Unbundling: A Battle of Ideas, Hardware

2015 01 13   Peter Feinstein   The PI Blog    

A number of articles have been published in the last two weeks about the various options for “unbundling” of TV entertainment. Some of these stories address individual ideas in a vacuum. I’d like to discuss how they fit into the bigger picture.

To me it makes perfect sense that unbundling likely will lead to higher prices for cable subscriptions. À la carte is always a more expensive approach, whether you’re ordering food from the menu at a restaurant or options for your new car at any dealership. Onesie, twosies always turn out to be more expensive propositions than taking a package, even though the package usually gives you something you don’t really want.

Without a doubt, it is the packaging of live sports that keeps a percentage of subscribers tied to cable. The great thing about the passage of time, and new offerings such as ESPN’s no-cable streaming, is that we’ll get to see firsthand just what that percentage is.

That’s a lot of content, with an easy-access business plan. But Sling TV will have plenty of competition in the marketplace:

“Sling TV adds to the growing competition in subscription streaming services, including Hulu Plus and CBS’ All Access. Sony and other companies are expected to introduce streaming video services in 2015.”

The article also notes that Sling TV works with select Samsung and LG Electronics smart TVs, with Xbox video game consoles and a variety of streaming-TV devices by Amazon, Google, Roku and others. As yet, there is no standard hardware for steaming. Providers have their own approaches, often the result of existing business relationships.

As long as Netflix uses an objective set of criteria, so its recommendations have a uniform baseline, this could be a very useful service. If gaining access to this service comes free with any Netflix subscription, it would be an additional benefit to the company’s subscriber base, and might be enough of a benefit to attract new subscribers, in which case they’ve expanded their potential customer universe to anyone with an interest in finding the best stuff to watch on video. That’s a pretty compelling place to stand!

What This Means for Advertisers

For advertisers, the continued fragmentation of video is going to have at least two dynamics:

  1. 1. Devaluation of the worth of each “channel” to potential advertisers; and
  2. 2. An increase, at least temporarily, in cost per thousand views (CPM).

As these new channels begin delivery and seek to demonstrate value, the earliest adapters of new technology, on the client-side, will test the waters – at what are sure to be ridiculously high rates. The windfall is waiting for the company that can be the one place consumers can find everything video – whether it’s broadcast, Hulu, Xbox, Netflix or YouTube.

Before we get there, we may experience an updated version of the 1980s battle between VHS and Betamax. The market settled that decisively. (As I type this, spell check is accepting VHS but flagging Betamax.) The market will weigh in on the unbundling of television as well, and I suspect we can expect the Millennial generation to wield a lot of influence.