Skinny bundles have been disrupting the cable space for years, and not entirely without the help of the old guard: DirecTV owner AT&T also owns skinny bundle DirecTV Now, while Dish owns Sling TV. The revolutionary live TV streaming services have earned their "skinny bundle" nickname by cutting down on the number of channels they provide. These new, skinnier bundles are also cheaper, which -- combined with the convenience of streaming -- makes them appealing to customers who have grown dissatisfied with cable's ever-climbing prices.
The concept of a skinnier bundle may have helped give birth to a whole new business space, but observers who follow the idea to its logical extreme may find reason to be uneasy about skinny bundles. The leanest possible bundle, after all, wouldn't be a bundle at all: it would be a single-channel streaming service. Fortunately for skinny bundle companies, few channels have the means to make this idea a reality. Unfortunately for skinny bundles, however, one channel that might have the means is also one of the skinny bundle market's most indispensable partners.
ESPN and the Direct-to-Consumer Option
ESPN, which is owned by Disney (DIS 0.16%), has flirted with the idea of a direct-to-consumer model for years. It wouldn't be the first channel to go directly to its audience -- CBS already has CBS All Access, for instance, and premium channels like HBO offer direct subscriptions -- but it would be a big deal for skinny bundles.
ESPN is a monster in cable because it offers something -- sports -- that fans tend to want to watch live. Sports' ability to be "DVR-proof" makes ESPN a favorite for advertisers. It also makes sports broadcast rights very expensive. Bubble or not, sports broadcasts -- and, therefore, ESPN -- cost a mint. As a result, ESPN is disproportionately responsible for the cost of cable packages and skinny bundles alike. ESPN's networks account for more than $9 of a typical cable customer's bill, far more than most other networks. (For further evidence of ESPN's price impact, look no further than Philo, the skinny bundle that deliberately avoids offerings sports, news, and local channels: its cheapest bundle is $16 per month, less than half the cost of a typical mainstream skinny bundle.) But ESPN is also the reason that many subscribers bother with cable packages and skinny bundles at all.
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ESPN was long rumored to be planning a direct subscription option -- speculation that was put to rest, at least for now, when ESPN+ debuted without live streams of ESPN, ESPN2, or any other traditional ESPN networks. Still, the infrastructure is there, and parent company Disney's well-known streaming ambitions are a good reason for skinny bundle owners and investors to be wary.
How Direct-to-Consumer Channels Would Affect Skinny Bundles
Even assuming that ESPN would remain available through skinny bundles, a direct-to-consumer debut for the Worldwide Leader in Sports would certainly be an unwelcome development from the skinny bundle perspective. Sports channels like ESPN are one of the few reasons that cord cutters care about live (rather than on-demand) content at all, and a cheaper path to the nation's biggest sports channel would undermine skinny bundles' very raison d'etre.The debut of ESPN's direct-to-consumer app and speculation about its flagship network's live-streaming future also raises the specter of further direct-to-consumer experiments. Disney also owns ABC and Freeform -- might they get direct-to-consumer apps that include live TV? What about other, non-Disney channels? Fox News has an ESPN+-like service of its own already -- would it ever put its cable content on such a platform?
A revolution in direct-to-consumer offerings is likely a ways off, if it happens at all. Nevertheless, skinny bundle companies should prepare for the possibility that they'll be forced to adjust their model. It's worth noting that the skinny bundle model emulates the cable one, albeit with some innovations. However, there's nothing inherent in the way the internet works that would necessitate a "bundle" model at all. Companies could control what was delivered over the cable infrastructure, but the internet allows independent content producers to address their audiences directly -- no cable-company curation required.
An Alternative Model for Skinny Bundles: the Subscription Hub
With that said, channels hoping to go directly to the consumer will have to have the streaming architecture to make that a reality. For companies like Disney, that's no issue; for others, it's a significant hurdle. That could be an opportunity for skinny bundles: if the individual channel subscription model begins to proliferate, skinny bundles could counter by becoming hubs for individual channel subscriptions. They'd still be streaming, just without the bundles.
Amazon has already put a similar model into practice with its Amazon Channels service -- and, in fact, skinny bundles already work this way with regard to premium channels, which are offered à la carte and streamed using the skinny bundles' apps. Sling TV's semi-à la carte pricing model seems well suited for a potential direct-to-consumer dominated future, and the way in which CuriosityStream -- a subscription on-demand service that also makes its content available through skinny bundles -- suggests that the subscription-hub model might be the wave of the future.
A Problem Postponed for Skinny Bundles
Disney would be wise to create a true direct-to-consumer option for fans of ESPN's cable networks. But even as ESPN+ gives Disney a place to do just that, its current setup and Disney's public statements signal that such a move is still a long way off. That's a reprieve for skinny bundles, but they should use this time wisely. Skinny bundles that are most agile and most willing to serve as subscription hubs, rather than traditional bundles, will be the ones that weather the storm best.
