Analyst: Bundles Could Curb Cord Cutting

Report: Savings Entice Some to Keep TV/Internet Combo
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Sanford Bernstein media analyst Todd Juenger held his second cord-cutting focus group – this time in San Francisco – and found that some so-called at-risk cord cutters keep their pay TV and Internet bundles mainly because it’s cheaper than standalone Internet service.

The San Francisco group followed a similarly sized panel held earlier in the month in New York and had the same general findings – even younger customers who said they were likely to sever the pay TV cord in the next six months changed their minds after presented with current over the top offerings.

Juenger surveyed 18 men and women aged 21-to-38 (his New York group consisted of 16 people aged 23-to-38), an admittedly tiny sample. And before the Internet gets its collective knickers in a twist, Juenger himself admits that the samples are small and cautions anyone from drawing broad conclusions from the findings. But still, this is his second of four focus groups (others are planned for Chicago and Boston) and they do provide at least some insight into what younger people are thinking.

And it seems they are thinking what pay TV providers have been saying all along – that the bundle is a better value.

“Hence, we remain cautiously optimistic that cord-cutting, in large numbers, isn't likely to happen,” Juenger wrote. “It's one of those ideas that sounds great in the abstract but crumbles when faced with the reality.”

Even as OTT offerings abound, ranging from single networks (HBO Now and CBS All-Access) to so-called skinny packages from Sling TV and Apple TV and broader online offerings from Sony (PlayStation Vue), adding up the different offerings with a broadband connection oftentimes is more costly than a typical double-play bundle from a cable, telco or satellite provider.

For example, Comcast offers a promotional 25 Megabits per second Internet-only service for $29.99 per month for 12 months, rising to $66.95 per month after the promotional period. Add a basic Sony PlayStation Vue subscription for $50 to take care of most of the cable and broadcast networks (except for ABC, ESPN and regional sports networks) and either a free antenna or  Hulu Plus subscription (at $8 monthly) for ABC broadcast network programming (a day after air) and current and previous full seasons of other shows, and a customer could shell out about $87.99 per month in the first year, rising to $124.95 thereafter. Or they could pay $79.99 for 25 Mbps Internet and 140 channels (including RSNs that PlayStation Vue doesn’t carry) for 12 months, rising to between $121.90 and $136.90 per month afterward.

“Simply put, for existing pay-tv subs, the content is too limited (relative to the cost savings); and for cordnevers, the price is too high (relative to the appeal of the content),” Juenger wrote.

That could change as packages evolve and more channels become available, but for right now, it seems that even so-called “skinny” TV packages, which some operators claim their customers are clamoring for, are just too slimmed down to be compelling.

But potential cord-cutters did find some common ground in their hatred for their cable provider (some respondents said they wanted to cut the cord just to cause their cable company pain) and their love of cheap TV. The San Francisco group was more open to a hypothetical “Any 10 Networks for $20 per month” package than their New York counterparts. But unfortunately, such a package doesn’t exist and probably never will, Juenger wrote.

But that did raise a troubling flag for content companies, the analyst warned.

“If/when the MVPD's figure out how to identify and segment these customers and fix this pricing distortion, so they collect the same ARPU without having to deliver the pay-tv service (and pay the affiliate fees to the networks), the networks could lose a meaningful number of subs,” Juenger wrote.

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