Dis­ney ven­ture could has­ten cord cut­ting

Los Angeles Times - - BUSINESS - DAVID LAZARUS

In the end, bloated, costly payTV bun­dles, which con­sumers have de­spised for years, could be killed off by a mouse.

Dis­ney’s an­nounce­ment this week that it will launch two In­ter­net-based stream­ing-TV ser­vices — one for sports and one for fam­ily fare — is a dec­la­ra­tion of in­de­pen­dence from ca­ble and satel­lite com­pa­nies that would have sub­scribers pay for hun­dreds of chan­nels they may never watch.

It’s the most sig­nif­i­cant ad­vance for cord cut­ting since HBO broke free with its own stream­ing ser­vice a cou­ple of years ago. That ser­vice, HBO Now, has grown to more than 2 mil­lion sub­scribers.

“Peo­ple are mar­ried to spe­cific brands,” said David Miller, an an­a­lyst with Loop Cap­i­tal in Los An­ge­les. And Dis­ney has some of the big­gest, most-beloved brands in the me­dia busi­ness, in­clud­ing its name­sake movies and TV shows, ESPN, ABC, Pixar, Marvel Stu­dios and Lu­casfilm.

“It all de­pends on how the stream­ing ser­vices get priced,” Miller told me. “Is it $4.99 a month? $9.99? $16.99?”

My guess is that the fam­ily-ori­ented Dis­ney stream, set to de­but in 2019, will have to be priced com­pet­i­tively with the likes of HBO and Show­time, mean­ing some­where near $12 a month.

The ESPN stream, on the other hand, will have more lat­i­tude. What I’ve heard re­peat­edly from sports fans is that they want to cut the pay-TV cord but can’t be­cause they’d lose ac­cess to their fa­vorite sports pro­gram­ming.

A ro­bust ESPN stream-

ing ser­vice could de­mand as much as $25 monthly, I’m told. For sports fans, this would still rep­re­sent a sav­ings from the av­er­age $100 ca­ble bun­dle — adios, Hall­mark Channel; say­onara, Nick­elodeon — even with the added cost of a broad­band In­ter­net con­nec­tion.

To be sure, Dis­ney of­fer­ing sports and kids’ shows via stream­ing apps won’t kill off the ca­ble in­dus­try.

“We’re talk­ing baby steps,” said Brian Wieser, se­nior me­dia an­a­lyst with Piv­otal Re­search in New York. “But with each pass­ing year, there are more and more ways to ac­cess de­sir­able con­tent.”

Dis­ney’s move will ac­cel­er­ate that pace.

The pay-TV in­dus­try lost 762,000 TV sub­scribers in the first three months of this year, ac­cord­ing to mar­ket re­searcher Mof­fett-Nathanson. That’s the big­gest quar­terly drop ever.

An es­ti­mated 13% of U.S. homes now have broad­band con­nec­tions for stream­ing ser­vices but no pay-TV pack­age, ac­cord­ing to con­sult­ing firm SNL Ka­gan. It puts the num­ber of broad­band-only homes at about 15.4 mil­lion.

Mean­while, more than three-quar­ters of Amer­i­cans and Cana­di­ans say they want to pay only for the chan­nels they watch, ac­cord­ing to a re­cent study by TiVo, the digital-record­ing com­pany.

If given a choice, Amer­i­can TV view­ers say they’d be will­ing to pay an av­er­age of $28.31 monthly for their 20 fa­vorite chan­nels, TiVo found. That gives an idea how the typ­i­cal con­sumer val­ues avail­able pro­gram­ming.

The re­al­ity, ob­vi­ously, is that peo­ple will pay more — or they’ll limit their choices. That’s what I did.

I didn’t cut the cord un­til HBO went solo. That’s the only channel I watch with any fre­quency. So it made sense for me to start my a la carte TV ad­ven­ture there.

