With the rise of Netflix, Sony's (NYSE:SNE) PlayStation Vue, and Dish Network's (NASDAQ:DISH) Sling TV, cord-cutting was supposed to continue its gradual reshaping of the way consumers view and pay for their entertainment.
However, if one thing has become clear since total U.S. cable subscribers began declining in 2013, it's that this trend will take decades, not years, to fully unfold.
One new product type many argued could hasten the demise of cable has been the rise of low-cost, "skinny," over-the-top streaming services like Sony's PlayStation Vue and Dish's Sling TV. And with one recent move, Sony's PlayStation Vue just became significantly more competitive in its quest to challenge today's cable powers.
ESPN: Coming to a PlayStation near you
Recently, reports surfaced that Sony had at long last reached a deal with entertainment juggernaut Walt Disney (NYSE: DIS) to bring its ESPN family of networks onto Sony's PlayStation Vue streaming service. With this move, Sony gains access to the most-watched cable network in the U.S. last year, plus its spate of derivative channels like ESPN 2, ESPN News, and more.
Perhaps more interestingly, this deal also sets the stage for Sony's PlayStation Vue to also pick up the programming from local network affiliates. According to reports, should local affiliates opt to work with Sony's streaming service, subscribers will be able to access local stations from ABC, NBC, CBS, and Fox, although the extent of interest in streaming service from local affiliates remains far from clear. Either way, these moves stand as major victories for Sony and markedly strengthen its hand against the cable distributors Sony hopes to eventually disrupt.
PlayStation Vue versus the cable companies
Clearly, this dramatically improves Sony's PlayStation Vue's value proposition relative to the kind of cable packages offered by Comcast, Dish, and Time Warner Cable. Adding ESPN gives PlayStation Vue access to 18 of the 20 top cable networks among 18-49-year-olds last year. Without fretting over minor differences in channels, Sony's PlayStation Vue now offers the equivalent to most basic cable packages. However, Sony's ability to steal market share from Comcast, Dish Network, and Time Warner Cable might still be more limited than it might seem. Let's looks at a real-world example to see this point more concretely.
Time Warner charges $39.99 a month for its standard cable bundle of 70 channels, including local affiliates, which serves as a close proxy for Sony's PlayStation Vue. However, Time Warner also charges users a monthly rental fee for their cable boxes. Seen this way, Time Warner's basic package costs users $51.24 each month, at least in New York City where I live, slightly more than the $49.99 for Sony's PlayStation Vue. However, PlayStation Vue comes with its own hardware costs as well, namely the cost of the PlayStation console, which retails at $349. Taking this large upfront sunk cost into account, PlayStation Vue likely only makes sense as a cable option for gamers that own a PlayStation console already, especially when you consider the cost of Internet service.
Since all major cable network operators also sell Internet services, Comcast, Time Warner Cable, and the like lower the total cost of Internet and cable offerings by bundling the two services together. As one quick example, Time Warner will bundle its 100-channel cable package with 100/10 Mbps Internet service for $52.99 a month including hardware costs. And considering the stand-alone cost of the Internet service required to operate Sony's PlayStation Vue likely starts at $14.99 for the slowest connection speed, the cable providers' ability to bundle Internet and cable services together and the high upfront cost of Sony's PlayStation console serve as a useful reminder that the advantages of cord-cutting services like PlayStation Vue aren't as real as they might seem.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.