Prudent Unbundling Is Taking Shape in Pay TV

Fred Dawson, Editor, ScreenPlays Magazine

Fred Dawson, Editor, ScreenPlays Magazine

Let the unbundling begin.
 
How slippery the slope will become over the months ahead remains to be seen, but the pent-up need to explore out-of-the-box solutions to pay TV subscriber attrition is sure to produce more experimentation following Comcast’s decision to offer a broadband package that includes HBO Go without requiring a pay TV subscription. The offer, available only to people not subscribing to Comcast pay TV, also includes broadcast TV basic service, which is necessary under FCC rules but also serves as a significant value-add and potential upsell vehicle.

While billed as a trial effort to engage new customers, it’s hard to imagine the offer won’t fly. It includes a 25 mbps broadband connection, access to the Streampix VOD service and HBO Go along with basic broadcast, all for just $39.99 or $49.99, depending on the market.

HBO Go, which, as previously reported, has been weighing disentanglement from the pay TV bundle in the face of widespread OTT access by non-paying viewers, has managed to find a willing partner in what has long been regarded as a doomsday scenario by embracing a business model that works for the biggest distributor of pay TV services. If it works for one, it should work for all.

The question is, how transportable is this model to other TV networks?  Or, asked another way, who can afford not to follow suit?

Other premium networks like Showtime and Starz would surely not want to lose out to HBO in this new approach to drawing subscribers. Would the offer from the broadband provider then become take your pick of one of these premium providers at the $39.99/$49.99 rate, which is about $15 under Comcast’s lowest-priced expanded basic bundle?

How about other mini-broadband bundles involving other types of networks? If $39.99 offers enough return to the providers to cover a bundle with HBO Go in it, it should be enough to cover, say, a three-network package of “you pick-‘em” basics or maybe a package of all the ESPN channels.

This is a dicey move on the part of Comcast, given the extensive lineup of TV shows as well as movies that can be accessed via Streampix. Throw in everything else that can be gotten on-demand over broadband, and the appeal reaches a level where today’s young non-subscribers might never find a reason to go for a big pay TV bundle.

But given what’s taking shape on other fronts, what Comcast is offering might be just what it takes to keep those non-subscribers engaged at least with the broadband service and basic broadcast. For example, the looming threat from LTE as a one-stop shop for broadband will intensify if that option can support a quality video experience.

According to informed sources, big carriers are looking at packaging select OTT content as a supplement to pay TV for those inclined to take the latter service and as a replacement option for those who don’t. “People are concluding it’s not worth the hassles putting together a copycat pay TV service when there’s an opportunity to create a completely different, really compelling service from OTT sources,” says one executive close to these new strategies.

If, as seems likely, the new LTE broadcast technology, a mobile-optimized extension of IP multicast, penetrates all the way to the small cell level, it may be possible to promote video services in a controlled way without overwhelming the upstream network while ensuring there’s enough bandwidth emanating from each small cell to deliver an HDTV-level experience. In this scenario, a packaged OTT video service becomes a viable alternative to accessing video over fixed broadband or through pay TV subscriptions.

Of course, this is just one of many emerging strategies that will add fuel to the disruptive fires on the pay TV front. And, as we’ve pointed out before, the pain of subscriber attrition is as much a burden to content providers as it is to network distributors.

Everybody will get burned clinging to the status quo. It’s a safe bet that there will be a lot of experimentation on a lot of fronts in the year ahead as players from both sides adjust to the passing of an era. The Comcast-HBO deal bodes well for their ability to find ways to do this that are mutually beneficial.