HBO Now costs $15 a month. My Spec­trum broad­band con­nec­tion runs about $50 monthly. I have full ac­cess to Ama­zon’s ex­ten­sive video of­fer­ings as an Ama­zon Prime mem­ber.

I re­ceive CNN, AMC and a cou­ple dozen other ca­ble chan­nels via Sling TV, a skinny-bun­dle stream­ing ser­vice that starts at $20 a month.

Add it all up and that’s well over TiVo’s sweet spot of $28.31. But con­sid­er­ing that I paid closer to $150 monthly be­fore I cut the cord, I fig­ure I’m do­ing pretty well, and I’m miss­ing out on noth­ing that’s im­por­tant to me.

It’s likely an ESPN stream­ing ser­vice will have an equally pow­er­ful im­pact as HBO’s digital of­fer­ing — and a move to digital seemed in­evitable as the surge in cord cut­ting put a dent in ESPN’s bot­tom line.

Still, Michael Nathanson, se­nior re­search an­a­lyst at New York-based Mof­fet­tNathanson, told me he ex­pects Dis­ney to tip­toe to­ward of­fer­ing ESPN’s full lineup of sports via stream­ing app.

“It’s an add-on net­work that should com­ple­ment, not sub­sti­tute for, the main of­fer­ing,” he said. “Most of the big­gest games will still be on the lin­ear ser­vice.” That is, they’ll be watch­able only on ESPN’s TV chan­nels. My hunch is that, like HBO, Dis­ney will come to re­al­ize it can have the best of all worlds by of­fer­ing the same prod­uct as part of pay-TV ser­vices as well as on­line. When that hap­pens, peo­ple will be able to choose for them­selves the plat­form they pre­fer.

That’s the real break­through here: choice.

Fat pay-TV bun­dles still will make sense for peo­ple who want the great­est num­ber of chan­nels at the low­est pos­si­ble price. If hav­ing hun­dreds of chan­nels is how you de­fine your home-en­ter­tain­ment do­main, the big bun­dle will re­main your best deal.

Keep in mind, though, that av­er­age ca­ble bills have risen nearly four times faster than the in­fla­tion rate in re­cent years, and there’s no sign of that chang­ing. If any­thing, pay-TV com­pa­nies will reach even deeper into sub­scribers’ pock­ets to make up for the grow­ing num­ber of peo­ple cut­ting the cord.

Ex­pect more pay-TV com­pa­nies to get into the skinny-bun­dle game to keep dis­grun­tled cus­tomers within the fold. For in­stance, half the num­ber of chan­nels as a reg­u­lar bun­dle at half the price.

Fi­nally, more stream­ing op­tions. CBS said this week that it ex­pects a com­bined 4 mil­lion sub­scribers for its stand-alone All Ac­cess and Show­time stream­ing ser­vices by year’s end. It also plans to launch a sports-only ser­vice.

Dis­ney said it may add to its digital of­fer­ings with stream­ing ser­vices de­voted solely to Marvel and “Star Wars.”

An ad-free FX stream­ing ser­vice is in the works. Roku de­vices last week added a ser­vice called Brown Sugar, which ac­tress Pam Grier, a spokes­woman, touted as “just like Net­flix, only blacker.”

Qual­ity pro­gram­ming at a rea­son­able price on the cus­tomer’s terms — this is what a la carte ad­vo­cates have been seek­ing for years.

HBO, home of dragons, showed that it’s pos­si­ble.

Dis­ney, home of Mickey Mouse, is set to show that there’s no turn­ing back.

Matthew Pas­ant Flick­rVi­sion

DIS­NEY SAYS it will launch two In­ter­net-based stream­ing-TV ser­vices — one for sports, set to de­but in 2018, and one for fam­ily fare that is due out in 2019.

Grant Halver­son Getty Images

A RO­BUST ESPN stream­ing ser­vice might de­mand as much as $25 monthly. Above, ESPN per­son­al­ity Dick Vi­tale talks on cam­era be­fore a game in 2015.

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