Never say never: why TV networks are suddenly ready to unbundle
By Janko Roettgers
Oct 19 2014
Not so long ago, people argued that HBO wasn’t going to unbundle anytime soon, or ever. So what changed?
I got a lot of flack when I suggested in May that a network like AMC may be in a good position to unbundle from cable, and charge consumers for a Netflix-style service that would be available to anyone, even cord cutters. Many smart people said that it would never happen, and that any such move would drive cable networks out of business.
Fast forward five months, and it looks like the question isn’t so much if, but when: Over the last few days, cable networks and broadcasters have made a massive commitment to new online distribution models. First, HBO said that it will sell an online-only service in 2015. Then CBS followed by actually launching such a service the very next day. Just hours later, a Univisionexecutive committed to talking the channel to cord cutters as well. And earlier this month, the NBA announced that it reached a deal with ESPN to show live games outside of the cable pay gates.
The great unbundling has begun, and even close industry observers were taken by surprise. So why is everyone suddenly getting ready to unbundle? Here are three theories:
It’s all about leverage
One of the theories that you are hearing a lot since the trifecta of unbundling announcements hit this week is that it isn’t actually about the consumer at all, but about the never-ending negotiations tango between networks and TV service operators. RBC Capital Markets and others argued Friday that CBS may just want the $6 price for its online service out there so it can go to TV operators and ask for more money as well.
It’s a compelling argument, and it wouldn’t be the first time that a consumer service or feature was used as bargaining chips in these negotiations. Dish for example built a monster of a DVR, capable of recording any primetime show on any broadcast network without consumers actively scheduling any of these recordings and then automatically skipping over all of the commercials. But when Dish’s renewed its contract with Disney, it agreed to curtail the automatic ad skipping in exchange for online rights to Disney’s content.
However, there is also some fallacy in that argument. That’s because CBS and other networks really only achieve any leverage if their services actually gain some traction. Getting $6 a month from close to no one still doesn’t prove that you should get more than $2 a month per head from an operator with 20 million customers. But if CBS does sign up a lot of users, it will inevitably invite the scorn from operators, which are only willing to pay more if they get exclusive windows for their own TV Everywhere products.