Comcast, Charter caught suppressing skinny bundles

Amid more pay TV subscriber losses, and rising competitive pressure from OTT services, Comcast and Charter have both been caught trying to sabotage skinny bundles to serve their own interests.

Smaller pay TV providers and new “virtual MVPD” providers have begun launching innovative skinny bundles in response to the waves of cord cutting and cord shaving that’s plagued the US pay TV industry for the past five years. Comcast, itself, is experimenting with a few different types of new bundles, include skinny cable packages and streaming TV bundles.

But the American Cable Association (ACA), which represents 750 small cable TV providers in the US, has accused Comcast of forcing smaller operators to suppress their skinny bundle offerings that don’t include Comcast’s NBC Sports-branded regional sports networks (RSNs). NBCU operates sports networks in six markets across the US.

“Many consumers that want to opt out of the big cable bundle in favor of a less expensive alternative are gravitating to a bundle that includes just the basic cable tier (essentially local TV stations) plus broadband Internet access and then relying on over-the-top video services to gain access to a more limited amount of cable programming more narrowly tailored to their specific interests,” said ACA President and CEO Matthew Polka, in a statement.

“Comcast, it seems, is standing in the way of ACA members that want to help their customers escape the burdens of the big and expensive expanded basic bundle of channels, while at the same time aggressively marketing a bundle of networks very similar to the broadcast basic tier to its own customers through its new ‘Instant TV’ service.”

Comcast isn’t the only pay TV provider that’s trying to throw its weight around for favorable treatment. Viacom CEO Bob Bakish accused Charter Communications of trying to prevent content owners from licensing content for skinny bundles. The accusations came amidst a lengthy contract negotiation dispute with Charter.

“Among the issues we face is Charter’s attempt to inhibit the creation of smaller, more innovative and less expensive packages of the networks customers want, by penalizing Viacom if it participates in new skinny bundles or OTT streaming platforms,” Bakish said in an internal memo to employees, which Bloomberg acquired.

The fact that both Comcast and Charter – the two largest cable TV providers in the US – are trying to squash skinny bundles isn’t particularly surprising. Comcast has 22 million pay TV subscribers, and Charter, which recently completed its acquisition of Time Warner Cable, now has 16.5 million pay TV subs. Both providers, along with all the other satellite, telco and cable pay TV providers, have suffered growing subscriber losses.

Charter’s CEO Tom Rutledge has in the past expressed criticism of the skinny and streaming bundles now coming to market, arguing that the packages won’t offer strong competition against the larger traditional pay TV packages.

“It hasn’t yet been demonstrated to be a significant niche. Most of the people looking at skinny bundles are looking for price. The problem is that they don’t satisfy from a consumption perspective,” Rutledge said on a call with investors earlier this year. “People come in and out of the category, there’s more churn. The demand is still there, but the ability to pay for it isn’t.”

Still, Charter is now trialing a similarly paired down $20 per month pay TV package, called Spectrum Stream, in select markets.

Charter and Comcast are approaching the issue of skinny bundles from two different angles: Comcast wants to preserve its content business NBCUniversal – which suffers revenue losses as pay TV subscribers defect – and is coercing smaller pay TV providers to include its sports networks in these smaller packages. Doing so only forces those operators to raise the prices of the skinny bundles services, and thereby undermines the low-cost appeal of these new pay TV packages.

Content owners and TV networks are known for including “minimum penetration policies” in their contracts that mandate certain packages carry their channels. Disney famously requires pay TV providers to include ESPN in its most popular pay TV packages, including basic cable packages. Comcast’s NBCUniversal has similar clauses within its contracts for its networks, including its sports networks.

Comcast, in response to ACA’s accusations released the following statement: “NBCUniversal negotiates in good faith with all of its distribution partners with the goal of making programming available to as many viewers as possible on fair market terms that are consistent with what other programmers offer.”

On the other hand, Charter, which doesn’t own a content business, is trying to keep Viacom from making its content available on cable competitor skinny bundles from the likes of Dish Network, DirecTV Now and PlayStation Vue, which compete directly with Charter’s own service.

To be fair, tensions arose between Charter and Viacom earlier this year, when Charter decided to pull Viacom channels, including MTV, BET and Comedy Central, out of the lowest-cost pay TV package it offers. According to Rosenblatt Securities analyst Alan Gould, that move could jeopardize a sizable chunk of the $600 million of revenue Viacom earns from Charter. However this week Viacom and Charter have agreed to a preliminary deal that would put eight of Viacom’s leading channels into the cheapest package available.

Viacom has found itself between a rock and a hard place. The company’s younger viewer-skewing TV networks have suffered the most from the rise of social video networks, on-demand platforms and mobile video consumption. Viacom’s ratings have been dropping steadily since 2011, as Millennials and generation Z viewers have migrated away from the TV set. That has helped to erode Viacom’s value in the eyes of the traditional pay TV providers like Charter. Under the tutelage of new CEO Bob Bakish, the company has begun embracing newer forms of distribution, including the rise of streaming pay TV services and skinny bundles.

As a whole, it seems the pay TV industry has entered a new phase of panic that’s seeing content owners and content distributors even more at odds with one another. Content owners like NBC and Disney are desperate to keep the linear TV business revenues flowing, while trying to reach fragmented audiences on new platforms; the distributors, on the other hand, are desperate to find new sources of revenue in content distribution, while attempting to avoid cannibalizing their traditional pay TV business revenues. But one thing’s clear: the golden days of pay TV are long gone.