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NAGRA Blog: Are skinny bundles the future of the pay-TV industry?

By Simon Trudelle, Senior Director Product Marketing

Newer consumer habits are increasingly moving away from traditional pay-TV service offerings and linear broadcasting. 

Subscribers seeking out alternative ways to enjoy content – now widely referred to as "cord-cutting” – has caused a slowing of pay-TV revenue. This in turn has forced pay-TV providers to seek out a number of new solutions to boost revenues. One innovation in particular has gathered traction in advanced markets – skinny bundles.

Now, skinny bundles aren’t simply responding to the increased demand for VOD. An important element of their appeal is that they apparently strike a balance between OTT services and linear broadcasting. For those who don’t want to pay for countless channels they don’t watch, but also don’t want to miss out on the thrill of live sports and certain linear broadcasts, the skinny bundle appears to offer a happy medium.

And although skinny bundles reduce ARPU, pay-TV providers are now looking to them as a method of maintaining those subscribers that would otherwise “cut the cord.” It could also prove effective in expanding the total market, acquiring subscribers who would be unable to afford the full subscription fee (or simply be unwilling to pay for it).

Of course, this isn’t necessarily an issue of cost alone – this could also be key to pay-TV providers creating a more personalised service. And with the help of smart interactive marketing, skinny bundle customers could also be enticed to subscribe to additional content packages, driving up ARPU over time.

But what would a skinny bundle landscape look like?

Well for starters, it may create more intense competition between content producers and broadcasters, as they battle it out to make the cut for skinny bundle subscribers. Unfortunately, this may marginalise lower-budget niche content as it struggles to compete with higher-budget premium content. The effect on live sports may also be significant – many skinny bundles, if they want to remain affordable, may have to cut down on expensive live sports content.

When it comes to pricing, the effect may be similarly transformative. 

Laurent Perchais, former Head of Strategy, Content Division, Orange, speaking as part of the Pay-TV Innovation Forum, suggests, “the pricing model behind [skinny bundles] might be similar to the Oyster Card used in the London Underground system, where you get volume discounts and have a cap on total fees. This might help to avoid consumers feeling they pay for something they do not watch, which currently happens with big TV channel bundles.”

But for now, this remains more of an issue for advanced markets that developing markets will learn from in the future. Shad Hashmi, Vice President, Digital Development Global Markets & Operations, Asia, BBC Worldwide, says, “There are a lot of lessons [in advanced markets offering skinny bundles]. Maybe new-age channel bundles will change, but the concept of a bundle of channels still remains strong and valuable. However, it has to be based on consumer needs and that’s what will drive innovation in the market.”

In these relatively early stages of skinny bundles, it’s difficult to make too many predictions about their success. But with revenue growth slowing across the industry, the onus is on pay-TV providers to start taking practical steps towards this kind of business model innovation that will attract untapped consumers. This also implies investing in multi-journey user experience solutions that make it possible to offer both skinny and full bundles from the same versatile backend platforms, adapting to subscriber needs.

Skinny bundles may not prove to be the long-term future of the industry, but they will at least offer a short-term option for providers – both for retaining subscribers who are increasingly having their heads turned by other services and acquiring new ones at an affordable cost.