Digital content bundles that Americans are using in the place of cable packages are significantly hiking their prices as they grow and hook consumers.
Why it matters: Bundled content packages with fewer channels are an increasingly popular way for consumers to watch video content, but there is little regulation around pricing, consolidation and distribution fees to protect consumers from long-term price inflation.
The context: Regulators rarely step in to stop price hikes for traditional Pay-TV service providers, which are seeing consumers depart in droves, in part because of pricing, but also because of experience.
- And because the pricing fights are handled by the market between distributors and content creators, the disputes are becoming far more frequent and are leading to a record number of programming blackouts for consumers.
The digital distributors: Most digital multichannel video programming distributors (dMVPDs) — or skinny bundle packages with live programming — have hiked the prices of their digital TV subscription fees as their user bases continue to grow.
- July 2018: AT&T's DirecTV NOW emailed customers that it was raising the prices of its starter plan by $5 per month.
- July 2018: Sony's Playstation Vue announced that the price for all PS Vue multi-channel plans — Access, Core, Elite and Ultra — will increase by $5.
- June 2018: Dish's Sling TV said it is raising the base price of its core packaging (Sling Orange, 30 channels) from $20 per month to $25 per month.
- Mar 2018: YouTube TV announced it would be raising its subscription from $35 to $40 monthly (after it added Turner programming).
The on-demand companies: The largest subscription video on-demand companies (SVODs) — like Netflix and Amazon — are also increasing prices.
- Amazon raised its subscription from $8.25 to $9.91 monthly after it revealed it had 100 million subscribers in April.
- Netflix raised its subcription from $11.99 to $13.99 monthly in October. That's nearly double what it was just four years ago at $7.99 per month in 2014.
- Variety reported in July that Netflix is testing a pricier ‘Ultra’ plan for $16.99 monthly.
Bottom line: Most consumers end up subscribing to more than one of these skinny bundles in order to access both live and on-demand programming. Eventually, consumers could expect to pay more for digital programming in total than they do now for their traditional cable or satelite package.
The bigger picture: Regulators at the FCC and FTC can't stop these services from raising their prices, even if they collectively end up one day costing consumers more than they pay now for hundreds of cable channels.
- The only opportunity there is to keep the rising costs of skinny bundle services in check is by addressing competition during regulatory reviews of mergers and acquisitions.
- Still, a federal judge passed on the opportunity to set a wide precedent in managing competition in the digital skinny bundle world by letting the AT&T merger with Time Warner go through without requiring any divestitures.
What's next? Expect this trend to carry over to other on-demand media. Spotify is testing a 10% subscription fee increase in Norway.
The kicker: Knowing that the streaming surge is coming and it's reliant on internet access, almost every major Pay-TV provider with a broadband (internet) offering (think Comcast, Verizon, etc.) has touted the growth of its broadband business to investors on earnings calls over the past several quarters.