Pay-television customers have long dreamed of the day they can choose the channels they want to watch and pay only for those channels. That day is not today. In fact, it may never come.
That’s because the deals pay-TV companies work out with networks generally require that channel groups owned by a single company (e.g., AMC Networks’ suite of AMC, BBC America, IFC, SundanceTV and WE tv) must be made available to a certain number of customers. In this way, smaller, comparatively low-rated channels get shots at attracting more viewers, or at least get to continue existing. The practice also leads to higher prices for customers who are forced to pay for channels they never watch.
In the wake of growing consumer pressure, some pay-TV operators have begun offering so-called skinny bundles that are cheaper and include fewer channels. But most of these bundles are still not skinny enough to satisfy the tastes of many consumers, and they are not particularly cheap.
More important, they lack the basic level of customization consumers appear to want. For instance, Verizon FiOS’ Custom TV package encompasses more than 100 channels and costs $65 a month on its own. And Time Warner Cable’s Starter package, priced at $20 a month, includes mostly broadcast channels you can get with an antenna and random ones such as C-SPAN, Evine Live and QVC.
Digitalsmiths set out to find a middle ground. In a new study whose results were released Thursday, the research firm owned by TiVo asked 3,100 respondents to create their own cable packages from a menu of 75 channels, choosing only the channels they wanted, and as many of them as they wanted, irrespective of price.
Although the responses varied, Digitalsmiths’ researchers noticed certain patterns in people’s selections. “There weren’t 75 different viewing behaviors,” said the firm’s senior director of analytics, Chris Ambrozic. “We found many combinations of channels that were commonly selected.”
Ambrozic and his team did some number-crunching to figure out whether they could create skinny bundles from these data.
The result was seven 15-network bundles, priced from $35 to $39 a month — seven bundles, because that was the number of selections that could be grouped together in a statistically significant way, and 15 networks, because that’s around the average number of channels selected by the respondents in the first place.
Digitalsmiths arrived at the prices of the bundles by using subscriber fee estimates for each of the channels furnished by media research firm SNL Kagan. “We weren’t trying to find packages that hit a certain price target,” Ambrozic said. It was a happy accident that the packages wound up within such a tight range, with a monthly cost under $40 a pop.
The packages make a fair amount of common sense: Respondents who chose ESPN for their package were also likely to choose NFL Network. Digitalsmiths didn’t ascribe demographics to the bundles, but you can tell which ones would appeal more to millennials (those born between the early 1980s and the late 1990s), parents, sports lovers and others.
While it may seem strange that little-watched networks such as Fuse, Fusion and Ovation are included in more than one bundle, Ambrozic said that’s just what happens when you look at the data holistically, rather than by the popularity of single networks. “We’re really finding combinations of channels that are commonly selected,” he explained.
Of course, simply because a research company does a study that indicates more customized basic channel packages are possible and desirable doesn’t mean the industry will immediately move to provide such bundles.
The current batch of skinny bundles offered by traditional pay-TV companies are designed to catch people who might be on their way out, said Billy Purser, Digitalsmiths’ vice president of marketing. “They’re looking at it from a churn perspective,” he added. “They either can’t or won’t promote them,” which limits the number of new customers the companies can bring in with these smaller offerings.
The Digitalsmiths team is well aware of the external hurdles that providers face, too, which include the aforementioned minimum carriage requirements. But Purser sees those hurdles diminishing in the near future. “Minimum carriage agreements are going to change in the next five to ten years,” he said, pointing out that small, internet-based TV packages like PlayStation Vue and Sling TV have negotiated slim channel lineups with cable behemoths such as Walt Disney, which owns ESPN.
“When Sling cut a deal with ESPN, that opened the industry’s eyes as to what was possible,” Purser said. And, perhaps in a few years, the possible may even become the probable.