Skinny Bundles a Double-Edged Sword

Sept. 15, 2016
According to Altman Vilandrie, "skinny bundles" are a mixed blessing for video service providers. The research house says the bundles, TV ...

According to Altman Vilandrie, "skinny bundles" are a mixed blessing for video service providers. The research house says the bundles, TV packages composed of selected channels targeting specific customer segments, have the potential to attract elusive younger consumers to pay TV. However, the survey also indicated that two-thirds of older consumers, pay TV's most reliable subscribers, say they are wasting money for channels they don't use, meaning skinny bundles could end up cannibalizing the existing subscriber base.

Skinny bundles are designed to attract younger viewers, who have come to expect more consumer choices and flexibility, with targeted, affordable packages. Nearly 70% of non-subscribing 18-24 year-olds - more than any other age segment - agree that they would consider subscribing to pay TV if there were "more affordable channel lineups that fit my viewing tastes." The pay TV industry is anxious to appeal to young consumers, who subscribe at much lower rates than other age segments. This group includes both "cord cutters," who have dropped pay TV, and "cord nevers," who have never subscribed.

"The surprising level of dissatisfaction with unwanted channels we found among older subscribers shows the difficult balancing act skinny bundles create for pay TV providers," said Jonathan Hurd, an Altman Vilandrie director. "It is critical for providers to design optimal bundles that maximize adoption of new subscribers while simultaneously limiting appeal to existing customers - no small task, based on simulations we've run using the survey findings."

Skinny bundles of live TV channels from Internet providers Sling TV, PlayStation Vue, and soon Hulu seek to target price-sensitive consumers who are comfortable watching online video. But Dish's new Flex Packs have extended the skinny bundle concept to traditional pay TV. Skinny bundles may end up attracting older consumers disproportionately: 63% of pay TV subscribers aged 55 and older - more than any other age range - agree that they are "wasting money because my pay TV service includes many TV channels that my household does not watch." This age group is far less likely to switch to online video services - only 30% watch TV shows or movies online weekly - but may end up downsizing to skinny bundles that include traditional pay TV channels.

The survey indicated that young consumers turn to more economical online video options rather than traditional pay TV. Some 75% of 18-34-year-olds surveyed watch online video from Netflix, Amazon Prime, or Hulu Plus at least once per week, compared to 22% of consumers age 55 and above. And the trend among younger consumers toward online sources continues to grow: In a typical week, nearly 80% of 18-24-year-olds watch TV shows or movies on the Internet, up from 60% five years ago.

Other findings indicate:

  • Further highlighting age-related differences, when respondents do not "have a plan" of what to watch, 60% of 18-24-year-olds say they are more likely to turn to online video sources like Netflix and Amazon while 87% of those age 55+ turn to traditional TV.
  • 13% of online video consumer respondents "borrow" the account of someone outside their household for at least one paid online video service, and only 38% of these account borrowers report being likely to subscribe to their own account within the next year.
  • Subscribers' awareness of TV Everywhere - the ability to watch programming, generally for free, from their pay TV provider on devices other than a TV (mobile phone, tablet) - remains low at 36%, unchanged since 2013.
  • Younger consumers are less likely than older consumers to know whether channels are broadcast or cable - for example, only about a third of 18-24-year-olds know that ESPN, USA, and AMC are not broadcast channels.
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