Market Insight

Dish launches skinny bundle, Flex Pack, to reignite interest in its satellite service

August 15, 2016  | Subscribers Only

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Dish Network debuted its traditional TV skinny bundle package, Flex Pack, in an effort to reignite interest with cost conscious customers. The introduction comes at a time when Dish continues to lose pay TV subscribers at an alarming pace. The company suffered its worst video subscriber loss in its history in Q2 2016, losing 281,000 video subscribers, including its online video Sling TV (online only skinny bundles) additions. Dish’s Flex Pack has themed add-on packages available which allow for further customization.

Dish’s Flex Pack starts at $29.00/mo and consists of a sport-less base package of over 50 channels that does not include the Big Four broadcast networks. Notable channels in the base package include: AMC, TNT, USA, HGTV, E!, Cartoon Network, History, A&E, CNN, Discovery, TBS, Food Network, FX and TV Land. Like Dish’s other satellite offers, Dish Flex Pack requires a 2 year commitment.

Themed add-on packs, ranging from $4/mo to $10/mo, are available to expand the base offering. Local channels like ABC, CBS, Fox, NBC and Univision are available in a $10/mo add-on package. Sports channels such as ESPN, ESPN2 and Fox Sports 1 are available in a $10/mo add-on. Other themed add-ons include Variety Pack, Kids Pack, News Pack, Heartland Pack, Regional Action Pack and Outdoor pack. Premium channel add-ons can also be added to Dish’s Flex Pack. Flex Pack comes with a standard Dish receiver, free installation and a two-year price guarantee. The Hopper is available for an additional $10/mo.

Dish’s offering is reminiscent of when Verizon launched its Custom TV offering in April 2015. At launch, Custom TV did not offer ESPN in the base package, and was relegated to a sports add-on pack, which sparked the ire of Disney, and forced a lawsuit. Verizon later revamped the offer to appease Disney, by including ESPN in one of its base Custom TV offers.

Our analysis

The move is a reversal of the company’s recent strategy, focusing on higher value customers for its traditional satellite offering.  It is understandable, especially given the company's recent quarterly pay TV subscriber losses. What’s interesting is the fact that the formation of skinny bundles on the traditional satellite platform is tantamount to an acknowledgement that Sling TV hasn’t been as effective as once hoped. It remains to be seen whether or not putting ESPN and other sports content in an add-on pack will be acceptable to content owners who rely upon the channels for the majority of their revenue.

With Flex Pack, Dish is also filling the price gap between Sling TV and its more traditional macro bundle satellite TV offers. Dish is targeting customers who are looking for a more traditional TV experience but at a price point that is less than Dish’s $54.99/mo starting macro bundle package. The add-on options for Flex Pack provide a level of customization and flexibility not found in Dish’s other satellite offers.

Dish’s decision to put local channels in a separate add-on pack significant raises the chances that customers will add the $10 local channel add-on pack, raising the price to $39.99/mo. Local channels are still a fixture in the average TV household and is still a rather important aspect in TV consumption. If a Flex Pack subscriber is looking for channels beyond the core package, such as Fox News, Disney Channel and ESPN, three separate add-on packs of $10/mo would be required, pushing the price to $69.99/mo, above Dish’s traditional satellite offer of $54.99/mo. For consumers, the add-on packs are a great flexible option to have, however, the value proposition of Flex Pack diminishes as more add-ons get added. But for Dish, these add-on packs are a great margin booster that helps offset the thin margins of the core pack.

Dish’s historical niche has been the lower end of the satellite market, and the company has been successful in exploiting the market. However, the company is a victim of its own success. By focusing on the lower end of the market it left itself exposed when the landscape of pay TV began to shift away from pay TV adoption for newly forming households. At the same time, some of the company’s base of cost conscious customers began to cut the cord.

When the company retooled itself in 2015 by launching Sling TV it believed that it could mitigate the number of its customers completely leaving the company, by maintaining some form of relationship. At the same time it changed the focus to higher value customers for its satellite service, a move which sent its cost conscious base fleeing for other options. In Q2 2016 the company reported a loss of 281,000 video subscribers, across its satellite and Sling TV services. IHS believes that the core satellite business lost more than 330,000 video subscribers in the quarter, the worst quarterly loss ever for the company.

By offering a skinny bundle on the traditional satellite platform the company is attempting to reverse the trend of loss. It is a tacit acknowledgement that transitioning online video to the primary screen in the house is difficult, and beyond the capability for a large number of potential Sling TV subscribers. The lack of inclusion of sports content in the basic tiers of service doesn’t surprise, the margins on a base skinny bundle package are already thin. The distinction between Sling TV’s inclusion of ESPN on the basic tier and Flex Pack is that Sling TV doesn’t require a truck roll or infrastructure support.

Dish, like Verizon, realized that including ESPN and other sports content on a sports tier makes better sense from an economic standpoint. Not including ESPN in the basic tier is a 180 degree change for the company which opted to launch Sling TV with the channel. The launch of Flex Pack without sports on the basic tier is also a reactionary measure to the increased pressure from AT&T’s DirecTV.

AT&T is playing its hand effectively, DirecTV continues to add subscribers at a steady pace, growing by 342,000 in Q2 2016. It isn’t correct to attribute the entire AT&T U-verse loss of 391,000 video subscribers in Q2 2016 to the transition from IPTV to satellite, cable players are benefiting from AT&T’s change in focus too. It is more likely that a number of U-verse customers departed for DirecTV, and that DirecTV converted a number of Dish subscribers as well.

Aside from competition, Dish also has to deal with the nearly never ending spate of carriage disputes. The latest dispute, over local broadcast station retransmission fees, has resulted in the blackout of Tribune stations from Dish’s services for more than a month (at the time of writing this report). It remains to be seen if Dish has all the tools it needs to be successful, and to reverse the trend of subscriber losses. The company will likely have to absorb some of the content costs with lower margins on its non-skinny bundles, and avoid contentious negotiations with programmers. If there isn’t a directional change, a long slow process of core video subscription losses is inevitable.

Dish Network
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