Charter does 180 on skinny bundles with sports-free offering

Charter Communications has decided skinny bundles may not be so bad after all. The company is testing the waters with a sports-free streaming pay TV package, going for $20 per month. The service, called Spectrum Stream, offers over 25 linear TV channels and doesn’t require a set-top box nor a truck roll for installation. It’s being delivered to Charter’s Internet customers via Android and iOS mobile devices, Amazon Fire TV, Roku, Xbox and Samsung smart TVs.

The idea of a sports-free skinny bundle goes against conventional wisdom that consumers need sports content to be satisfied with a pay TV package. Reports surfaced earlier this year indicating AMC and Viacom were both interested in participating in a sports-free Internet TV package. But critics of skinny bundles – Charter and other pay TV providers included – have argued that a pay TV package without sports content would be dead on arrival.

Charter CEO Tom Rutledge has in the past been critical of competitors’ skinny bundle offerings, saying that the current crop of Internet TV offerings only serve to cannibalize pay TV subscribers. The company had seemed more interested in integrating OTT SVoD offerings HBO Now, Hulu and Netflix into its pay TV set top interface.

“Our view is that the user interface that we’re deploying across our footprint will allow a seamless integration of content,” Rutledge said during the company’s Q1 2017 earnings call. “Fundamentally, we expect customers to subscribe to services like Netflix, Hulu and other over the top products in combination with our MVPD products and maybe over the top products that we also provide.”

Rutledge said the company would consider a streaming TV offering, “if we can put together packages that will generate incremental customers.” Rutledge obviously sees an opportunity in offering a skinny bundle that eschews the expensive sports programming and can therefore offer more channels at a lower price point.

The Spectrum Stream service is being delivered over a managed IP network, and is currently only available to “select Spectrum Internet customers,” Charter said. Streaming is available only over the home network. Charter hasn’t mentioned any plans to make the service available nationally or as a truly over the top product; instead, the company is hoping to offer a more OTT-like pay TV service tailored to the segments of Internet subscribers who presumably don’t also subscribe to pay TV.

Spectrum Stream includes broadcast and pay TV networks, with content partners such as ABC, NBCUniversal, 21st Century Fox, CBS, AMC, Time Warner and A&E Networks. Notably, Viacom is missing. The streaming line-up includes premium movie channels like HBO and Showtime, available for an additional $7.50 per month each, and ESPN is available as a $12 per month add-on. Subscribers also get access to an on-demand library and authentication to some TV Everywhere apps for out of home viewing.

There could be a lot to prove for such a pay TV package. The dogma around sports in pay TV has experienced some subtle erosion over the past few years, as consumers continue to drop their pay TV subscriptions. Sports-free OTT services like Netflix and Amazon continue to gain subscribers, while the pool of niche, sports-only OTT services continues to grow. That’s given consumers more opportunity to pick and choose the entertainment they want to pay for, and ditch the bloated, pricey pay TV packages that once reigned supreme in the living room. Charter, along with its two recent acquisitions Time Warner Cable (TWC) and Bright House Networks, lost 100,000 pay TV subs during Q1 2017, with most of those losses coming from TWC. Charter added 428,000 Internet subs during that quarter.

Even if Charter decides there’s enough interest among its broadband-only households, the company may not choose to expand the offering across its entire footprint. In order to do so, it’ll need to reach streaming agreements with the local station broadcasters across its footprint, a formidable challenge that not even the national broadcasters have been able to do very quickly.

The inclusion of ESPN as an add-on option is surprising, as Disney has been litigiously steadfast in keeping ESPN in all of the core packages with which Disney has a streaming deal. Two years ago, Disney sued Verizon for its Custom TV packages, which allowed subscribers to opt out of receiving ESPN if they didn’t want the channel. If Disney is comfortable with ESPN being available only as an add-on, it’s likely that contract has a cap on how many subscribers it can sign up.

On the other hand, Charter’s recent acquisitions have propelled it to the third ranking pay TV company with 17 million subscribers. That larger subscriber base means the company has more negotiating power, which may have helped it convince Disney to let its precious-yet-faltering ESPN network be included only as an add-on.

The problem with these services is that they’re set up for failure: the point of the skinny bundle is to offer a lower-cost pay TV package, but the insistence to keep sports in the offering jacks up the price and reduces the content offerings for these services. And pay TV providers – Charter included – are terrified of creating a cheaper streaming TV product that could cannibalize what’s left of their traditional pay TV subscriber base.

There’s other indications this skinny bundle won’t amount to much. A number of pay TV providers have experimented with similar streaming TV offerings, none of which seem to ever make it out of the testing phase. Time Warner Cable, before its merger with Charter, held more than one streaming TV test across a few markets in its footprint, as has Cox Communications.

But 2017 could be the year we see more of these services see the light of day. The more there are, the more legitimate they become to consumers. Verizon, too, has tested streaming TV products in the past, and is rumored to be prepping another such service to be launched later this year. Comcast has tested a number of streaming TV services over the past few years for both its Internet customers and for college campus subscribers. More recently, it’s been testing an Internet TV service called Xfinity Instant TV across some major markets. Comcast is reportedly planning to roll that service out across its entire footprint by Q3 of this year. And CenturyLink last week unveiled a new $45 per month Internet TV service, currently in beta, that the company plans to launch nationally as a true OTT product.