New video tiers, sometimes referred to as “skinny bundles,” are becoming increasingly important in the pay-TV business as service providers seek to minimize the impact of a consumer shift toward more economical offerings streamed “over the top” using broadband connections. Video tiers are under transition as subscriber choices for video packages change.
Pay-TV providers haven’t revealed their video tier mix, however, offering few clues about broader industry trends – at least not until analysts at financial research firm MoffettNathanson got their hands on an obscure FCC filing illustrating tier mix by pay-TV provider.
What they found is not definitive, but offers a flavor of what’s happening in the pay-TV market.
Subscriber Choices for Video Packages
MoffettNathanson’s Craig Moffett headed up a team that found data about subscriber choices for video packages in a filing made by cable programmer beIN Sports in connection with a programming carriage dispute with Comcast. The data includes all major pay-TV providers and, according to the researchers, appears to be primarily from the second quarter of 2017. What the data doesn’t include is every single video subscriber as reported by the pay-TV providers themselves.
“[W]e imagine that a subset of packages (perhaps legacy offerings, commercial services, or less popular/non-advertised packages) are left out,” the researchers wrote. “[N]onetheless, the data appears to cover the bulk of subscribers.”
The researchers note that Charter advised them that beIN’s data about Charter was incorrect. While not providing the correct numbers, Charter representatives said their actual number of limited basic customers is significantly lower than beIN showed. The findings that MoffettNathanson reported use the beIN data but note Charter’s caveat.
Researchers grouped pay-TV bundles into one of three categories: “premium bundles,” the “broad middle” and “limited basic.”
Charter and Altice USA’s legacy Cablevision offering tied for the highest percentage of customers taking a “premium bundle” that includes most cable networks plus HBO and at least one other premium channel. Both companies saw 43% of their subscribers taking these packages.
Following them, in descending order, were DirecTV (28%), Comcast (26%), Verizon (20%), AT&T U-verse (19%), Cox (15%) and Dish (5%). Mediacom doesn’t offer what MoffettNathonson considers a “premium bundle.”
Not surprisingly, these percentages track closely – in an inverse relationship – with price. Pay-TV providers with the lowest pricing on their premium bundles had the highest take rates and those with the highest prices had the lowest take rates.
It’s not clear whether having a high percentage of customers taking premium channels is good news or bad news for a pay-TV provider, the researchers note.
“By one line of thinking, premium customers are the least likely to cut the cord; fully replicating their programming line-up with an OTT product would be almost impossible, and, moreover, these subscribers are very likely the industry’s least price sensitive. In that regard, operators . . . that have done better upselling customers to richer packages have not only succeeded in maximizing revenue but also in insulating their base from churn.”
On the other hand, however, the researchers note that “Cord-cutting may have started with lower-income consumers, but now, it is precisely those customers in the richest packages who have the greatest incentive to cut the cord. There is also greater risk that these high-ARPU customers are the most susceptible to trading down to skinnier linear bundles (cord shaving).”
The “limited basic” category, as defined by the researchers, includes local broadcast networks; public, educational and government channels such as C-SPAN and a limited lineup of cable networks. The “broad middle” category adds additional cable channels but generally not premium channels.
Take rates by provider for “limited basic” and “broad middle” tiers, respectively, were as follows: Mediacom (49/51%), Charter (28/29%), Cox (22/42%), Verizon (16/ 42%), AT&T U-verse (13/60%), Comcast (10/62%), Altice USA-Cablevision (6/43%).
What the MoffettNathanson data doesn’t show, probably because of the limitations of the beIN filing, is the performance of pay-TV providers’ own OTT video offerings, such as DIRECTV NOW and Sling TV, that are designed to resemble traditional linear TV.
Nevertheless, the data is worth examining, particularly when pay-TV providers’ tier mix will become increasingly important moving forward.
Image courtesy of flickr user D.Reichardt.