16% of Pay TV Base Will Be ‘Skinny’ in 2020

That’s Up From About 9% in 2015, Report Says
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When it comes to the pay TV bundle, thin will be a bit more “in” during the next five years.

“We anticipate that 16% of the overall US pay-tv base could be represented by Skinny bundles in 2020,” Evercore ISI Group forecasted in a recently released report that provides an outlook on cord-cutting and over-the-top video trends. That equates to a skinny bundle base of  about 15 million, given the expected number of U.S. multichannel subs expected in 2020.

The research firm estimates that skinny bundle penetrations currently represent 10% of that base, noting that minimum carriage requirements of a network varies by operator for a given channel. 

Additionally, the penetration varies by distributors, as some telcos have only recently introduced skinny bundle strategies, while some MSOs, like Charter Communications, have some “heritage broadcast basic (B1) subs,” that could be lumped into that total.

“We believe most major distributors will regularly offer some form of a skinny bundle in the next 24 months,” Evercore ISI said in the report.

By U.S. MVPD, the firm estimates that Dish Network (which offers skinny bundles via its OTT Sling TV service) and DirecTV (now part of AT&T) have between 10% to 15% of their pay TV sub base on skinny packages, and Comcast and Time Warner Cable have less than 10% on one. A bunch of other MVPDs have less than 5% of their video base on skinny packages, including Charter, Cablevision Systems, Cable One, Verizon FiOS, AT&T U-verse, Mediacom Communications, Suddenlink, Cox Communications, CenturyLink Prism TV, Frontier Communications, Cincinnati Bell and Google Fiber.

Evercore ISI defines a video offering as “skinny” if it’s priced at less than $40 per month, or if it offers “substantial tiering flexibility,” such as Verizon's Custom TV offering for FiOS.

The report also took a fresh look at the cord-cutting trend, holding that its impact on the overall pay TV landcape will be moderate.

Increases in expected U.S. household formation (about 1.2% CAGR through 2020), should result in pay TV sub declines of 1.1% per year through 2020, the report forecasted.

“With the economy adding ~1.5M homes and cord-cutting causing 2.5M households to leave the pay TV ecosystem each year, our estimates imply that the industry will lose ~1M subscribers annually through 2020,” the report explained.

Additionally, the firm expects large MSOs to boost their relative video market share, due to a mix of product differentiation, lower penetration of skinny bundles, and a better service bundle proposition.

Longer term, the  firm sees U.S. cable “settling” with a pay TV share of 52.5%, down from 54% today, as small operators “ continue to feel pressure.”

In other TV sectors, the forecasts sees satellite TV share staying steady with “slight gains,” and models AT&T U-verse shedding about 8% of its base each year as most of those subs get picked up by corporate cousin DirecTV.

FiOS TV will “experience decreasing net additions,” a situation that’s clearly evident following Verizon’s Q4 2015 results.

Evercore ISI also believes that broadband will remain a growth engine for cable thanks to favorable household formation trends. U.S. ISPs, it said, are poised to add 15 million subs over the next five years – expanding penetration from 80% today, to 87.5%.  Meanwhile, the number of broadband-only homes is also expected to rise --  to more than 23 million by 2020.