Apple leap into 'skinny bundles' threatens 500-channel world

Apple is planning to offer "skinny bundles" of just a few popular channels at a lower price. Photo / Thinkstock

After years of complaining about having to pay for obscure TV channels they never watch, American consumers might finally be getting their way.

The industry buzzword is "skinny bundles," or Web services from providers such as Dish Network and Apple that offer just a few popular channels at a lower price.

The whittled-down packages are putting pressure on programmers that have relied on the 500-channel pay-TV universe to carry their less-popular niche networks. Apple plans to debut an online service this year with about 25 channels, according to people familiar with the effort.

Dish's Sling TV, unveiled in February, offers about 20 channels for $20 a month. Cable companies are pushing mini bundles with Web access, local channels and HBO for as low as $40 a month the first year to keep customers from fleeing.

"Consumers want lower price points," Jason Hirschhorn, chief executive officer of media newsletter REDEF, said on Monday on Bloomberg TV. "That means the packages are smaller and ultimately that puts pressure" on content producers such as Viacom and Discovery Communications. These companies "have bundles of channels, maybe a bunch of which you don't watch," he said.

Weak channels

For years, TV programmers have paired their weaker channels with stronger ones to promote new shows and boost revenue. The average US home receives 189 TV channels but watches only 17 of them, according to a report last year by Nielsen.

"Viacom works closely with distributors to create flexible packages of networks that meet the varying needs of their subscribers," said Jeremy Zweig, a spokesman for New York-based Viacom. "While all of our distributors carry many of our networks in broad-based tiers, we also have numerous examples of tailored offerings in more niche-oriented packages."

Discovery declined to comment.

Apple is in talks with broadcasters ABC, CBS and Fox to provide Web-based TV later this year, according to people familiar with the effort. Viacom is also negotiating with Apple, said one person. So is Discovery, although NBC isn't included, the Wall Street Journal reported earlier.

Anti-consumer

In 2013, Cablevision Systems sued Viacom for requiring it to take lower-rated channels along with its most popular networks, claiming the practice was illegal and anti-consumer. Viacom, home of Comedy Central, has said its licensing arrangements are "flexible, competitive and the result of good-faith negotiations with distributors." The suit is still pending.

Cable companies are already struggling to keep TV subscribers as more Americans watch video online on services like Netflix. The rise of skinny bundles may lead even more people to abandon large TV packages. That poses a threat to networks that aren't included in the new online TV services, said Paul Sweeney, an analyst at Bloomberg Intelligence.

"Niche networks with smaller audiences are clearly at risk in a skinny-bundle world," Sweeney said. "Unwinding the bundle is a significant risk to the pay-TV world as we know it."

The popularity of fewer-channel packages, along with consolidation among pay-TV operators, may prompt smaller media companies to merge to gain more leverage in programming negotiations, Sweeney said. And networks that aren't included in skinny bundles may need to offer their programming over the Web, outside the pay-TV bundle, said REDEF's Hirschhorn.

Viacom, for its part, is experimenting with going direct to consumers over the Internet. The company introduced an ad-free online channel for kids programming earlier this month. In February, Viacom agreed to let the premium cable network EPIX, which is owned by its Paramount Pictures, Lionsgate Entertainment and the MGM film studio, run on Sling TV.

Restrictive viewing

Some analysts, including Laura Martin at Needham in New York, say the slimmed-down bundles aren't for everyone and may prove too restrictive for viewers who want to keep up with the latest hit shows.

"Skinny bundles destroy a lot of optionality for the consumer," Martin said. "They're going to be frustrated if they want to change the channel and they're limited to that bundle of 20 channels."

Apple's latest plans for its online TV service were first reported by the Wall Street Journal.

- Bloomberg