Streaming Bundles Have Money-Saving Appeal, But In The Long Run They’re Bad For Consumers – Guest Column

Editors note: Multiple-time founder and media exec Joe Marchese is co-founder and general partner at venture capital fund Human Ventures. Jonathan Bing is a communications executive who has held senior roles at Netflix, Vice and Fox.

The much-anticipated collapse of the cable bundle took a lot longer than everyone thought and now seems ready to happen all at once.

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At least that was one of the leitmotifs this earnings cycle as one media CEO after another talked about spinning off or disposing of cable networks declining in value (and Comcast-NBCUniversal actually became the first mover). Yet, at the same time, the race is on to rebuild the bundle. The market is being flooded with a bunch of “all-in-one” pay-TV subscriptions and entertainment bundles like Comcast’s StreamSaver or sports bundles like Venu. But while these packages promise savings of a few dollars a month, unless the advertising model fundamentally changes, the economics of these new bundles will never add up to what the original bundle offered – and that’s bad news for consumers.

For starters, premium streaming bundles can’t hold the same amount of ads as cable. Nor should they. A decade ago, when more than 100 million homes still subscribed to linear TV, networks began filling their programming with more and more ads. It was a grab for incremental dollars that would eventually be one of the death blows to the cable bundle. As 10 minutes of ads per hour turned into 15 and then 20, TV went from capturing people’s time and attention to strip-mining their time and attention. The heavy ad load had a toxic effect on the TV ecosystem. It drove away viewers, particularly younger viewers who fled to streaming content that was increasingly ad-free.

The lighter ad load for streaming would seem to make viewing more tolerable, and yet the ad experience can be even worse. As Mike Shields recently reported, more often than not, in many ad supported streaming environments viewers are “seeing the same ad over and over, or being interrupted mid show or video with a jarring ad break.” This is because network and cable television was crafted with commercial breaks in mind. And the commercial breaks were programmed with a frequency that was far less of an issue, as people were accustomed to flipping channels, with that behavior priced into the TV ecosystem.

In the intervening years, the advertising industry has pulled away from TV, as many brands shifted their spending to “performance” marketing on digital platforms. Today nearly half the trillion dollars spent in the global ad market goes to Alphabet, Meta and Amazon, and the digital spending is only going up. No amount of advertising on streaming platforms will recapture the dollars migrating to digital.

The cable bundle, for all of its flaws, gets a bad rap today. Creating great content is an expensive, long-lead investment. For the networks, bundling that content provides economic security and an insurance policy against creative risk-taking, which makes it easier to take the kind of big swings that lead to great TV. In the golden age of cable, the bundle gave TV networks a highly profitable and stable revenue stream including affiliate, retransmission and advertising fees, in some cases packaged with broadband and cell phone services. All that cash underwrote a robust creative ecosystem which gave rise to some of the greatest TV series in history from The Sopranos to Breaking Bad.

One longstanding complaint about the “just-one-bill” cable model is that you end up subsidizing channels you don’t want. But the simplicity and convenience of having everything in a single package generally made it an acceptable trade-off. Ten years ago the argument was made about “why you should shut up and love your cable bundle.” And that argument basically breaks down to this: Everything is a bundle, it is just a question of how big. You’re comfortable paying for the whole thing because the totality of the choices makes it worth it.

Today a lot of the best media still comes to us as a bundle. Spotify is a bundle. The New York Times is a bundle (half its subscribers also pay for some combination of The Athletic, Cooking, Games or Wirecutter). Even Netflix now resembles the very model it set out to disrupt, complete with live sports and advertising. “Programming for such a large, engaged audience, with so much variety and great quality, is hard,” the company wrote in its most recent investor letter. “It’s why streaming services which lack our breadth of content are increasingly looking to bundle their offerings.”

The golden age of streaming has produced amazing content, but at a steep financial price to media companies. In an effort to win at streaming, they’ve broken the economics that underwrote their business in the first place. And now, the industry will have to adjust to a new normal.

For the new normal to be economically sustainable, streamers need to do a better job of optimizing their viewers’ time and attention. That means fewer, better ads that are more fairly priced. It means new ad currencies that accurately measure engagement across platforms. And it means true innovation in advertising, from bold new formats to more adventurous brand storytelling to using AI more effectively for personalized and localized ads. And it means rebuilding the “bundle” in a new form, which is the holy grail for even the biggest of platforms. Everyone, from Alphabet to Apple to Amazon, wants to be the definitive guide to the world of entertainment choices. The winner will offer viewers a fair value exchange to keep them coming back, and will optimize discovery of the greatest range of entertainment. But the path from here to there has some major obstacles, and will come at significant cost to the entertainment industry and consumers for the foreseeable future.

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