What Television Executives Think About The Future Of The Bundle

It isn't broke yet, but it is clearly breaking. Taken from comments made by network owners and pay-TV distributors during their third quarter earnings calls.

This past week, the biggest television networks and pay-TV distributors reported earnings for the three months ended September 30, the first time they did so since HBO and CBS said they would make shows available directly to consumers over the Internet

Everyone tried really hard to reassert the value of a traditional pay-TV subscription and the merits of a bundle of networks watched less and less on an actual TV.

Comcast CEO Brian Roberts: "I do think our existing business model is very strong this quarter, last quarter, and probably future quarters will show that many people want these bundles."

Disney CEO Bob Iger: "Consumers in most markets can get a multi-channel subscription with more than 150 channels and a wide array of diverse and quality programming for around $65 a month, a much greater value than a do-it-yourself portfolio of standalone options ... it's still clearly the dominant entertainment or television package in the home, and we think that's going to continue for the foreseeable future."

Discovery Communications CEO David Zaslav: "People are still watching more TV than they ever have and the curation of the bundle is very effective. The unbundling, I just don't see it happening."

Fox president Chase Carey: "The emergence of the new digital offerings also doesn't spell the end of the traditional bundle. In fact, we believe the traditional bundle offers great value to consumers and will be the primary consumer package for years to come ... I think if you started to unbundle things, you may well find the consumers wish for the days of the bundle, that the real, the best value proposition for them is the ability to buy a breadth and choice of programming that includes sports."

But evidence is mounting, both empirical and anecdotal, that consumers, particularly younger ones, are cutting the cord and not subscribing to traditional pay-TV service.

The Wall Street Journal, citing third-quarter figures and projections by the investment firm MoffettNathanson, reported that subscribers to traditional pay-TV services declined by 179,000 this year, or 96,000 more than during the same period in 2013.

Conversely, the New York Post reported that these companies increased high speed internet subscribers in the third quarter by almost 800,000.

Taken together, the two data points suggest that consumers are cutting back on costly traditional TV service and opting instead to pay for broadband access to watch video via streaming.

Barry Diller said this at a CNBC event Thursday:

RT @carlquintanilla: "The dominoes are falling" - Diller, who says TV bundling will continue, but only "for older people" #CNBC25

Dish Network CEO Charlie Ergen said of his company's planned streaming-only service, which is set to launch later this year at a price of around $30 per month with channels from Disney, Scripps, and A+E Networks: "We're not going after the guy who spent $100 a month and got a house and four TVs and three kids, and he's 55 years old. That is not the target market."

Ergen added: "The minutes that people watch cable television and the networks today this year is less than the minutes last year and less than the year before and less than the year before that, right? And it's a little bit because people cut the cord, but it's a lot because people are watching Netflix or YouTube or Amazon with the available minutes in their life, right? And if you have five hours a day that you can watch TV and you watch Netflix for 45 minutes of that, then you're only watching four hours and 15 minutes of TV. And that's what – that's happening, right?"

Such statistics are leading many network owners and pay-TV distributors to finally concede that a smaller, streaming-only video service is going to be a bigger and bigger part of their future businesses. Here's some of their comments:

Cablevision CEO James Dolan: "Ultimately, cord cutting and going to over-the-top is something that we do believe is going to happen, and we're preparing ourselves for it." (Cablevision ranks as the 5th-largest cable operator in the country with 2.7 million subscribers.)

DirecTV CEO Michael White: "There's no doubt that there is a set of millennials that may not have a full bundle. I think look, we're all in favor of choice. And I think giving the consumer a little more choice I think is a good thing. I think that the tricky part of it is not the technology. It's actually trying to get the right mix of channels, because so many of them are all bundled together ... But a little more sensitivity to what the customer is paying and give them a little bit more flexibility to choose something closer to the content that they want to watch" is in all of our interests. (DirecTV ranks as the largest satellite television distributor and the second-largest pay-TV operator overall with more than 20 million subscribers.)

Verizon Chief Financial Officer Francis Shammo: "As far as over-the-top into the broadband home, I think what this says is that the content providers, they have realized that there's a whole population out there that do not subscribe to satellite TV or linearTV, and they're trying to penetrate that millennial base that does not have these types of offers and want something smaller, more convenient for them." (Verizon ranks as the eighth-largest pay-TV distributor with more than 5 million subscribers.)

Time Warner Cable CEO Rob Marcus: "There certainly seems to be a trend toward products being offered on a less-bundled basis, at least to the extent it's delivered online. And I think we all know that, over time, this is one unified market. So it's hard to imagine that things stay status quo, but I can't tell you how they change." (Time Warner Cable ranks as the second-largest cable operator in the country with more than 11 million subscribers. It is currently seeking regulatory approval to merge with Comcast.)

Fox president Chase Carey: "The traditional bundle is fraying at the edge due to both millennials with different lifestyles and economic pressures in tough times. There'll be a gradually increasing number of consumers that want more choice in programming options. We believe that most of these customers will still want to bundle the programming as a foundation. It just may be a somewhat different bundle and proposition."

Charter Communications CEO Tom Rutledge: "To the extent that programmers voluntarily break up the very fat basic bundle that they have put together contractually, would be an opportunity for us to actually build a more compelling product ... the interesting thing about the business is that people want our products, and the biggest strain on the business from a video perspective is cord-cutting is really financially driven more than it is content driven. And the reason it's financially driven is because incomes have not kept up with the cost of the product. If we had that ability and if programmers were willing to allow us to have that ability, I think we could actually have abetter, more successful video product." (Charter ranks as the ninth-largest pay-TV operator overall with 4.4 million subscribers.)

Comcast cable distribution president Neil Smit: "The skinnier packages — we look at the audiences that we want to target and that aren't responding to certain offers. And we're always testing offers to find out which package draws them out the best. The XFINITY Campus product that you mentioned, what was great about that is we went to the campuses ... and students wanted to watch television, but they wanted to watch it in their dorms on their laptops ... It's a way of targeting an audience and getting Millennials used to watching all the great content that's being produced right now in a way that's convenient to them." (Comcast ranks as the largest cable distributor with more than 22 million subscribers.)

Dish Network CEO Charlie Ergen: "So on OTT, we really target the 18-year-old to 35-year-old who's not paying for TV today. It's going to skew, short-term, more male. It's going to skew more urban. It's going to skew more apartments as opposed to homes. And it's certainly going to skew towards sports enthusiasts. And it's going to be a really good product." (Dish ranks as the second-largest satellite television distributor and fourth-largest pay-TV operator overall with just over 14 million subscribers.)

CBS Chief Executive Les Moonves: "As they said, sometime in 2015, they're going to offer an HBO service. We can say fairly definitively some time in 2015 there will be some service from Showtime."

Strip away the jargon and listen closely to what these executives are saying, however, and it isn't much different that what Netflix CEO Reed Hasting said on his company's earnings call. He just said it more bluntly.

"If you think about the general society, or moving to internet TV, like, HBO's announcement today. There's a lot of feeling of just everyone is going there. Not exactly sure the rate of transfer, but Internet TV is going to be everything in a couple of years."

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