Time Warner Cable (TWC) has announced its 'TV Essentials' package, a stripped-down version of expanded basic designed to offer cost-conscious consumers a slightly more robust television offering than the basic tier. Most notably absent from the lineup are sports networks and other high-priced fully-penetrated cable networks. Only 12 of the top 20 cable networks are included. Furthermore, no free VOD is available; however transactional VOD is enabled.
TV Essentials is still in the trial phase with limited availability in New York City and northern Ohio. Offered at a teaser rate of $39.99 per month in NYC and $29.99 per month in Ohio, TWC values the tier at $49.99 after the year-long promotional offer has ended. At the time of writing, the package has not appeared as an option for new connections on the TWC website.
TWC openly acknowledges the existence of segment of its customers that is fiscally challenged. In answering the call, TWC is hoping that subscribers will not churn away to satellite or telco-delivered TV.
Reports that DVR enabled set-tops are not available with the service have surfaced, but TWC's 18 November announcement alludes to the limited availability of StartOver and LookBack enhanced TV features.
Two consecutive quarters of total industry subscriber declines show that some households are beginning to reconsider their entertainment choices. While we believe that home entertainment is still focused on the television, the important question is: How are consumers getting content to the TV?
Cable in particular, satellite and IPTV more recently, have been the traditional vehicles for getting content to the TV. However, for many years cable operators like TWC have been experiencing significant quarterly declines in subscribers. DBS operator DISH Network has also experienced declining subscriber count in the past two quarters. The declines being experienced by cable and Dish Network are a confluence of several factors: slowing of household formation, availability of more diverse broadcast slate, and encroachment from over-the-top (OTT) services.
A cable-lite package will have a dual role: to retain current customers and to reconnect those that have churned. But will it be enough to convince consumers that subscription TV remains the most convenient and cost effective way to obtain their in-home media?
Lite packages like TWC's TV Essentials allow the operator to maintain current margins by reducing their carriage fee payment obligations. TV Essentials will not include either ESPN or regional sports networks, the two most expensive forms of cable television programming. In 2010 Screen Digest's US Cable Network Intelligence estimates that ESPN and Fox's regional sports networks together accounted for $4.46 per subscriber per month. Given a 25 per cent mark-up, we estimate that the savings from these two channels alone could save consumers $6.00 on their cable bills.
We believe that by offering lite packages, subscription network operators, their subscribers and content owners will benefit. The upside from lite packages will be twofold: subscribers can pay less and receive the same number of programming hours, while TV operators will be able to sell their services to a segment of society that is becoming increasingly inaccessible to them. Smaller/less-penetrated networks will be able to get wider carriage given that operators will need to fill the ranks of lite tiers with lower priced fare.
As the subscription television business matures, compromise between content creators and subscription television operators is a necessity. By offering lite packages operators may break the vicious circle that has been characterised by increased carriage fees and channel blackouts. If the cycle continues, subscription-TV operators may be forced to significantly reduce the number of channels carried as they continue to pay more for higher priced channels.
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