Apple Is Out to Blow Up the Cable TV Model

New Apple TV Service Threatens Comcast

After years of complaining about having to pay for obscure TV channels they never watch, American consumers might finally be getting their way.

The industry buzzword is “skinny bundles,” or Web services from providers such as Dish Network Corp. and Apple Inc. that offer just a few popular channels at a lower price.

The whittled-down packages are putting pressure on programmers that have relied on the 500-channel pay-TV universe to carry their less-popular niche networks. Apple plans to debut an online service this year with about 25 channels, according to people familiar with the effort. Dish’s Sling TV, unveiled in February, offers about 20 channels for $20 a month. Cable companies are pushing mini bundles with Web access, local channels and HBO for as low as $40 a month the first year -- less than half the average TV bill -- to keep customers from fleeing.

“Consumers want lower price points,” Jason Hirschhorn, chief executive officer of media newsletter REDEF, said Monday on Bloomberg TV. “That means the packages are smaller and ultimately that puts pressure” on content producers such as Viacom Inc. and Discovery Communications Inc. These companies “have bundles of channels, maybe a bunch of which you don’t watch,” he said.

For years, TV programmers have paired their weaker channels with stronger ones to promote new shows and boost revenue. The average U.S. home receives 189 TV channels but only watches 17 of them, according to a report last year by Nielsen. And the average cable bill rose to $87 last year from $80 in 2011, data compiled by Bloomberg Intelligence show.

‘Flexible Packages’

“Viacom works closely with distributors to create flexible packages of networks that meet the varying needs of their subscribers,” said Jeremy Zweig, a spokesman for New York-based Viacom. “While all of our distributors carry many of our networks in broad-based tiers, we also have numerous examples of tailored offerings in more niche-oriented packages.”

Discovery declined to comment.

Apple is in talks with broadcasters ABC, CBS and Fox to provide Web-based TV later this year, according to people familiar with the effort. Viacom is also negotiating with Apple, said one person. So is Discovery, although NBC isn’t included, the Wall Street Journal reported earlier.

In 2013, Cablevision Systems Corp. sued Viacom for requiring it to take lower-rated channels along with its most popular networks, claiming the practice was illegal and anti-consumer. Viacom, home of Comedy Central, has said its licensing arrangements are “flexible, competitive and the result of good-faith negotiations with distributors.” The suit is still pending.

‘Significant Risk’

Cable companies are already struggling to keep TV subscribers as more Americans watch video online on services like Netflix Inc. The rise of skinny bundles may lead even more people to abandon large TV packages. That poses a threat to networks that aren’t included in the new online TV services, said Paul Sweeney, an analyst at Bloomberg Intelligence.

“Niche networks with smaller audiences are clearly at risk in a skinny-bundle world,” Sweeney said. “Unwinding the bundle is a significant risk to the pay-TV world as we know it.”

The popularity of fewer-channel packages, along with consolidation among pay-TV operators, may prompt smaller media companies to merge to gain more leverage in programming negotiations, Sweeney said. And networks that aren’t included in skinny bundles may need to offer their programming over the Web, outside the pay-TV bundle, said REDEF’s Hirschhorn.

Verizon Service

Verizon Communications Inc., the largest U.S. wireless carrier, is also planning to enter the Web-based streaming market with a slimmed-down package. Verizon is negotiating with programmers to start a mobile video service featuring live TV, original shows and pay-per-view as early as June, according to a person familiar with the talks.

Viacom, for its part, is experimenting with going direct to consumers over the Internet. The company introduced an ad-free online channel for kids programming earlier this month. In February, Viacom agreed to let the premium cable network EPIX, which is owned by its Paramount Pictures, Lions Gate Entertainment Corp. and the MGM film studio, run on Sling TV.

Some analysts, including Laura Martin at Needham & Co. in New York, say the slimmed-down bundles aren’t for everyone and may prove too restrictive for viewers who want to keep up with the latest hit shows.

“Skinny bundles destroy a lot of optionality for the consumer,” Martin said. “They’re going to be frustrated if they want to change the channel and they’re limited to that bundle of 20 channels.”

Apple’s latest plans for its online TV service were first reported by the Wall Street Journal.