Apple TV: Are the Media Companies Playing With Fire?

Are the media companies playing with fire?

The answer to this question lies in whether the new skinny pay TV bundles are cannibalistic or additive to pay TV profit pools on a net basis. The programmers seem to believe that it is, or can be, additive if done properly, which is why they’ve decided to participate in Sling TV and might participate in an Apple TV service. They believe it could be an opportunity to monetize some of the ~18M TV households that don’t subscribe to a pay TV service today, which we forecast to grow to 31M by 2020. Furthermore, they believe skinny bundles are an onramp to up-selling customers to the full pay TV bundle.

To the extent this hypothesis is incorrect, and the skinny bundle proves to be cannibalistic, we think that programmers will be able to exercise protections built into their carriage agreements to limit damage (e.g. limits on subscriber counts). We think that unchecked cannibalization of pay TV by skinny bundles would create challenges for all of the TV-focused media companies, although for some more than others, because the big bundle underpins the economics of most of the industry (including syndication markets and even movie production).