Life Left in Bundle Focus of FCC Video Market Workshop

The video bundle either has long legs or is on its last legs, speakers said Monday at an FCC-hosted workshop on the state of the video market.

Video programming will no longer be profitable for multichannel video programming distributors by 2023 due to the growth of affiliate fees outstripping the growth of what MVPDs can charge subscribers, said Todd Juenger, Sanford Bernstein analyst. But Wells Fargo's Marci Ryvicker said the pace of pay TV declines won't accelerate and her expectation is the bundle "does prevail." Skinny bundle success has been coming from incumbent MVPDs because companies from Apple to Intel have been unsuccessful mainly due to the difficulty of content negotiations, she said.

Media Bureau Chief Bill Lake said a key question at the FCC is what role it should play in the face of such trends as traditional TV viewing declines, programming cost increases, households increasingly watching content online, and MVPDs offering slimmer bundles. FCC Acting Chief Economist Jonathan Levy asked what the agency should keep in mind if it looks at bundle regulations. A second planned workshop, on video diversity issues, hasn't been scheduled.

Viewership of live linear programming is declining because traditional pay TV programmers and distributors are "too large to pivot" as consumer preferences change, said BTIG analyst Richard Greenfield. The traditional pay TV model has involved fat bundles, he said, leaving programmers with business plans that only work if they get wide distribution and MVPDs trying to lock in programmers to prevent them from distributing content online. The future will see a rise in skinny bundles and accelerating cord cutting or cord nevering, plus increased consumer migration to over the top, Greenfield said.

Several speakers said the video future won't be a la carte. In an unbundled model, the average consumer would make out about the same financially, said Ali Yurukoglu, Stanford University associate professor of business.

Over the past seven years, pay TV industry subscriber growth hasn't kept pace with housing growth, said Bruce Leichtman, Leichtman Research Group principal analyst. The decline started in 2010 with the digital transition, which brought in the last wave of TV subscribers, he said. Today, the rate of households dropping pay TV is roughly the same as a decade ago, but the difference is consumers are more able now -- through a combination of over-the-air programming and subscription VOD -- to cobble together an alternative, while pay-TV companies are more disciplined in the types of subscribers they're trying to land, Leichtman said.

TV technology has moved far slower than computer tech and only recently has started seeing IT industry-like acceleration of development, said Eli Noam, Columbia University finance and economics professor. The few companies that will dominate the industry will be companies such as Amazon, Apple and Google that offer both cloud storage and integration services that let consumers go to one place for content plus serve as assurers of branding and marketing, Noam said: "People who think the Internet is open, everyone can be there, will be sorely disappointed."

The regulatory framework has moved even slower and needs to be accelerated through such options as increased collaboration with universities or an internal think tank, Noam said. He also said there should be a strong look at alternative distribution method (ADM) clauses in carriage contracts, since they appear anticompetitive. Juenger said the FCC could accelerate bundle decline rules that look at such tools as digital antennas or sports programming.

MVPDs likely will tackle costs by dropping some bundles or pushing programmers to make those bundles slimmer, Juenger said, anticipating some weaker programmers will get dropped in the next couple of cycles of negotiations, leading to others offering skinnier bundles in response. "So instead of 150 networks, you end up with a half or a third of that," he said.

Though part of the panel was about hurdles facing OTT providers, "at first glance, there don't seem to be any," said Mark Fratrik, BIA/Kelsey chief economist, pointing to the proliferation of such services. That growth is resulting is slimmer bundles being offered by MVPDs, though not full-fledged a la carte offerings, Fratrik said.

MVPDs seem to have some competitive advantage over OTT providers by their control of the means of distribution, which allows for MVPDs to bundle their services -- a triple play being something OTT can't put together, said Jeffrey Prince, Indiana University associate business professor. OTT is content limited due to most-favored nation and ADM clauses programmers have with final MVPDs, he said. And OTT is somewhat hindered by being a relatively new medium, he said. The growth of OTT getting into original content "seems to have been a successful move so far," especially since offering the same content as traditional MVPDs seemingly hasn't been as effective, Prince said. But Fratrik said Hulu hasn't dived as deeply into original content and has been successful.

Asked how Charter Communications' buys of Time Warner Cable and Bright House Networks might affect the video market, Yurukoglu said his modeling indicated there would be some modest benefits from New Charter's increased size that get passed on to consumers. But the model doesn't include how that squeeze on content providers might affect them and content quality, he said.