Yesterday Hulu launched a beta version of Hulu with Live TV, its highly anticipated entry into the internet television market. The service will cost $39.95 per month and include access to 54 channels as well as Hulu's on-demand library. With this launch, Hulu now joins the growing ranks of providers of "skinny bundles," packages of internet television designed to appeal to cord-cutters who want to save on their monthly pay-TV bills and cord-nevers who would use the service on top of basic internet access.
Competition in the skinny bundle market is getting stiffer almost by the month. It was only two months ago that Alphabet's Google launched YouTube TV into a few major cities. Hulu and YouTube now compete with offerings from AT&T (DirecTV Now), Dish Network (Sling TV), Sony (PS Vue) and the startup fuboTV.
Although there are several "over the top" television services that work over any sufficiently fast internet connection, the term skinny bundle only applies to those that cost $40 per month or less. That's because cable TV operators nowadays tend to charge about $40-50 per month for their mainstream TV packages (with roughly 100 channels) on top of their fees for basic internet service. All of the above internet TV providers offer packages under $40 per month.
When Google first announced YouTube TV, I stacked it up against its competitors in terms of value for the money. The analysis used data from an annual survey of internet TV consumer attitudes conducted by the consulting firm Altman Vilandrie & Co. (AV&Co). AV&Co compiles survey data on which of 150 channels respondents say they must have in any multi-channel TV package. The most popular channels range from the major broadcast networks down to niche channels like Audience Network and SportsTime Ohio.
By adding up the percentages of respondents who say they must have each channel in a skinny bundle and dividing that by the monthly charge, we can get an idea of the skinny bundle's value for the money. Here's how Hulu with Live TV stacks up against its competitors:
Comparative value of Internet TV skinny bundles. Data source: 2016 Altman Vilandrie & Co. Annual... [+]
The chart puts Hulu with Live TV in the middle of the pack, though it doesn't take into account the depth of Hulu's on-demand library, which adds to its value. Otherwise, the value leader is still AT&T's DirecTV Now Live a Little, the lowest-priced of the DirecTV Now bundles (and the only one that qualifies as skinny). FuboTV is a bit of an outlier: although it has plenty of general-interest programming, its main orientation is sports, and it includes channels that offer live game coverage of most major American sports leagues as well as a wide selection of international coverage.
How are these services doing in attracting users? They generally don't release subscribership numbers, but one statistic indicates that they are growing fast: whereas Sony PS Vue was said to grow past the 100,000 mark last June, the word as of this March is that it is at quadruple that amount. Yet the near-term opportunity for subscribership is small compared, say, to Netflix's 51 million or even Comcast's 22 million. AV&Co has a simulation model that it runs to predict take rates (percentages of people who respond to marketing by buying) for internet TV services. Its model predicts a take rate of 2% of American TV households for Hulu with Live TV, or about 2.4 million, at its current price point. And that assumes that every TV household knows about the service (100% awareness), which isn't realistic.
With half a dozen players in this market, offerings are starting to converge at $35-40 per month for bundles of between 42 and 65 channels, or about half to two-thirds the number of channels in mainstream bundles from cable and telco operators. (I've left off lower-priced offerings from SlingTV and fuboTV; the latter target Spanish- and Portuguese-speaking sports fans.) All of them run on a variety of devices, including tablets, smartphones, smart TVs and internet set-top boxes, although Roku, Amazon Fire TV and Samsung Smart TV owners will have to wait for Hulu with Live TV to support them.
But that's where the similarities among these skinny bundles end. If you look at their channel lineups, the services have less in common than meets the eye.
The idea of being able to choose exactly which channels you'll pay for each month is still a long way off. That's because each of these services has to approach several TV programming networks for licenses to their channels. Each of those entities has different philosophies about whether and on what terms to offer licenses. Some will insist on "all or nothing" bundles, while others may not license certain channels (or any channels at all) to certain internet TV services for strategic reasons.
There are nine programming networks that together own or have stakes in about three-quarters of the channels that the vast majority of Americans watch on pay-TV services: AMC, CBS, Discovery Communications, Disney and Hearst (most of their channels are owned jointly), Fox, NBC Universal, Scripps, Time Warner and Viacom. Every internet TV provider has to try to make deals with all of them, plus various independent channel operators that appeal to certain audiences.
Next, note that each of the six skinny bundle providers is owned by a different type of company: a group of TV networks (Hulu), an internet giant (YouTube TV), a satellite TV operator (SlingTV), a consumer electronics company (Sony PS Vue, which sits within Sony's PlayStation division) and a telco (DirecTV Now). FuboTV's lead investor is Sky, the UK-based satellite TV operator controlled by Fox. Many of these companies are diversified and may or may not compete with TV programming entities or their corporate parents. For example, NBC Universal, one of Hulu's owners, is itself owned by the cable operator Comcast, which competes with all of the internet TV services. Conversely, YouTube TV is owned by Google, which competes for ad dollars against all of the major programming entities. And then there's the pending merger of AT&T with Time Warner.
Yet the decisions that programming networks make on licensing their channels into skinny bundles are nuanced -- just as skinny bundle operators' decisions on which channels to license are based on issues of cost and audience targeting. Here's a table that shows which programming entities are licensing how many of their channels to which skinny bundles:
In this table, each pie chart represents the percentage of a programming network's channels that it licenses to the given skinny bundle. For example, Scripps licenses half of its channels to Hulu with Live TV; AMC licenses only one of its channels (Chiller, its horror and thriller channel) to Hulu with Live TV, YouTube TV and fuboTV Premier; fuboTV Premier also gets most of NBC Universal's channels. A blank means that the programming network does not license any channels to the skinny bundle.
A few simple conclusions are evident from this data:
- Viacom and Discovery are cautious with internet TV licensing, while Fox and NBC Universal are the most liberal.
- Hulu has done well in licensing content selectively from its own corporate parents, which include Disney and Time Warner as well as NBC Universal and Fox.
- NBC Universal and Fox have done the most overall channel licensing deals with these skinny bundle providers because they offer the greatest variety of programming -- compared, for example, to Scripps's focus on lifestyle programs and AMC's focus on movies.
- Disney and Hearst won't license their many ESPN channels to fuboTV because it's a direct competitor for sports viewers.
- It's clear why AT&T's DirecTV Now is the best value for the money: they have the broadest as well as (with 65 channels) the largest selection. In fact, it's quite possible that AT&T runs DirecTV Now as a loss leader.
Otherwise, there isn't much apparent rhyme or reason to these skinny bundles' lineups of channels -- at least as far as consumers are concerned. The world we're living in with internet TV right now is something like the music industry of 20 years ago, when we had record stores and radio: you can get exactly the content you want by going to a store and buying it, or you can listen to one of the formatted radio stations in your area. Today's skinny bundles may look superficially similar, but the choices they offer at viable price points are seemingly arbitrary assortments. Big changes may come, but it will take a while.
