As Streaming Services Amp Up, Not all TV Channels Make the Cut

By Shalini Ramachandran Features Dow Jones Newswires

The accelerated pace of cord-cutting has set off a race among media companies to be included in new "skinny" streaming bundles that are reshaping the American television landscape.

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Cord-cutting was at a record pace in the first quarter as consumers continue to ditch pricey pay-TV subscriptions and seek more online alternatives. Over the past five years, nearly 8 million U.S. households have abandoned traditional pay TV, according to Wall Street research firm MoffettNathanson.

Earnings reports from Discovery Communications Inc. and Walt Disney Co. last week underscored the trend, stoking investor worries about the long-term sustainability of the cable subscription revenues that have long powered media companies' growth.

To drive new revenue, media companies have been hustling to get their flagship channels into new streaming bundles. But new entrants' preference for slimmer, cheaper packages is splintering the age-old cable bundle.

With Dish Network Corp.'s Sling TV, AT&T Inc.'s DirecTV Now and Sony PlayStation's Vue being joined by live TV services from Hulu and YouTube TV in the past month, some clear network winners and losers are beginning to emerge in the new streaming pay-TV world.

Major channels such as TNT, Nickelodeon and Discovery Channel are finding themselves left out of some new services -- a stark departure from traditional cable and satellite TV providers that have long carried every major network to stay competitive with rivals.

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"This is when the marketplace will separate the wheat from the chaff," said CBS Corp. Chief Executive Leslie Moonves earlier this month.

Broadcast networks and sister cable channels owned by Disney, 21st Century Fox and NBCUniversal are in all of the new streaming bundles, while cable channels from the likes of Viacom Inc., Discovery and A+E Networks are having more trouble getting in. That is in part because some of the new entrants prioritized broadcast and sports networks over purely entertainment channels.

Time Warner Inc.'s networks can't be found on YouTube TV, even though its TNT channel carries NBA and college basketball games.

CBS, whose broadcast network isn't carried by Sling TV or DirecTV Now, has poured resources into its own streaming service and hasn't prioritized gaining carriage on every new offering, holding out for better terms.

The cord-cutting phenomenon traces its roots to 2010, when pay-TV growth dipped below new household formation for the first time, according to MoffettNathanson. From a peak of 100 million homes, pay-TV subscriptions declined in a slow trickle for years until an acceleration in recent quarters. The firm estimated that traditional pay-TV subscribers declined a record 2.4% in the first quarter from a year earlier.

AMC CEO Josh Sapan estimated earlier this month that Sling TV, DirecTV Now, YouTube TV and Sony have added between 2 million and 2.5 million customers so far, mitigating but not making up for defections.

Adding to pressure on networks, some consumers are cord-shaving, or downgrading to cheaper packages from traditional operators. Several traditional operators' slimmer bundles leave out some well-known networks such as ESPN and Nickelodeon, for instance. ESPN said that if those bundles grew in popularity to become the operator's most or second-most distributed packages, ESPN would have to be included contractually.

The confluence of events has left media companies scrambling to explain their plans for growth to Wall Street.

After Disney reported a slightly increased pace of subscriber declines at ESPN, Disney CEO Bob Iger promised new streaming services focused on certain sports or teams. Given that ESPN's flagship programming won't be offered, those services are "likely to be a niche offering, which may limit the benefits," wrote Barclays analyst Kannan Venkateshwar in a research note.

Over the last several decades, TV programmers and cable providers invested together to ride the growth of U.S. subscriptions. Pay-TV distributors asked media companies to create more channels, which helped distributors justify annual rate increases and handed more profits to media companies.

Fierce competition among cable, satellite and phone companies benefited TV networks because no distributor wanted to be stranded without a set of networks offered by a rival.

Now, new entrants like Hulu are prioritizing entry retail prices under $40 a month, even if it means forgoing channels like Nickelodeon or AMC. Instead, they are touting technological differentiators such as personalization and vast digital video-recording storage.

During talks with cable programmers like A+E and Discovery, YouTube TV said it would only offer certain networks in a more expensive tier -- a move that would have triggered contractual clauses with traditional distributors to allow them to do the same, some people familiar with the talks said. "The downside risk was so enormous that all of us independently said 'no thank you,'" one media executive said.

Moreover, the streaming cable-TV services aren't as concerned about profits yet. Analysts say it is unlikely YouTube TV can make money off subscriptions alone at its $35-a-month price. It may be more interested in making a play for premium TV-ad inventory.

For Hulu, creating competition in the content marketplace benefits its owners -- Comcast Corp., Fox, Disney and Time Warner -- even if it loses money.

Some investment bankers say that the new entrants' "Swiss cheese" model for content is dampening prospects for mergers among big media companies, which are loath to acquire any straggler cable networks that could weigh down carriage negotiations.

Companies including Viacom, AMC, Scripps, A+E and Discovery that have been left out of certain streaming bundles are advocating for traditional pay-TV providers to offer an entertainment-only bundle priced around $15 a month with no expensive sports channels.

Charter Communications Inc., the second-largest cable company, is deeply engaged in those discussions, some media executives said, and could launch such a streaming bundle to customers in its service areas by year-end.

Executives said a tech startup called Philo, which has been offering streaming services on college campuses, has also been in detailed discussions about creating such a package.

There should be a bundle between $8 and $12 a month, said Discovery Chief Executive David Zaslav last week, because the current streaming bundles are "overstuffed turkeys."

