When deciding to drop cable or satellite TV, there are two potential paths a cord cutter can take.
The first is to replace the cable bundle with a streaming one, using services like YouTube TV, Hulu + Live TV, or Sling TV. The second is to cobble together various standalone services such as Netflix, Amazon Prime, and Hulu, perhaps throwing in a TV antenna for good measure.
Each approach has its pros and cons, and there’s room for them to overlap. But I’ve been predicting for a while that we’ll ultimately see more people choose the latter approach. As the best content becomes available outside the bundle, the ever-increasing costs of cable channels will become too much to justify.
Now, the coronavirus pandemic is accelerating that trend. With professional sports on hold, and millions of people facing unemployment or salary reductions, traditional TV bundles have entered free fall, and their streaming replacements have stopped growing.
While you might expect the TV industry to respond with lower prices or more flexible packaging, they seem to have accepted the bundle’s fate. Rather than trying to save the old business model, they’re accelerating its decline through even higher prices, which they’ll use to build their own a la carte alternatives.
The big bundle breakup
Last quarter, the pay TV bundle business lost 1.8 million subscribers, according to analyst firm MoffettNathanson. Most of those losses came from the usual suspects—satellite TV lost about 1 million customers, while cable lost a half-million—but the big story was on the streaming side. MoffettNathanson estimated that 341,000 customers stopped paying for live TV bundles, marking the first quarter in which these services collectively lost subscribers.
Bear in mind that these figures only run through the end of March, just a couple weeks into the pandemic’s spread in the United States. There’s a good chance next quarter’s numbers will be a lot worse for the pay TV business.
At the same time, standalone streaming services are booming: Disney+ has 54.5 million subscribers, up from 50 million in early April. Hulu ended the quarter with 32.1 million subscribers, up from 30.4 million last quarter. Netflix added 15.8 million subscribers last quarter, more than doubling its expected growth. CBS All Access and Showtime now reach a combined 13.5 million subscribers, up 50 percent year-over-year.
It’s easy to grasp what’s happening: With people stuck at home, the vast catalogs of services like Netflix and Disney+ are a great way to pass the time. Meanwhile, channel bundles have lost the live sports that until now have been their biggest selling point, and the complexities of the pay TV ecosystem have precluded subscribers from getting rate cuts. If you’re paying upwards of $60 per month for dozens of channels marathoning the same old shows, sports channels filling time with old games, and a whole lot of depressing news, trading it all for a handful of standalone streaming services starts to look pretty sensible.
One might argue that this is all just temporary, that once live sports come back, bundle subscriptions will rebound. I’m not so sure. Something I’ve observed from years of reading and writing about cord-cutting—and being cable-free myself—is that once people get rid of their pay TV bundles, they miss them less than they’d anticipated. My guess is that only the most serious sports fans will come back.
Tearing it all down
At one point, I thought TV networks would do more to reverse the bundle’s decline, perhaps by offering more flexible TV packages or at least backing off on aggressive rate hikes. Instead, they’re embracing pay TV’s fate and doubling down on its demise.
Last week, for instance, YouTube TV announced that it will be adding Viacom channels to its streaming bundle this summer. Many of those channels will be mandatory, including MTV, Comedy Central, BET, and Nickelodeon.
This was the logical outcome of Viacom and CBS merging (into ViacomCBS) last year. A stated goal of that merger was to increase bargaining power against TV distributors such as YouTube TV, thereby facilitating bigger bundles at higher prices. While YouTube TV has not yet announced any corresponding price hikes, you’d be foolish to think none are coming.
Keep an eye on Hulu + Live TV, Sling TV, and Philo as well. Hulu only carries CBS channels, while Sling and Philo only carry Viacom ones. If YouTube TV’s new deal is any indication, those arrangements won’t last as ViacomCBS insists on packaging all its channels together.
Surely ViacomCBS realizes that bigger bundles and higher prices will only result in even faster declines for the TV bundle. But maybe that’s the point: While squeezing what it can from pay TV, ViacomCBS plans to build up its own subscription streaming service to take on the likes of Netflix. The company soon plans to rebrand its current CBS All Access service, adding more content and raising the price accordingly. In a sense, whatever revenue can be gleaned from pay TV subscribers will help fund this new endeavor. It’s the same strategy espoused by other media giants, such as Disney, Comcast’s NBCUniversal, and AT&T’s WarnerMedia.
All this was already in motion well before the pandemic, but as with so many other trends—working from home, video conferencing, home deliveries—the move toward a la carte subscriptions is only going to happen faster now. You’ll see more content head straight to streaming services (as Disney is doing with movies like Hamilton and Frozen 2), and maybe even more unbundled sports as a result.
You’ll also probably see the usual, tired complaints about how we’d be better off just bundling everything together again. Looking at the escalating price of live TV streaming services, and the number of people now voting against those service with their wallets, I find it harder than ever to agree.
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