Survive and adapt.
This is the key to surviving life according to believers of Darwin and it’s what cable operators have done in order to ensure their existence. The strategy looks like it is paying off.
Last week, Dish Network announced their profits beat what analysts predicted it would be. Its Sling TV service, which provides a smaller bundle of channels over the internet for $20 a month, added more subscribers over the year which made up for Dish’s loss of satellite television subscribers. 13.9 million video subscribers matches the same number they had last year.
Comcast also beat expectations by adding an extra 53,000 subscribers to its services across the country. Comcast recently began offering skinny bundles and also launched its own version of Sling TV known as Stream TV. Those two options along with the fact that the cable operator was able to add more broadband users helped Comcast go beyond what was expected of them.
Cable operators don’t mind if streaming video becomes the next big thing as long as consumers are streaming video through them and not another third party.
While content distributors are seeing an increase in business, content providers are cutting costs in order to sustain operations. Skinny bundles are taking distribution away from some of the biggest, most popular cable networks such as ESPN.
Pivotal Research Group’s Brian Wieser breaks down just how bad it is for the major groups of networks.
Wieser says the Disney group of networks may have the weakest results — down 4.1% in median household decline. This ranges from a 2.8% drop for Disney Jr. to 4.7% off for ESPNU.
The next lowest is Viacom, slipping 3.6% for its 15 networks. NBCU and A+E Networks are each off 3.3%, followed by Scripps Networks Interactive, down 2.6%; AMC Networks, losing 2.2%; and Discovery Networks, giving up 2.8%.
Out of the 122 networks Wieser measured, only 30 had subscriber growth. Cord cutting certainly has had an effect but cord shaving holds just as much, if not more, responsibility in many networks having less subscribers. As networks become available in less bundles and more people leave the big cable bundle for a smaller choice, adaptations will need to be made.
Because of this, sports networks have recently become more conservative with the live sports rights they decide to buy.
Sports Business Daily’s John Ourand gave a remarkable account of The French Open and International Champions Cup’s inability to find mainstream television partners at the right price.
But networks have started questioning the theory that all live sports matter, and they have been negotiating tougher deals with smaller properties that they feel will not help affiliate sales or ad sales. The French Open, for example, is not the type of sports event that would cause cable operators to do a deal for ESPN. Fox Sports 1 will not lose any standing with distributors because it passed on the rights to the International Champions Cup.
“Those properties are not game changers for cable channels,” said one network executive who asked for anonymity to speak frankly about existing sports rights deals. “They are not driving affiliate conversations. This is a market where the true litmus test is how does it help our affiliates and add value to advertisers.”
Ourand’s argument in the story is that the live sports rights bubble could be breaking. But we can go even deeper than that. The cable bundle as a whole could be breaking as well.
As consumers become more accustomed to paying for less channels at a cheaper price, mainstream networks such as TNT/TBS, USA Network, ESPN, MTV etc. will be faced with an unfortunate reality of having to cut down costs in order to survive. This could mean talent changes, less original productions and more of a tightening focus geared towards a specific audience rather than being general interest channels.
Hulu’s announcement this week that they would be launching their own skinny bundle with Fox and Disney content (the two companies which co-own Hulu) shows that the content providers understand the trend that is happening and also want to get a cut in distribution revenue as their main source of money – the general cable bundle – continues to decline.
It’s not doomsday for the cable bundle yet. But that day may not be too far away either.