Streaming was supposed to change everything. In the world of on-demand content, it already has: Netflix has more subscribers than all the cable companies combined. But in the world of live TV, the revolution has been much slower. It took until 2015 for the first live TV multichannel services to emerge. So-called "skinny bundles" -- streaming services that earned their nickname through their slimmed-down channel offerings and similarly slimmed-down price tags -- still lag far behind their on-demand counterparts in subscriber counts.
In fact, live TV streaming service DirecTV Now -- AT&T's (NYSE: T) take on the skinny bundle -- recently had to hike prices. It is only the latest to do so. DirecTV Now has also lost subscribers since hitting a peak of 1.8 million. Few other skinny bundles have been doing much better; Sony's PlayStation Vue is among the most fragile-looking.
What happened? Can skinny bundles work at all?
The promise of the skinny bundle
The idea behind the skinny bundle was a simple one: Cable was overpriced in part because of the sheer number of channels being bundled in. Without much in the way of competition, cable companies could afford to keep packing in more channels and raising prices. Skinny bundles like DISH Network's (NASDAQ: DISH) Sling TV were supposed to ride to the rescue with slimmer offerings and leaner pricing structures. And since skinny bundles are delivered "over the top" (that is, over the internet), there would be lots of competition and lots of great options for consumers.
The number of options has certainly proliferated. After Sling TV and PlayStation Vue debuted in 2015, they were followed by competitors like FuboTV, DirecTV Now, Hulu with Live TV, Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Youtube TV, and Philo. But profits have proven hard to come by, and the prices of skinny bundles have risen from a near-universal $35 to $40 per month to a new normal of $45 or $50 per month for the cheapest options. Sling TV is the main exception, with two skinny bundle options available for $25 per month each (or $40 per month for both).
Skinny bundle struggles
DISH Network's Sling TV was the first of the skinny bundles and has arguably been the most successful. But its growth stalled a few years into its existence. Sling TV topped 2.2 million subscribers by the end of 2017. A year later, at the end of 2018, it had 2.4 million.
That should have created an opening for the once-fast-growing DirecTV Now, which had been surging as Sling TV stalled. But DirecTV Now's aggressive push for subscribers had a cost, and the bill came due when the expiration of around 500,000 promotional plans fueled a brutal 14% drop in DirecTV Now's subscriber count in the fourth quarter of 2018.
Hulu with Live TV and YouTube TV are reportedly still growing -- experts ballpark their subscriber counts at around 2 million and 1 million, respectively -- but neither those services nor any of their competitors appear to be making any money. For instance, Alphabet is losing about $5 per month per subscriber on Youtube TV. Scale may eventually make skinny bundles profitable, but they're losing money in the near term; and scale seems a long way off in a business space where no service has been able to grab much more than 2 million subscribers.
The threat of the direct-to-consumer channel
Battles like these are not unheard-of in the tech world, where massive companies like Alphabet are willing to take losses in an effort to outlast their competition and reach the promised land of scale and profit. But the future of skinny bundles is a little shakier than that of, for instance, music streaming. There are other ways to watch live TV, after all.
One of the striking things about the skinny bundle model is how similar it is to cable's business model -- and how different it is from those of extremely successful on-demand services like Netflix. Netflix has been very aggressive about keeping costs down by offering more and more content that it produced and owns; a multichannel service, practically by definition, hosts content from multiple outside companies.
Disney (NYSE: DIS) is starting its own on-demand streaming service, which will use the Netflix model. Disney's deal to acquire most of 21st Century Fox will give it a controlling interest in Hulu, and Disney is reportedly in talks to acquire AT&T's 10% share. Disney owns a fair number of television channels, so there may be cost efficiencies there that companies like DISH Network don't have access to. But what if Disney offered a cheaper subscription that included only Disney-owned channels? And what if it made ESPN -- practically a mandatory channel for skinny bundles -- available as a direct-to-consumer subscription?
To be clear, this is all speculative -- Disney claims that it's not thinking about a direct-to-consumer feed of ESPN's cable networks, though the ESPN+ platform and its growth certainly give Disney the foundation it would need for such a project. But the uncertainty is the point: Skinny bundles are losing money -- each hoping to be the last bundle standing and reap big bucks down the line -- but it's not clear that the future of live TV has to be bundled at all. In fact, Sling TV -- arguably the most successful skinny bundle so far -- is notable for having a more a-la-carte subscription setup than its rivals. This suggests that bundles, however skinny, are a liability with cord-cutting consumers.
What is the point of skinny bundles?
The fact that DISH and DirecTV were among the companies to rush to the skinny bundle model is telling: These companies hoped that streaming gains could offset legacy pay-TV subscriber losses. But cord-cutting is not just about ditching cable for the sake of it: It's about saving money and enjoying more convenient entertainment. And it's not at all clear that a bundle -- skinny or otherwise, streaming or otherwise -- fits the bill. Skinny bundles seem like a great solution for the companies that offer them, not for the consumers who are supposed to subscribe to them. From a consumer perspective, why should live TV be a bundle at all?
The future of live TV streaming may or may not be bundled. In the meantime, skinny bundle operators seem to be taking a pretty significant gamble. Each company is betting not only on being one of the last services standing, but on there being any market for those remaining services in the future.
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