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The demand for a la carte television is continually growing as consumers tire of big bundles of channels. Several networks, including CBS (NYSE: CBS) and Time Warner's (NYSE: TWX) HBO, already offer their channels a la carte through over-the-top streaming services. And while we may never see an a la carte menu of channels from big cable companies like Comcast (NASDAQ: CMCSA), providers are trying to put together skinny bundles of the most popular networks.
Some insight into which channels consumers most want to buy and how much they'd pay for each channel can be helpful in determining which media companies stand to survive the shift to more skinny bundles. TiVo's Digitalsmiths recently conducted a survey to find out exactly that.
Viewers love local broadcast networks
Five of the top 10 channels people want a la carte are available for free. Disney's (NYSE: DIS) ABC, CBS, NBC, 21st-Century Fox's (NASDAQ: FOXA) Fox, and PBS can all be picked up using a simple antenna, but customers seem to prefer the convenience of a cable delivering the feed.
In fact, consumers said they are willing to pay around $1.50 per month for each channel, while PBS viewers are willing to pay $1.74 per month on average in this survey. Interestingly, PBS could be a big value-add for skinny bundles without any additional cost as cable operators don't pay to retransmit it.
The other networks may have room to increase their retransmission fees based on these survey results. That's something both CBS and NBCUniversal have been aggressively pursuing. CBS is such a tough negotiator that its channel was blacked out on multiple occasions, but never for long.
And the prices consumers say they'd pay may underestimate how much networks will be able to charge for value added services. For example, CBS charges $6 per month for CBS All Access, which includes access to its entire back catalog of content as well as a live-stream of its broadcasts (except NFL football). HBO, which Digitalsmiths' survey respondents said they'd pay $3.13 per month for, on average, charges $15 per month for HBO Now. Both services have over 1 million subscribers.
The fourth most popular network in Digitalsmiths' survey was the Discovery Channel. Discovery Networks (NASDAQ: DISCA) has faced trouble with declining ad revenue due to cord-cutting and cord-shaving. While Discovery Channel made the top 10, none of its other networks (TLC, Animal Planet, OWN, Science, etc.) cracked the top 20. While Discovery's flagship network might be popular enough to survive a la carte, the company benefits much more from the big bundle with all of its channels.
The History Channel and A&E give Disney at least part ownership in three of the most in-demand television networks. However, Disney has seen income from A&E (the company behind A&E and History Channel) decline thanks to lower advertising in recent quarters.
While Disney has a lot of channels in the top 10 and top 20, it's important to note that its most valuable networks -- ESPN's family of networks and the Disney Channel itself -- are much lower on the list. What's more, people say they aren't willing to pay much of a premium for those channels. Today, pay-TV distributors pay Disney about $7.21 per ESPN subscriber. The 44% of Digitalsmiths' survey respondents that wanted ESPN said they'd pay an average of $1.95 per month. As a result, Disney has a strong interest in masking the price of ESPN with a bundle from cable companies.
Lastly, Time Warner's TNT and TBS also made the top 10. Time Warner's Turner segment continues to see revenue from both subscriptions and advertising climb, up 9% year over year last quarter and 7% year to date. It has thus far had success getting its networks into skinny bundles. Turner CEO John Martin, though, sees a day when it may sell its networks directly to consumers.
Not every media company would benefit from an a la carte distribution model -- not even those with the most in-demand networks. Even Time Warner is hesitant to go over the top with channels like TNT and TBS because it could impact the number of subscribers for its other channels. That's the problem Disney and Discovery face, while other big broadcasters featured in the top 10 have less to worry about.
Nonetheless, as people shift to more skinny bundles, this survey indicates these are the companies with the most leverage with distributors to maintain their subscription and advertising revenue streams.
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