Market Insight

Cablevision further embraces cord-cutters with Hulu pact

May 05, 2015  | Subscribers Only


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Cablevision continues to target 'cord-cutters' head on, announcing it struck a deal with Hulu to distribute the OTT SVoD service to its customers. The deal is a further sign that the cable operator is aggressively pursuing non-pay TV households. Cablevision is in the forefront of acknowledging that cord-cutters and cord-nevers are an ever-growing challenge.

Through the Hulu pact, the cable operator stated that it 'will facilitate a great content experience' for consumers that only access video through the internet. Cablevision becomes the first pay TV provider to distribute Hulu content. However, pricing, availability and Hulu implementation details will come at a later date.

The Hulu agreement comes on the heels of two other moves by Cablevision directly targeting cord cutters: making HBO Now (HBO’s online-only service) available to its internet customers and adding two new bundles: ‘Cord Cutter’ Package and ‘Everyday Low Price’ Package.

Both newly-offered packages do not include any ‘skinny’ or ‘sport-less’ starter cable package, instead they include a complimentary digital antenna to go with the bundled High-Speed Data (HSD). The ‘Cord Cutter’ Package comes with 50 mbps HSD internet, digital antenna for over-the-air broadcast TV, and Optimum Wi-Fi hotspot access for a first year promotional price of $44.90 /mo. The ‘Everyday Low Price’ includes the same package, but with a 5mbps internet and throws in its Freewheel service (Wi-Fi voice service) for the standard non-promotional rate of $34.90 /mo. HBO Now is available as an add-on to these two packages for $14.99 /mo.

While the Cablevision and Hulu pact is the first time Hulu will come to a pay TV operator, major SVoD service, Netflix, has already integrated itself with several pay TV providers. In December 2014, Dish and Netflix reached an agreement that makes Netflix available to Dish customers through an app on second-generation Hoper Whole Home HD DVR. Netflix is also available to many smaller and mid-size pay TV operators through cable provided TiVo powered set-tops provided through: Suddenlink, Cable One, Midcontinent Communications, RCN, Atlantic Broadband, GCI Cable and Grande Communications.

Our analysis

The fact that Cablevision and other pay TV operators have been 'turning it around' in recent quarters doesn't detract from the fact that they are facing an uncertain future. The move to make Hulu subscriptions available is an acknowledgement of the changing paradigm of pay TV, and a move to consolidate its position in the New York and New Jersey markets. The move is similar to other operators strategies, like Comcast, who bundled HBO GO with broadband and basic video bundles. However, Cablevision takes it a step further by offering HBO's latest online-only service, HBO Now, to its internet only customers.

Cablevision, like other pay TV operators recognise that change is happening, and in the future US pay TV landscape there are a few possible scenarios which may play out: no significant change to the pay TV landscape, moderate declines in pay TV video subscribers, or a serious erosion  in the number of total pay TV subscribers.

If the pay TV video landscape remains fairly static, with only moderate amounts of cord-cutting, as IHS forecasts today, Cablevision's alignment with Hulu will be icing on the cake. It will secure an alternate source of good will from its broadband only customers while maintaining its current video business. For Cablevision this is a best case scenario, but it may be a bit unrealistic.

Looking at the issue of pay TV cord-cutting from another perspective, it seems likely that true cord-cutting will pick up steam in coming years. It is possible that today’s 100 million pay TV video households could be closer to 90-95 million at the end of 2019, if there are no major changes. In this scenario the alliance with Hulu will be even more important, because even as it manages to increase total broadband subscribers, some amount of additional revenue from Hulu sign ups will enhance profitability.

Our most pessimistic supposition is based on the argument that a significant number of pay TV video households are going to find future ARPUs too unpalatable and disconnect en masse. In fact, the Department of Justice and FCC may be preparing for such an eventuality, having effectively killed the Comcast and Time Warner Cable merger over the combined companies near monopoly of broadband subscribers (those with 25mbit or better connections).

In this scenario it is likely that Cablevision will be reducing cost and looking for ways to increase revenue. It is likely that the number of networks that it operates will shrink if the number of true cord-cutters increases substantially. In this scenario the deal with Hulu will be an even more important for the company.

Geography
USA
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