A new generation of "skinny" cable bundles is giving consumers more choice over what TV channels they pay for, but don't expect sports giant ESPN to be part of the package. Robert Iger, CEO of ESPN parent Walt Disney Co., warned that slimmed-down bundles are not all they’re cracked up to be, and in fact they may end up costing consumers more.
“When you unbundle, particularly your broadband service, there are going to be hidden costs,” Iger said in an earnings call Tuesday. “For instance, you buy a basic bundle, you get broadband with it. You buy a skinny package, you have to pay extra for broadband, and that cost goes up substantially.”
Iger was responding to a question from analyst Michael Nathanson, who asked about Disney’s strategy amid shifting distribution models in the cable industry. Iger said one question that has yet to be answered is, “How large does the savings have to be for the consumer to essentially abandon the expanded basic package -- and the choice that it gives -- for some less expensive package with far less choice?”
Iger’s comments come as Disney-owned ESPN finds itself increasingly at the center of debates surrounding the breakup of the traditional bundle. The sports powerhouse is embroiled in a legal fight with Verizon Communications Inc. over its newly launched “custom TV” FiOS service, which lets consumers choose slimmer packages based on different genres of television.
ESPN said the service violates its carriage agreement, which requires the network to be offered in core packages, and not separate sports packages. Iger reiterated that stance on Tuesday but said little else about the legal dispute. “In the Verizon case, we were simply asking them to adhere to the contract that they had negotiated with us,” he said.
When The Bundle Breaks
ESPN commands the highest affiliate fees on cable and is sometimes cited as a key reason why cable bills have risen over the years. Iger has said repeatedly that he’s in no hurry to offer the network as a direct-to-consumer product, but he insists that Disney will be ready to do so when the marketplace demands it.
This year has seen already the launch of two online-TV services offering slimmed-down bundles: Sling TV from Dish Network Corp. and PlayStation Vue from Sony. The latter notably included no Disney-owned content when it launched in March.
But Disney content -- including ESPN -- is available on Sling TV, and Iger said Tuesday that Sling is the only bundle-busting product he’s seen so far that he thinks offers real value to consumers, and to Disney. The $20-a-month service is cheaper than traditional cable and Sony’s Vue. Sling TV is positioned as a product for so-called cord-nevers, consumers who have never had a cable subscription and may never get one.
“Sling’s case was mostly of interest to us because their strategy was to go after the roughly 12 million broadband-only households in the United States with a skinny or less-expensive package,” Iger said. “So we thought there was value there from a strategic and financial perspective. In the Sony case, I don’t have to get into many details, but simply put, it wasn’t to our advantage financially.”