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com

The surge in cord-cutting has set off a race among media companies to be included in new "skinny" streaming bundles that are reshaping the American television landscape.

Cord-cutting reached a record pace in the first quarter as consumers continue to ditch pricey pay-TV subscriptions and seek more online alternatives. Over the past five years, nearly 8 million U.S. households have abandoned traditional pay TV or eschewed signing up entirely, according to Wall Street research firm MoffettNathanson.

Earnings reports from Discovery Communications Inc. and Walt Disney Co. last week underscored the trend, stoking investor worries about the long-term sustainability of the cable subscription revenues that have long powered media companies' growth.

To drive new revenue, media companies have been hustling to get their flagship channels into new streaming bundles. But new entrants' preference for slimmer, cheaper packages is splintering the age-old cable bundle.

With Dish Network Corp.'s Sling TV, AT&T Inc.'s DirecTV Now and Sony PlayStation's Vue being joined by live TV services from Hulu and YouTube TV in the past couple of months, some clear network winners and losers are beginning to emerge in the new streaming pay-TV world.

Major channels such as TNT, Nickelodeon and Discovery Channel are finding themselves left out of some new services -- a stark departure from traditional cable and satellite TV providers that have long carried every major network to stay competitive with rivals.

"This is when the marketplace will separate the wheat from the chaff," said CBS Corp. Chief Executive Leslie Moonves earlier this month.

Broadcast networks and sister cable channels owned by Disney, 21st Century Fox and NBCUniversal are in all of the new streaming bundles, while cable channels from the likes of Viacom Inc., Discovery and A+E Networks are having more trouble getting in. That is in part because some of the new entrants prioritized broadcast and sports networks over purely entertainment channels.

Still, Time Warner Inc.'s networks can't be found on YouTube TV, even though its TNT channel carries NBA and college basketball games.

CBS, whose broadcast network isn't carried by Sling TV or DirecTV Now, has poured resources into its own streaming service and hasn't prioritized gaining carriage on every new offering, holding out for better terms.

The cord-cutting phenomenon traces its roots to 2010, when pay-TV growth dipped below new household formation for the first time, according to MoffettNathanson. From a peak of roughly 100 million homes, pay-TV subscriptions declined in a slow trickle for years until an acceleration in recent quarters. The firm estimated that traditional pay-TV subscribers declined a record 2.4% in the first quarter from a year earlier.

AMC CEO Josh Sapan estimated earlier this month that Sling TV, DirecTV Now, YouTube TV and Sony have added between 2 million and 2.5 million customers so far, mitigating but not making up for defections.

Adding to pressure on networks, some consumers are cord-shaving, or downgrading to cheaper packages from traditional operators. Several traditional operators' slimmer bundles leave out some well-known networks such as ESPN and Nickelodeon, for instance. ESPN said that if those bundles grew in popularity to become the operator's most or second-most distributed packages, ESPN would have to be included contractually.

The confluence of events has left media companies scrambling to explain their plans for growth to Wall Street.

After Disney reported a slightly increased pace of subscriber declines at ESPN, Disney CEO Bob Iger promised new streaming services focused on certain sports or teams. Given that ESPN's flagship programming won't be offered, those services are "likely to be a niche offering, which may limit the benefits," wrote Barclays analyst Kannan Venkateshwar in a research note.

Over the last several decades, TV programmers and cable providers invested together to ride the growth of U.S. subscriptions. Pay-TV distributors asked media companies to create more channels, which helped distributors justify annual rate increases and handed more profits to media companies.

Fierce competition among cable, satellite and phone companies benefited TV networks because no distributor wanted to be stranded without a set of networks offered by a rival.

Now, new entrants like Hulu are prioritizing entry retail prices under $40 a month, even if it means forgoing channels like Nickelodeon or AMC. Instead, they are touting technological differentiators such as personalization and vast digital video-recording storage.

During talks with cable programmers like A+E and Discovery, YouTube TV said it would only offer certain networks in a more expensive tier -- a move that would have triggered contractual clauses with traditional distributors to allow them to do the same, some people familiar with the talks said. "The downside risk was so enormous that all of us independently said 'no thank you,'" one media executive said.

Moreover, the streaming cable-TV services aren't as concerned about profits yet. Analysts say it is unlikely YouTube TV can make money off subscriptions alone at its $35-a-month price. It may be more interested in making a play for premium TV-ad inventory.

For Hulu, creating competition in the content marketplace benefits its owners -- Comcast Corp., Fox, Disney and Time Warner -- even if it loses money.

Some investment bankers say that the new entrants' "Swiss cheese" model for content is dampening prospects for mergers among big media companies, which are loath to acquire any straggler cable networks that could weigh down carriage negotiations.

Companies including Viacom, AMC, Scripps, A+E and Discovery that have been left out of certain streaming bundles are advocating for traditional pay-TV providers to offer an entertainment-only bundle priced between $15 and $20 a month with no expensive sports channels.

Charter Communications Inc., the second-largest cable company, is deeply engaged in those discussions, some media executives said, and could launch such a streaming bundle to customers in its service areas by year-end.

Executives said a tech startup called Philo, which has been offering streaming services on college campuses, has also been in detailed discussions about creating such a package.

There should be a bundle between $8 and $12 a month, said Discovery Chief Executive David Zaslav last week, because the current streaming bundles are "overstuffed turkeys."

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com

(END) Dow Jones Newswires

May 14, 2017 19:01 ET (23:01 GMT)