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https://www.wsj.com/articles/as-streaming-services-amp-up-not-all-tv-channels-make-the-cut-1494766801

BUSINESS

As Streaming Services Amp Up, Not all TV

Channels Make the Cut
Cord-cutting is at record pace as viewers ditch pricey pay-TV subscriptions and seek online alternatives

Animated characters from the Paw Patrol program. PHOTO: NICKELODEON EVERETT COLLECTION

By Shalini Ramachandran
Updated May 14, 2017 6 46 pm ET

The surge in cord-cutting has set off a race among media companies to be included in new
“skinny” streaming bundles that are reshaping the American television landscape.

Cord-cutting reached a record pace in the first quarter as consumers continue to ditch pricey
pay-TV subscriptions and seek more online alternatives. Over the past five years, nearly 8
million U.S. households have abandoned traditional pay TV or eschewed signing up entirely,
according to Wall Street research firm MoffettNathanson.

Earnings reports from Discovery Communications Inc. and Walt Disney Co. last week
underscored the trend, stoking investor worries about the long-term sustainability of the cable
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subscription revenues that have long powered media companies’ growth.

To drive new revenue, media companies have been hustling to get their flagship channels into
new streaming bundles. But new entrants’ preference for slimmer, cheaper packages is
splintering the age-old cable bundle.

With Dish Network Corp. DISH -0.54% ’s Sling TV, AT&T Inc. ’s DirecTV Now and Sony
▲

PlayStation’s Vue being joined by live TV services from Hulu and YouTube TV in the past couple
of months, some clear network winners and losers are beginning to emerge in the new
streaming pay-TV world.

Major channels such as TNT, Nickelodeon and Discovery Channel are finding themselves left
out of some new services—a stark departure from traditional cable and satellite TV providers
that have long carried every major network to stay competitive with rivals.

“This is when the marketplace will separate the wheat from the chaff,” said CBS Corp. Chief
Executive Leslie Moonves earlier this month.

Broadcast networks and sister cable channels owned by Disney, 21st Century Fox and
NBCUniversal are in all of the new streaming bundles, while cable channels from the likes of
Viacom Inc., Discovery and A+E Networks are having more trouble getting in. That is in part
because some of the new entrants prioritized broadcast and sports networks over purely
entertainment channels.

Still, Time Warner Inc. ’s networks can’t be found on YouTube TV, even though its TNT channel
carries NBA and college basketball games.

CBS, whose broadcast network isn’t carried by Sling TV or DirecTV Now, has poured resources
into its own streaming service and hasn’t prioritized gaining carriage on every new offering,
holding out for better terms.

The cord-cutting phenomenon traces its roots to 2010, when pay-TV growth dipped below new
household formation for the first time, according to MoffettNathanson. From a peak of roughly
100 million homes, pay-TV subscriptions declined in a slow trickle for years until an
acceleration in recent quarters. The firm estimated that traditional pay-TV subscribers
declined a record 2.4% in the first quarter from a year earlier.

AMC CEO Josh Sapan estimated earlier this month that Sling TV, DirecTV Now, YouTube TV
and Sony have added between 2 million and 2.5 million customers so far, mitigating but not
making up for defections.

Adding to pressure on networks, some consumers are cord-shaving, or downgrading to cheaper

packages from traditional operators. Several traditional operators’ slimmer bundles leave out
some well-known networks such as ESPN and Nickelodeon, for instance. ESPN said that if those
bundles grew in popularity to become the operator’s most or second-most distributed
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 packages, ESPN would have to be
included contractually.

The confluence of events has left

media companies scrambling to
explain their plans for growth to
Wall Street.

After Disney reported a slightly

increased pace of subscriber
declines at ESPN, Disney CEO
Bob Iger promised new
streaming services focused on
certain sports or teams. Given
that ESPN’s flagship
programming won’t be offered,
those services are “likely to be a
niche offering, which may limit
the benefits,” wrote Barclays
analyst Kannan Venkateshwar in
a research note.

Over the last several decades, TV

programmers and cable
providers invested together to
ride the growth of U.S.
subscriptions. Pay-TV
distributors asked media
companies to create more
channels, which helped
distributors justify annual rate
increases and handed more
profits to media companies.

Fierce competition among cable,

satellite and phone companies
benefited TV networks because
no distributor wanted to be stranded without a set of networks offered by a rival.

Now, new entrants like Hulu are prioritizing entry retail prices under $40 a month, even if
it means forgoing channels like Nickelodeon or AMC. Instead, they are touting technological
differentiators such as personalization and vast digital video-recording storage.

/
During talks with cable programmers like A+E and Discovery, YouTube TV said it would only
offer certain networks in a more expensive tier—a move that would have triggered contractual
clauses with traditional distributors to allow them to do the same, some people familiar with
the talks said. “The downside risk was so enormous that all of us independently said ‘no thank
you,’” one media executive said.

Moreover, the streaming cable-TV services aren’t as concerned about profits yet. Analysts say
it is unlikely YouTube TV can make money off subscriptions alone at its $35-a-month price. It
may be more interested in making a play for premium TV-ad inventory.

For Hulu, creating competition in the content marketplace

THE WEEK AHEAD benefits its owners— Comcast Corp. , Fox, Disney and Time
Warner—even if it loses money.
•Television’s ‘Upfront’ Season Opens
Some investment bankers say that the new entrants’ “Swiss
cheese” model for content is dampening prospects for mergers
among big media companies, which are loath to acquire any
straggler cable networks that could weigh down carriage negotiations.

Companies including Viacom, AMC, Scripps, A+E and Discovery that have been left out of
certain streaming bundles are advocating for traditional pay-TV providers to offer an
entertainment-only bundle priced between $15 and $20 a month with no expensive sports
channels.

Charter Communications Inc., the second-largest cable company, is deeply engaged in those
discussions, some media executives said, and could launch such a streaming bundle to
customers in its service areas by year-end.

Executives said a tech startup called Philo, which has been offering streaming services on
college campuses, has also been in detailed discussions about creating such a package.

There should be a bundle

MORE ON THE EVOLUTION OF TV between $8 and $12 a month,
said Discovery Chief
•CBS Goes All In on ‘All Access’ (Dec. 14, 2016) Executive David Zaslav last
•Small Cable Channels You Pay for—but Don’t Watch—Are Dying (March 21, 2017) week, because the current
• TV Channels Costing the Most Per Viewer streaming bundles are
“overstuffed turkeys.”
• Which Cable Channels Can Justify Their Cost?

Write to Shalini
Ramachandran at
shalini.ramachandran@wsj.com

Appeared in the May 15, 2017, print edition as 'TV Networks Hustle to Join Stream.'
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Copyright © 2019 Dow Jones & Company, Inc. All Rights Reserved

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