When a man named Herb MacDonald pioneered the pay-one-price, all-you-can-eat buffet in Las Vegas sometime in the in the middle of the last century, he probably did not realize that his restaurant pricing would become a model for so many businesses, particularly in the media industries. The most prominent imitators, of course, are pay-TV providers (cable, satellite, and fibre optic) who for one price offer subscriptions to a whole mess of channels such as Oxygen, HLN, MTV, Fox News, Bravo, MSNBC, E!, and so forth. (In 2014, the average number of channels subscribed to was 189.1; the average number watched was 17.5.) There are some who like this arrangement: more is more, and the payments are simple, if large. Others, however, find this buffet—or “bundle,” in industry jargon—annoying or unbearable. Social conservatives, for example, have long complained that they want more control over what comes into their homes, and that they don’t like funding the production of fornication-driven shows like “Jersey Shore.” Others simply deem cable TV too expensive—Americans pay an average of a hundred and six dollars a month—and they blame the bundle, fairly or not.
For the past decade, as people have started to watch more television via Internet connection rather than cable modem, the big question has been whether the Web might untie the bundle (an awkward metaphor, but the media world is full of them). There have been signs suggesting that it will: Netflix, for example, has gained fifty million subscribers, and people today can shun cable and still watch some television shows, such as “Mad Men,” by paying $1.99 for an episode a day after it premières. The number of so-called cord-cutters has been growing rapidly.
But those who predicted that the Internet would kill the bundle may have spoken too soon. Internet TV, in fact, is now growing its own bundle—the so-called “neo-bundle.” This year, Dish television and Sony have begun selling a version of Internet television that centers on a bundle, albeit one that is smaller and cheaper that the original offered by cable companies. Dish’s Sling is the most exciting and enticing: it offers ESPN and twenty other channels for twenty dollars a month. (You add an extra fifteen dollars if you want HBO). Sony’s Vue has fifty or so channels, for fifty dollars a month, but no ESPN or HBO. Apple, meanwhile, is likely to launch its own version in the fall.
In short, instead of the Internet killing the bundle, the bundle is coming to the Internet; it would not be surprising if, in the next year or two, half a dozen more neo-bundlers join the game. This may come as a surprise to those who expected the television of the future to resemble, say, a smartphone screen, where every channel would be roughly like an app that you subscribe to à la carte. But overestimating change in the television industry is a rookie mistake.
Just why is the neo-bundle model on the rise in Internet TV? For one thing, content companies like ESPN don’t necessarily want the annoyances of dealing, like Comcast or Netflix do, with direct subscribers, who are always threatening to leave and demand that irritant known as “customer service.” There are also some people, as we’ve said, who really do prefer to buy by the bundle—buying kitchen knives in big sets remains very popular. But more important is the fact that selling content in a bundle nearly always yields more money for the seller.
Consider an oversimplified scenario in which, in a nation of a hundred million households, half love ESPN (and will pay up to ten dollars a month for it) but merely like HBO (and will pay only up to five dollars a month), while the other half have the opposite preference. A seller with rights to both channels faces a dilemma. If he sells ESPN and HBO individually for nine dollars a month, only half the nation will subscribe to each. He’ll earn $450 million plus $450 million for a total of $900 million. If he sells the channels for four dollars a month each, everyone in the country will buy both channels, but he’ll make even less money ($400 million plus $400 million makes $800 million). The smart seller therefore bundles both shows together at the low price of fourteen dollars a month and earns a total revenue of $1.4 billion. This example depends upon various assumptions that might not hold true in the real world, but the general rule is that, for sellers at least, content bundles are a winner.
That’s why bundles exist. The neo-bundles are a compromise: they exist to try to maintain some of that economic advantage while also appealing to a generation of people who, when it comes to television or frankly any kind of entertainment, want to get what they want exactly when they want it—the so-called “now” generation.
Hybrid products are always risky, and there’s reason to suspect that the spring 2015 neo-bundle is an experiment that will fail. The new bundles likely don’t offer enough to convince regular pay-TV viewers to switch over (indeed they are designed not to, for a $20 version of a $100 product would rattle the industry too much). A Dish-Sling subscriber (like myself) still needs to rely on a physical antenna for the broadcast networks (CBS, NBC, etc.) and even after that there still remains plenty of desirable programming, especially sports, that is beyond reach. Finally, the neo-bundle is facing direct competition from “skinny-bundles” introduced by Verizon and other cable operators, which are not Internet-TV but instead slimmed down versions of the traditional two-hundred-channel offering.
On the other hand, the neo-bundles may remain too much like cable television to attract the now generation, which is comprised of cord-cutters, potential cord-cutters, and “cord-nevers” (those who have never subscribed to pay-TV). One problem is still the user interface. The neo-bundles still feel like cable TV; you need to plan your watching, and they don’t generally provide the simple on-demand viewing that binge-viewers have grown accustomed to. There also remains something alienating for some people about having to buy any bundle: it’s still going to the grocery store to buy milk and being required to buy eggs and broccoli as well.
Apple will release its own version of the neo-bundle in the fall. Perhaps, as with iTunes, the company will once again connect the twain cultures of Silicon Valley and Hollywood. In the meantime, the gap between the norms of the Internet and those of television, if narrowing, remains.