In The Mix

A Moving Market

Everything we watch will soon be streamed. But as we move toward that à la carte world of personal programming, unifying theories of TV’s future remain in short supply.

Daniel Frankel
  • Photoillustration by Todd Reublin

Perhaps the most tired cliché of the digital media age is that consumers want unlimited choice.

They don't want to pay more than $100 a month for a bloated bundle of TV channels that includes dozens of networks they don't watch.

Why must viewers pay for WE tv in order to have AMC? Why should they have to tack on Viacom's VH1, Nick Jr., TV Land and Logo to their monthly bills when all they really want is Comedy Central? And if they're not sports fans, why does the cable or satellite company make them pay for the most expensive network in the multichannel universe, ESPN?

The cord-cutting movement began close to a decade ago, as licensing costs for TV networks began driving up cable and satellite bills. Prices reached the point where people started noticing all those niche channels in the upper stratosphere of their programming guides that they never, ever watched.

Alternatives like Netflix emerged, and today, so-called "over-the-top" (OTT) choices like Netflix, Hulu, Amazon Prime, CBS All Access and HBO Now are everywhere. TV lovers can make their own bundles, but boundless consumer choice has its issues, too.

In the so-called Golden Age of Television, many fans have found that ditching the expensive — but simple — proposition of pay-TV in favor of OTT alternatives can be technologically confusing and inefficient… and it often costs as much or more than regular old pay-TV.

Indeed, with Netflix currently kicking the tires on a new $17-a-month 4K streaming service — its most expensive tier yet — the cost of a self-assembled bundle of streaming services adds up fast.

Soon, to get all or most of the shows you watch, you're actually paying more than you would if you had cable or satellite. You're also paying a dozen individual bills for TV, scattered across various services, not to mention dealing with the hassles of managing a half-dozen or more individual apps and devices.

"We still believe fundamentally that value-rich products, meaning fully featured video products, are what most consumers want to buy," says Tom Rutledge, chief of Charter Communications. He's still selling investors on the value of the traditional big cable bundle.

Of course, if that were completely true, 3.7 million U.S. homes wouldn't have dropped traditional pay-TV last year, according to research firm Kagan.

So which is it? Are we moving to an à la carte world where we build our own personal programming guide? Or will unwieldy dalliances with cord-cutting send most of us back to the warmth and relative safety of the traditional bundle?

The truth is, there isn't one easy answer.

In the TV distribution business today, "segmentation" is a big buzzword. When talking about which platforms, formats and technologies will survive the digital age and which will go the way of rabbit ears, there are few one-size-fits-all answers — like, say, everyone is moving to color TV. Or everyone will soon be abandoning antennas for cable. Or we'll soon be watching our shows in HD. Unifying theories of the TV future are in short supply.

For example, among older, established homeowners with families, paying $100-plus for more than 200 channels remains a good deal — even if they don't watch half of the networks they receive on their leased set-top box. Given the complexities of trying to get everything they want outside the pay-TV ecosystem, the big bundle works for them.

For younger, single consumers of more limited means, canceling the big bundle is a very different value proposition, thus far more appealing.

One thing seems certain. Fairly soon, most of us will be watching all our favorite shows over the internet. At least the largest pay-TV operator, AT&T, seems convinced of that.

AT&T is currently in the process of trying to migrate its 20 million U.S. DirecTV satellite customers — for which it paid nearly $50 billion three years ago — to "virtual" OTT platforms like DirecTV Now. AT&T, which delivers TV to more than 25 million U.S. homes, is betting that the streaming TV service of the future will look a lot like yesterday's big cable and satellite bundle — if perhaps a little smaller.

AT&T's DirecTV Now, which delivers the basics — local affiliates for the Big Four broadcast networks, ESPN and most of the top cable channels — for a base price of $45 a month, is part of a new wave of so-called "vMVPDs" (virtual multichannel video programming distributors).

This emerging category of services also includes Sling TV, YouTube TV, Hulu with Live TV and Sony PlayStation Vue, to name just a few. For a new industry, the vMVPD business has shown impressive growth, amassing 5.3 million users by the end of 2017, according to research company The Diffusion Group.

As of the end of March, AT&T had garnered 1.5 million subscribers for DirecTV Now, many migrating from the traditional DirecTV satellite and AT&T U-verse pay-TV platforms. And it has already launched a complimentary product, WatchTV, which delivers just over 30 basic-cable entertainment channels to AT&T unlimited-data wireless subscribers for only $15 a month.

AT&T plans to launch a premium vMVPD service soon that will supply a traditional-looking 200-plus live channels OTT for around $80 a month. With these three services, the telecom giant hopes to address each, er, segment of the market with an appropriately sized and configured bundle of channels.

