The Bullish Case For The Skinny Bundle

“On TV And Video” is a column exploring opportunities and challenges in advanced TV and video.

Today’s column is written by Scott Worthem, senior vice president, strategic partnerships, at Comscore.

The skinny bundle – seen by many as the “bright spot” for pay TV – has garnered quite a bit of media attention of late. Recent reports indicate that skinny-bundle subscribers are more volatile than expected. A deceleration of growth in the category has been turned into a signal by some analysts and journalists that the skinny bundle wave is already over.

But this conclusion puts the cart before the horse.

Yes, it’s true that several skinny-bundle services have seen their subscriber growth slow, along with some consumer churn. But that’s to be expected. After all, these products were designed to provide consumers with flexibility without committing to cumbersome contracts.

The slowing subscription rate and consumer churn also don’t tell the full story here. Over the past six months, most of these services have increased their prices to more accurately reflect the costs and value of their offerings and have reduced the extent of their promotions. It’s clear virtual multichannel video programming distributors (vMVPDs) are playing the long game rather than looking for short-term wins with more customers at little to no profit.

But beyond this new strategy, it’s also important to remember that we are still in the early stages of the skinny bundle. VMVPDs are a relatively new phenomenon, stemming from the rise of streaming services.

SlingTV, for example, launched in 2015 – compare that to streaming services such as Hulu, Amazon or Netflix, which have been on the scene since 2007, 2006 and 1997 respectively.

Several of the other contenders, such as Philo, have been in the market for an even shorter period of time than Sling.

In other words, this is a very new category, one buoyed by an entirely new consumer behavior.

Evolution takes time, and we’re just at the beginning.

The rise of video

Over the last 15 years, the emergence of digital platforms has democratized television content; viewers are now in control of where and when they view this content.

This newfound control has given rise to behaviors like catch-up and binge viewing. People are consuming more video content than ever before, and that’s good news for TV content providers.

In fact, the video industry has grown into a $140 billion business, according to GroupM.

But this rise of video has been anything but a straight path. Take Netflix as an example.

By 2000, the company had just about 300,000 subscribers and still relied on the US Postal Service to deliver its DVDs. The company was losing money and actually tried to get acquired by Blockbuster (Blockbuster declined).

It wasn’t until 10 years after its initial launch that the company introduced its streaming capabilities, which, even then, were brushed off by many traditional media companies.

TV executives aren’t dismissing Netflix anymore. But it took them a while to realize the potential of Netflix’s business model.

Change doesn’t happen overnight. But one thing is certain: Streaming changed the game for video, and the skinny bundle still has the opportunity to do the same for pay TV.

The power of vMVPDs

While the vMVPD space is showing some signs of subscriber volatility or slowing growth, there’s no question that these services are deeply popular with users. Simply put, skinny bundle subscribers stream a lot of video.

Plus, while over-the-top (OTT) video streaming is often believed to be driven mostly by consumers who have dropped pay TV services, the data proves otherwise. In February, TV subscribers accounted for 65% of OTT viewing households, while cord cutters and cord-never consumers accounted for 20% and 15% respectively, according to Comscore data.

More choice and change coming

Even as potential skinny bundle winners and losers may be emerging, the category only promises to become more volatile. The past year has seen rapid growth for newer players such as Hulu Live and YouTube TV. Meanwhile, Amazon is pushing further into ad-supported streaming video on demand, while Viacom has recently acquired the free streaming hub Pluto TV.

And in the coming year, some of the most powerful companies in media and technology plan to roll out new streaming video services: Disney, Warner Media and Apple. Each company has deep pockets and is promising massive investments in original content.

These new entrants will only serve to shine the spotlight even more on this category, as well as to enhance the subscriber volatility and competition for audiences’ attention.

In the meantime, while subscribers may still be testing the waters with individual vMVPDs, it’s clear there’s a market for skinny bundles. Over the next two to three years, it’s likely we’ll see a shakeout in this sector, as well as pricing fluctuations and different kinds of models and channel lineups.

And if the history of video has taught us anything, it’s that it’s too early to dismiss the skinny bundle.

Skinny bundles are here to stay – especially as consumers increasingly take the driver’s seat.

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This post was syndicated from Ad Exchanger.