services. In an effort to chase the growing number of “cord cutters” and “cord nevers” who prefer their video programming over broadband, cable networks are offering their programming via OTT that can be accessed over devices such as Apple TV and Roku. But operators claim that many smaller channels could not survive without the video bundle, representing a Catch-22 for the industry. “TV Everywhere” is an attempt on the part of cable operators (and some networks) to keep subscribers within their walled garden. The jury is still out on whether it will succeed in that effort.
Along with the Verizon announcement, the implosion of the Comcast-Time Warner merger the same week could also mark a defining moment in the move to à la carte. The failure of the transaction was attributed over concerns about market share for video and broadband services, something FCC Chairman Tom Wheeler alluded to following Comcast’s announcement that it was abandoning the deal.
“The proposed transaction would have created a company with the most broadband and video subscribers in the national alongside the ownership of significant programming interests,” he said.
Do the events of the past couple of weeks mean that the consumers’ desires for à la carte channels are finally being taken seriously by pay-TV? Will ESPN’s lawsuit preserve the current status of the video bundle? Perhaps, although in reality, many observers noted that the costs of Verizon’s packages don’t really signify any major cost savings from the larger bundles.
Nevertheless, they do illustrate how dynamic the video environment is in 2015, according to Mark Fratrik, a research analyst with BIA Kelsey in Chantilly Va.
“Those two events were very dramatic and quite telling about what the marketplace is at the moment,” he said.