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New skinny bundles Philo and AT&T Watch are cause for concern for sports networks

Cord cutting is a problem for sports networks. The move away from cable takes a chunk out of their dual revenue stream system that relied on subscription fees (sub-fees) and advertising revenue. Sub-fees were paid out by everyone who had a cable bill even if they didn’t watch a specific channel. ESPN has led the way with a sub-fee quoted around $7 per user. Once people started cutting the cable cord and moving toward digital subscription packages, ESPN and other sports networks had to figure out how to make up the money. The easiest way to do so was to essentially keep things the same. Digital subscription packages from PSVue, Sling, and DirecTV still had bundles. People were still paying for channels they didn’t watch. It wasn’t a true a la carte system. It was a meet the new boss, same as the old boss situation. That could change with the launch of Philo and AT&T Watch which are skinny bundles that have no sports programming.

People signing up for bundles could never really get away from ESPN even if they didn’t watch ESPN. If they wanted Comedy Central, FX or History Channel they came in a bundle. In that bundle was ESPN. ESPN did a great job negotiating similar fees to be in those bundles. It was essentially the same sub-fee model. Yes, ESPN and other cable channels lost subscribers when users chose to stick with only Netflix or Hulu, but if they bought a live television bundle there was a good chance ESPN was going to be involved. That meant ESPN was scraping back some of their lost sub-fees through new digital bundle users.

The new skinny bundles — priced under $20 — could be real threats. Now people can pick and choose and make sure they aren’t getting sports networks which tend to be the most expensive part of their bundle. ESPN won’t be subsidized by cord cutters who don’t watch the channel. There’s no way to reach these new users. Once they completely cut themselves off from sports programming, they won’t have the constant reminder about games or programming that they could unintentionally stumble upon. That could make a user think twice about fully cutting themselves from sports. Philo and AT&T Watch won’t have that option.

The marketplace seems to be moving closer and closer to a la carte models that let people pick and choose exactly what channels they want. At some point in the future people will be able to pick and choose and create their own bundles based on price. These viewers could decide for themselves whether ESPN is worth the amount listed on their digital subscription provider. This could also force ESPN to launch a true digital distribution platform similar to HBO NOW. ESPN+ is Disney and ESPN dipping their toe in, but a true a la carte model would mean they would have to dive head first.

Then the question arises where ESPN would actually price their stand-alone platform. Some sports fans may be willing to pay $25 a month for ESPN. Others won’t see the need. ESPN would need to figure out an exact price point because its TV rights fees aren’t going anywhere, and they aren’t going down in price either.

The skinny bundles are a step heading in the direction of a full a la carte model. That’s been the end-game all along for cord cutters. It’s also something all sports media companies need to prepare for because it will come eventually.

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