"You can serve another customer segment — those full products effectively serve the whole customer spectrum — and we still have the opportunity to take the benefits of advertising, data insights and information that you can get from that activity," AT&T CFO John Stephens said at an investor event in June.

In effect, AT&T is migrating to the OTT age, shedding the need for expensive pay-TV set-top boxes (and the installation workers and vans that deliver them). It doesn't want to launch any more expensive DirecTV satellites or mount those ugly dishes on your rooftop.

And once TV is delivered over the privacy-challenged internet, AT&T will be able to deploy all sorts of advanced, targeted advertising mechanisms — efficiently delivering an audience of qualified dog owners, say, to advertisers of dog food.

But while all this might sound cutting-edge, the actual products AT&T is promising to deliver aren't much different than what we have now. They pick and choose the bundle. The price point is under $100 — for now. But if DirecTV Now's recent $5 price bump to $45 is any indicator, these services will get more expensive over time, just as traditional pay-TV has. Meanwhile, non-sports fans are still stuck with ESPN, and AMC lovers still have to pony up for WE tv.

As Sling TV programming chief Warren Schlichting recently noted while announcing his vMVPD's $5-a-month price increase, "Programming fees only go in one direction, and that's up."

That's why AT&T's biggest competitor in the wireless business, Verizon — which also sees TV as a way to sell cell phone subscriptions — isn't a fan of the vMVPD business and the so-called "linear TV" bundling model it promises to perpetuate.

"We made our bet several years ago, before we bought AOL and Yahoo and combined them… that we weren't going to be investing in the linear TV model," Verizon chief Lowell McAdam said in an interview with the company's Yahoo Finance unit in June. "I've said this a couple of times: I think the linear model is dead. It's just going to take a long time to die. So we're not out there buying these big content companies trying to achieve scale. We're much more into the digital area."

Like Verizon, Amazon kicked the tires a few years ago on a vMVPD service of its own. Instead, the online retail giant — which was already competing against Netflix with its subscription VOD product, Prime — went in another direction.

Amazon launched its Prime Video Channels platform three years ago, allowing customers to buy channels of streaming TV shows and movies directly from the media companies, rather than from a third-party aggregator (such as a cable or satellite company).

Like Game of Thrones? Channels lets users sign up directly for the à la carte, streaming version of HBO, no cable or satellite subscription required. Same with Showtime and Starz.

Do you also like British TV? You can add Acorn TV to your self-assembled bundle. How about cable news? You can tack on a subscription to Cheddar. Channels lets users build their own programming lineup piece by piece, providing centralized billing to whatever credit card you use for your Amazon Prime account. And all your channels are available in one centralized Amazon Prime app.

According to Kathy Payne, head of content acquisition for Amazon Video Channels, the platform currently has more than 160 à la carte programming services under its umbrella.

Speaking at the Pay TV Show in Denver in May, Payne referred to Channels as "the anti-bundle," saying, "What we have found is that consumers really love the product. They're tired of having contracts. They're tired of having price increases. They're tired of not feeling in control of what they're buying and what they're choosing.

"All of this is really being driven by the millennials, who have grown up in an à la carte world. Customers really enjoy the flexibility of coming in and buying only what they want to watch."

Channels is a little thin right now when it comes to live sports, but Amazon is working on it. Last year, the online retail behemoth paid $50 million to stream ten NFL Thursday-night games. And in the U.K., Amazon just wrestled away broadcast rights to Premier League soccer from satellite TV giant Sky.

Meanwhile, ESPN is preparing an à la carte streaming channel that doesn't require a pay-TV subscription. It's unclear how much of the highly rated, live-game action ESPN and its parent, Disney, will actually break loose from the cable and satellite bundle and put onto the à la carte service. But one can easily envision ESPN's full monty being available à la carte on Prime Video Channels in the near future.

Parks Associates senior analyst Brett Sappington wonders if Amazon might one day give free access to broadcast and cable channels, tying the offer to its retail operation. "Fundamentally," he says, "Amazon sees itself as a retailer."

This specter, of course, is frightening to the rest of the TV distribution business, which counts on customers actually paying directly for shows and movies.

Meanwhile, other streamers are looking to copy the Channels model. Roku, for example, built its brand selling small OTT set-tops. But now it makes most of its money on the advertising sold in its video ecosystem, which includes hundreds of apps for various programmers.

In June, Variety reported that Roku is looking to establish a single à la carte app that would let users assemble their own programming lineup and do all viewing and billing in one centralized location — just as they do on Amazon Channels.

So where does this all shake out? Will we be buying our shows and networks piecemeal in the near future?

Again, the operative word seems to be "segmentation." Not every consumer will want to give up the ease of the large, inefficient bundle. And certainly, not every TV watcher is going to give up that hard-earned freedom of choice.

This article originally appeared in emmy magazine, Issue No. 8, 2018