The Bundle Is Dead!
Long Live the Bundle!

The reports of the death of the cable bundle may be greatly exaggerated. It’s not that we aren’t unbundling—we are—but that a new bundle will soon emerge.

Flowers that look like coaxial cables being cut by hands
Illustrations by Blok Magnaye

In the beginning, there was the bundle. And it was good. Sports, movies, news, and a whole bunch of shows—from music videos to cooking competitions—all delivered to our television screens by cable or satellite, a huge upgrade over rabbit-eared antennas and a handful of national networks. Why settle for a tasting menu when we could sample an entire buffet?

Over time, however, the buffet got bigger. So did the price. Lower-cost Internet alternatives emerged. Americans began cutting the cord. Younger viewers never signed up for traditional pay television in the first place. Today, the Great Unbundling is upon us, a disruptive shift away from the multichannel packages that defined cable and satellite providers and toward a la carte consumption via online streaming services. Eventually, some predict, the buffet will be replaced by tapas. Pay only for the shows and networks you want. Skip the ones you don’t.

Unless that’s not how the future plays out.

The number of cable and satellite subscribing households reportedly has fallen from 100 million to 95 million over the past five years. Six Americans cut the cord every minute. Nevertheless, reports of the bundle’s death may be greatly exaggerated. According to a recent analysis of the television industry conducted by Morgan Stanley, the Great Unbundling of cable and satellite likely will be followed by a Great Re-Bundling of channels and content across a handful of over-the-top (OTT) providers.

“Long term, the majority of U.S. households will subscribe to some kind of bundled TV package,” said Benjamin Swinburne, head of U.S. Media Equity Research for Morgan Stanley and the study’s lead author. “Companies already are trying to re-bundle. What services are in that bundle—and how consistent that is across households—has a lot of questions ahead of it still.”

To understand why tomorrow’s television may look a lot like today’s, start with this: the traditional bundle’s primary problem isn’t the package itself. Rather, it’s the price. The average monthly pay TV bill in 2017 was over $100—a 53 percent increase since 2007, and double the rate of inflation over the same time period.

Some of those costs have been driven by the practice of media companies making package deals with television providers. For instance, if a cable company wants to offer a popular music video channel as part of its standard service, it may have to agree to also offer a less popular sister channel, with the cost of both passed on to subscribers.

The rapid proliferation of sports networks and concurrent increases in broadcast rights fees for leagues and events also has contributed to rapid price inflation. Sports reportedly make up about 40 percent of programming costs paid by cable and satellite providers, and the average pay TV subscriber pays $18.37 a month for sports—up from $2.85 a month in 2001.

By contrast, competing OTT providers are free from those legacy constraints—and as a result, far less expensive. The most successful streaming platform costs between $7.99 and $13.99 per month. Another service launched in 2015 that focuses on live TV channels costs $25 per month and already has 2.3 million subscribers.

By the end of 2018, industry analysts project, American households will have 150 million unique OTT subscriptions.

“The price-value proposition for consumers of the traditional bundle has eroded over time as pricing has gone up,” Swinburne said. “And there hasn’t been enough flexibility in packaging and bundling. That has allowed competing [OTT] services to come around and drive significant subscription adoption at lower price points.”

Yet while streaming services offer lower prices than old-school television, they’re not building their businesses around pay-per-view shows or a la carte channel offerings. Instead, they’re curating and aggregating content. The most popular platform features a broad range of Hollywood movies, network and cable reruns, and original programming. Others tout “skinny bundles” that package fewer of the same channels already available on traditional pay TV.

Across the current OTT landscape, bundling still exists—it’s just leaner, smarter, and more nimble. “As much as we all like to talk negatively about the cable bundle, there was a reason 80 percent of American households paid for it,” Swinburne said. “Consumers prefer bundles. They’re efficient and convenient. They offer simplicity and value.”

In the future, then, it’s unlikely that hundreds of stand-alone OTT providers will survive and thrive: we won’t subscribe to one service for horror movies, another for at-home yoga routines, and a third for housewife-centric reality shows. Instead, the industry probably will be dominated by a handful of very large companies.

Why? Most consumers don’t want to pay for or have to manage dozens of subscriptions. More importantly, digital distribution favors global scale and vertical integration. According to Swinburne, providers who can create their own content like a Hollywood studio, curate and market it like a traditional network, and sell it directly to consumers everywhere like an online retailer will have a major competitive advantage.

The search for that advantage is already driving a wave of media mergers and acquisitions among studios, networks, and cable companies. More are likely. And those future media behemoths will offer diverse, bundle-like content practically by default—thousands of hours of programming across all entertainment types, the better to build massive subscriber bases.

“Families have different tastes in content, and it’s always hard to predict what people will want to watch tomorrow today,” Swinburne said. “But large companies with a lot of money just have more at-bats to figure that out, so you will see significantly more consolidation going forward.”

Over the last two decades, how we consume music has evolved alongside shifting distribution technology—from physical albums and CDs (song bundles) to digital singles (an unbundling) to streaming subscription services (a re-bundling). Television appears to be following a similar path back to the buffet. “We went from broadcast to cable and satellite, and in many ways we are just seeing the next thing,” Swinburne said. “But what doesn’t change is that choice and value resonate with consumers. Ultimately, you’ll have more tailored offerings of live TV, sports, and on-demand programming that are essentially bundles.”