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Can ‘skinny bundling’ your most watched networks save money?

McClatchy-Tribune Information Services

February 29, 2016


PITTSBURGH — Chuck Hoover and his wife pay more to Verizon every month not to subscribe to its cable television.

If this makes no sense, welcome to the complex and overwhelming Wild West of content providers, "skinny bundles" and a la carte streaming services.

Early in their marriage, the Hoovers, who live outside Pittsburgh, were offered Verizon cable and Internet. This is known as bundling, and cable providers often throw in landline phone service as well. In many cases, these services offered separately cost more than the bundled price, which is how the Hoovers — who had no desire to purchase cable TV — wound up paying about $5 a month more for just Internet than if they’d gotten the Internet-cable bundle.

Broadband bundling is a one-price-fits-all time-tested model. It’s easy to sign up, tough to cancel. Subscription prices for such bundles have soared over time, often topping $100 a month.

Mostly because of price, the past five years has seen a growing number of people who are "cord cutters" (those who give up cable) and "cord nevers" (those who never had it in the first place). Many people use their cell phones exclusively, so goodbye, landlines.

About 24 percent of Americans have no cable or satellite service. And according to a December 2015 Pew Research Center report, home broadband adoption has plateaued, with 67 percent of U.S. households subscribing, down about 3 percent since 2012. A growing number of folks, such as the Hoovers, subscribe only for the Internet.

And when it comes to cable subscription, subscribers are demanding more say in what’s available in those bundles. According to a 2014 Nielsen "Advertising & Audiences" report, the average American home receives 189 channels. We watch just 17 of them.

Consumers must pay for the other 172, regardless of whether they watch. Imagine going into a grocery store to buy apples but accruing a $20 tab because you are required to buy milk, detergent and dog food as well.

It’s little surprise then that streaming services are picking up steam. The biggest, including Netflix, Hulu and Amazon Prime, now are producing quality original content to complement a vast array of TV and movie choices. But there’s also a surge in stand-alone versions of former cable-only and broadcast networks such as Univision, HBO Now and CBS All Access.

Verizon FiOS introduced a "skinny bundle" last year that promised subscribers more choice and lower fees. In an investor event statement, Fran Shammo, Verizon executive vice president and chief financial officer, said that about a third of Verizon’s subscribers have opted for Custom TV.

The Verizon skinny bundle works this way: According to its website, customers can pay $79.99 a month for about three dozen basic cable and broadcast channels. Then they add two of seven "add-on" packages that comprise themed networks such as "sports" or "news and info."

But that $79.99 a month figure is deceptive. It includes Internet and digital voice, and bumps up to $99.99 for the second year of the two-year contract. By the time equipment fees are thrown in, not to mention sundry taxes, that skinny bundle could wear the same dress size as a standard Verizon subscription. Disney, which owns ESPN, is in a legal dispute with Verizon, which does not offer the sports giant as part of its standard skinny bundle tier.

This is significant for Disney because ESPN has the most expensive network carriage fees in the business. It costs more than $6 per subscription per month for cable providers to carry it, which is passed to the consumer. And because, by some estimates, only 20 percent of cable subscribers actually watch ESPN, having it on the basic tier is a nice cash cow for Disney.

Shammo said Verizon has been disappointed few subscribers are adding optional $10-a-month bundles to Custom TV. And, of the seven add-on packages, sports options don’t appear to be a priority, he added.

But sports are still the carrot to the cable stick when it comes to live network broadcasts. Although CBS All Access has a great deal of archived and original content, for example, it does not include NFL football.

Ashley Chase is in sports media relations at Robert Morris University. As such, her interest in following her favorite teams goes beyond a personal interest. As a Verizon Custom TV subscriber, she has purchased the sports packages.

"After working in sports media for several years, I find myself more of a fan of the athletes than any particular team," she said. "For me, it’s more fun that way. That’s a big reason why I like having NHL Network and NBCSN, giving me access to other teams around the NHL and a variety of international competitions like the Olympics and World Juniors."

Chuck Hoover said most of his peers who still subscribe to traditional cable do so because of sports. "For now, people say, ‘I can’t get rid of it, that’s how I get ESPN.’"

For the tech savvy, cable is not a requirement to watch many sporting events, not to mention local programming; an over-the-air HD antenna can catch the signal. Dave Culyba and his wife, Sabrina, live in Pittsburgh. They employ a bevy of platforms to watch without cable: a Roku box for streaming, an antenna and a Mac mini hooked to a TV.

"Neither of us wanted cable enough to pay for it. … Our push was to only have Internet and nothing else, something the cable-phone companies make rather difficult," Culyba said.

They have Netflix and Amazon Prime, and they pick up PBS over-the-air for "Downton Abbey" and kids’ shows for their young daughter. When "The Daily Show With Jon Stewart" was in full swing, they were regular watchers through the Comedy Central website.

But for many who grew up with cable television, breaking up is hard to do.

"There is phenomenon called ‘loss aversion,’ and people are much more averse to give up things they are used to than getting something new," said George Loewenstein, a professor of economics and psychology at Carnegie Mellon University. Loewenstein, who has a doctorate in economics, is an expert in the how and why of spending.

What surprises him is that many people who could save money by renegotiating their cable contracts hesitate to do so. "They just think that whatever they’re offered is what’s out there. But that’s not true. All of these companies offer all these different deals, and if they sense you might not sign up, all of a sudden they’re going to pull another deal out of the bag."