In a stunning move for a pay-TV company, satellite provider Dish Network (NASDAQ:DISH) acknowledged the challenges facing the greater industry by releasing a new product. The service, dubbed Sling TV, is an Internet-only television package with a slimmed bundle of channels. And while the company's announcement was somewhat inauspicious, make no mistake: this has the potential to change pay-TV as we know it.
Dish CEO and president Joseph Clayton announced the service: "Sling TV provides a viable alternative for live television to the millennial audience. This service gives millions of consumers a new consideration for pay-TV; Sling TV fills a void for an underserved audience." So while the company appears to position the $20 monthly service as merely a solution for those currently without pay-TV, the company could quickly find itself with subscribers looking to trade down into this service.
The best part for sports fans: ESPN is included in its channel lineup
Earlier reported by Re/Code, and later confirmed by the company, the most intriguing feature of this service is the inclusion of ESPN. For many pay-TV subscribers, live sporting events has been a powerful moat against cord cutting due to sports' immense popularity and the lack of a streaming option to view sporting events.
In return, the NFL, the NBA, and NCAA Football have been treated to rather luxurious television contract packages. For perspective, the NBA inked a 9-year $24 billion contract with Disney's ESPN and Time Warner's TNT that values out to $2.67 billion per year -- nearly 200% more than the previous contract. Recently, the NFL signed a long-term extension with DirecTV for its Sunday Ticket programming with an annual increase of 50%.
For many die-hard fans, ESPN is the main thing keeping them in a huge cable package. The service alone commands over $6 monthly per subscriber, and with many willing to pay more for the channel, the $20 fee with a few additional channels could present more value than their current situations.
Are we deluding ourselves with the millennial talk?
For channels, and now pay-TV providers, looking at providing streaming-based services, the explanation is almost identical...we're doing this for the millennials. Personally, I think this is a foolish and deluded way of thinking. Studies have shown that U.S. pay-TV subscribers only watch 17 channels, and many don't like paying for content they are not consuming. So we're going to believe that only Millennials can see the value in slimmer, Internet-only focused bundles, and not Generation X or fixed-income Senior Citizens?
Instead, I think this is a rather convenient way to offer services for cord-nevers and future cord cutters without causing immediate concern with shareholders. In November, Leichtman Research noted that major pay-TV providers lost 150,000 subscribers in the third quarter of 2014, up from 25,000 in last year's corresponding quarter. And while it is true there are more than 100 million pay-TV subscribers, making an annualized run rate of 600,000 cord-cutters a drop in the bucket, the trend appears to be picking up --and quickly so -- instead of reversing.
In the end, this trend has the potential to continue to gain steam as more find the value proposition of basic cable and satellite TV no longer worth it and opt for streaming-based services. In addition, as more entities seek to offer new, competitive services for these streaming-only consumers, you could see a massive trade down that would hasten the death of TV as we know it.
Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.