Last week, Verizon Communications announced that its FiOS service would be available in smaller packages that seem to break the traditional pay-TV bundle. Beginning this month subscribers will be able to sign up for a slim package of TV channels that will include broadcast networks such as ABC and Fox along with basic cable fare such as CNN and AMC. The cheapest plan would be offered for $55 a month and will include two packs. Additional packages, which could include around 10 to 17 channels, would be available for around $10 extra a month.
These “channel packs” would cover genres such as sports, lifestyle and kids. But more importantly, they could address what has been pay TVs biggest issue—the substantial monthly charge for what seems to the average consumer like countless unwatched channels.
According to Nielsen’s Advertising & Audience Report, which was released last spring, American pay TV viewers have, on average, 189 channels—yet most people watch just 17 of them. In fact last year’s report showed that the number of channels available to consumers has steadily increased while the number of channels watched on average largely stayed consistent.
Verizon’s (VZ) attempt isn’t exactly an “unbundling” of pay-TV channels. Look at it as more of a “re-bundling.”
“With this development we’re redefining what unbundling means,” says Greg Ireland, research director for multiscreen video at IDC. “Verizon is still bundling channels and offering traditional tiers but they’re doing it in creative flexible ways—with these so-called ‘skinny bundles.'”
This could be an interim step to truly à la carte offerings that let consumers pick, and thus pay for, only the channels they want to view. However, the content providers may not be interested in playing along.
Disney (DIS), which owns ESPN, has already fired back, suggesting that such a move would violate its agreements with Verizon. ESPN, which has defended bundles as a policy priority, is currently one of the highest priced channels—charging around $6 a month to pay-TV services, while many channels average less than a $1.50 a month.
“Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements,” the company said in a statement. “Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”
Disney essentially mandates that those channels must be carried on basic tiers, which is in contrast to Verizon’s perspective to put ESPN and ESPN2 in the sports bundle.
“This is a pretty meaty argument here,” says Erik Brannon, senior analyst for U.S. television at IHS Technology. “This may not be easily resolved and could lead to a standoff between the pay TV service and Disney, and from there it could be end up as a court battle. Or else Verizon backs down, because there is no reason for Disney to back down on this one.”
Even before it goes to the courts, the consumer may still end up losing.
“The gist of this is that consumers clearly want a skinnier, and cheaper, bundle and more choice, but the pay-TV channels, like ESPN, are not happy about it,” says Joel Espelien, senior analyst at The Diffusion Group. “In particular such a model will drive a wedge between consumers who don’t watch sports—and would pay less under this scenario—and those who do watch sports, who would pay more because the cost of sports would be spread over fewer households.”
The unbundling of channels could also pose a real danger for diversity on TV.
“Each channel group supports lower tier channels,” Brannon adds. “There is a ‘low rent’ of subscriber spectrum for some specialized channels, and right now the macro bundle keeps these specialized channels afloat.”