What is a “skinny TV bundle?”

It seems like it’s all the rage. All of a sudden every pay TV company is talking about a “skinny” bundle. Even DIRECTV Chair Mike White referenced the term in a recent conference call. Verizon’s gone even further and created some skinny bundles. Yet, there’s some disagreement as to what the term even means.

Everyone seems to agree that a skinny bundle is something that has very few channels in it, perhaps under 20. But that’s where the agreement stops. Verizon’s interpretation, shared by Sling TV and a few others, is that a skinny bundle should consist of channels for people with similar interests. For example, a bundle with a bunch of sports channels. Verizon’s hope is that you will pick several of these skinny bundles and still end up paying close to the $95 or so that the average user pays for TV. On the other hand, more traditional pay-TV providers like DIRECTV push the term “skinny” to mean something like their Entertainment package that gives you a good mix of channels including locals for a fairly decent price. Personally I’d call that a “chubby” bundle, not a skinny one.

Pay TV providers are hoping that skinny bundles are the future. The average American wants to have “a la carte” programming, meaning they pay only for the channels they get. That sounds great but when looked at that way, most channels would cost them $5 or so a month. If you only watch ten channels, you’re still paying $50 a month for which you could be getting 90 channels or so from most providers. The hope is that by offering customers bundles of 10 or so channels, and allowing them to have multiple bundles, the cost to the consumer will seem low, people will still feel like they’re getting what they want, and most people will end up spending something like what they’re spending now.

I’m intrigued by the idea of skinny bundles not because I personally want them but because I think they represent a better way to understand the appeal of certain channels. ESPN, for example, is really highly rated, but I know a lot of people who don’t watch it. On the other hand, Comedy Central’s ratings are much lower but I know a lot of people who consider it a “must have.” There’s a whole new economic model here if you say that a sports package with ESPN and two regional sports channels is $30 a month and a package with Comedy Central, SpikeTV, and MTV is $7 a month. Those are the prices you’d probably see, because ESPN by itself is massively expensive. I think you’d see a lot more uptake on the Comedy Central bundle and it would show that despite what Disney thinks, ESPN is simply not worth that amount of money. ESPN’s ratings would drop because people would rethink the question of whether or not they really care about most live sports. It’s a whole new way of looking at the value equation.

More than anything else, pay TV providers hope that skinny bundles will keep their products attractively priced in a way that still keeps them profitable. There’s a big concern out there as the average pay-TV bill reaches $100 that people just don’t think they’re getting a good value for their money. People think they get much more value from a $50 combination of Netflix, Hulu, and either HBO Now or one streaming sports package. That’s a nightmare scenario for pay-TV companies who could see there subscriber numbers drop. While pay-TV companies as a group wouldn’t much care if they lost the “basic” customer who pays $50 a month, the fear is that someone who currently pays $125 a month or more will drop the service in favor of a streaming package. One way to combat this (they hope) is to give mid-and-higher-tier customers the perception of more choice without making them pay true a la carte pricing.

My personal feeling is that skinny bundles are just a fad because regardless of what a company like Verizon says, they don’t want you to pay less for their services. At least DIRECTV has been open and honest in saying that they are all for customer choice but don’t want to cannibalize more expensive offerings. I doubt we’ll be talking about skinny bundles much in a year, but the overall impact will be to make content providers rethink their pricing which is a good thing by itself.