The Skinny Bundle Landscape

Consumer and operator interest in the skinny bundle arena is heating up – while services like Sling TV and Playstation Vue launched in 2015, other players in the Media and Entertainment ecosystem appeared to take a wait-and-see approach to this type of service. However, with the acceleration in cord-cutting and demographic trends within younger consumers negatively impacting the Pay-TV ecosystem, there has been an explosion of skinny bundle offerings since the end of 2016 (See Exhibit 1)

Exhibit 1 – The Skinny Bundle Landscape

The proliferation of skinny bundles is a clear reaction to shifting consumer preferences and pressure on the Pay-TV ecosystem and the impact of these bundles will echo across the entire Media & Entertainment value chain.

Trends and Observations across the value chain:

Content Creation

  • There are an increased number of channels to market for content creators (e.g., OTT, Skinny Bundles, etc.)
  • However, the “Long-tail” of content creators is and will continue to be left out of most skinny bundles and thus, negatively impacted by the evolution of the M&E ecosystem
  • Skinny Bundles may serve as a litmus test for the popularity ESPN / Sports – some bundles leave out ESPN or include it as an add-on option
  • Long-form / premium content providers may benefit through add-on packages for skinny bundles (e.g. HBO, Showtime, etc)
  • The impact on local broadcasters will vary depending on the retransmission deal that is agreed upon – in aggregate, skinny bundles can help expand the reach of local broadcasters to cord-cutters and “cord-nevers”

Distribution / Aggregation

  • Pay TV operators are looking for ways to stem the tide of cord-cutting and bring these consumers and “cord-nevers” into the Pay TV ecosystem.
  • Skinny bundles are focused on appealing to millennials / Gen Z; skinny bundles offer cheaper prices and more diverse viewing options vis-à-vis traditional Pay TV
  • Operators are leveraging bundles to increase ARPU / customer stickiness – Comcast is bundling its kinny bundle offering with its broadband cable; AT&T offers discounts for including DIRECTV Now with its mobile service

Transmission

  • Most skinny bundles are streamed to connected TVs, set-top-boxes mobile devices and PC browsers
  • Sufficient internet speeds are required for smooth user experience; data restrictions may limit usage on mobile devices
  • TV is increasingly viewed as add-on / incentive for consumers to keep broadband / high-speed internet; streaming-only bundles further confirm and may accelerate this shift
  • Non-cable connectivity providers are working to increase capacity to handle explosion of mobile viewing; net neutrality rules can impact how operators manage their networks / video transmission

Consumption

  • Form factors for consumption are changing; TV usage is decreasing vis-à-vis phones / tablets, particularly among millennials / Gen Z – skinny bundles allow operators to reach these consumers
  • App-based software ecosystem of hardware devices requires additional development / upkeep for operators to ensure consumers can watch on different devices
  • Consumption of TV is becoming more targeted, particularly among younger generations – skinny bundles help address a key issue for: having too much content that will never be viewed
  • Viewership and interest in sports is decreasing among younger generations; content consumption shifting towards non-TV platforms (e.g., YouTube); the lower price point of skinny bundles may encourage more viewership of traditional TV content

Looking Ahead

The media and entertainment ecosystem is evolving rapidly and skinny bundles will be a key component for the foreseeable future. Potential outcomes across the value chain resulting from the proliferation of skinny bundles include:

Content Creation

  • There will be a wave of consolidation and/or cutbacks in original programming as the “long-tail” of content creators navigate the new Media & Entertainment Ecosystem
  • Skinny bundles will focus on including popular networks / channels (e.g., TNT, AMC, ESPN, etc.) – smaller channels will struggle to find viewers as cord-cutting continues

Distribution / Aggregation

  • Large cable operators will introduce standalone skinny bundles to entice cord-cutters and cord-nevers into the Pay TV ecosystem
  • ESPN / Regional sports networks will increasingly be separated from the standard skinny bundle, available instead as a separate add-on package
  • Amazon / Netflix can be interesting players in the Pay TV space if they introduce of a skinny bundle in combination with their existing SVOD offerings; in the same vein, cable operators may look to tie VOD offerings with skinny bundles.
  • Price competition may intensify as operators introduce lower-price bundles with fewer channels or potentially a true “a-la-carte” option.

Transmission

  • Pending upcoming net neutrality changes, telcos will look to zero-rate video consumption from skinny bundles to incentive customers to switch to their network
  • Players like Verizon or T-Mobile may look to partner with a cable operator / skinny bundle provider to offer a combined mobile data / skinny bundle package.
  • Telcos / Cable Operators with existing skinny bundles will continue to leverage promotional pricing on skinny bundles as an add-on service to increase customer stickiness

Consumption

  • Mobile-based consumption will continue to increase; particularly for younger generations – skinny bundle providers may look to start including exclusive, short-form content targeted towards mobile audiences
  • Bundles with wider breadth of integration among streaming hardware devices (e.g., STB, smart TVs, etc.) will be increasingly advantaged vis-à-vis less integrated bundles as consumer adoption of streaming hardware continues to grow
  • Apple or Google may look to bundle a trial of a skinny bundle into their hardware devices (Apple TV, Chromecast) to incentivize consumer adoption; this is especially true for Google, as it looks to increase adoption of its Youtube TV service