Credit: Shutterstock photoAs rumors abound about an eventual Apple (AAPL) TV subscription service, media, fans, and investors alike are salivating over its potential. However, media companies may be getting more than they bargained for.
Deutsche Bank analyst Bryan Kraft believes that these types of newer, over-the-top services which allow users to get a slimmed down package of channels for a smaller price is a double edged sword. He wrote that TV programmers believe these packages could help convince customers into getting a full bundle, rather than using it as a bridge between no package and a full package.
However, if adoption becomes too great, it may hurt more than help. "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," Kraft penned in the note.
There are several over-the-top services already, including Hulu, Sling TV, Netflix, Amazon, PlayStation Vue, and others, but it's unclear what the actual demand is at this point. Certain packages offer certain channels, but not all cater to what everyone needs and wants. Sling TV, for example, has a core package for $20 a month, and offers additional packages for an extra $5 a month. Kraft believes Sling TV would be "positive for TV advertising" if others choose to go their route. A hypothetical situation would be if Apple were to offer a base package and then sell subsequent add-on packages, larger programmers would be able to reap the rewards of better targeted data since they would know who is buying the additional packages, thus increasing the effectiveness of their advertising.
Apple - If more companies moved to a streaming model, Kraft argues this would make TV advertising a better business, since programmers "could sell targeted, dynamically inserted ads into both live TV and content consumed on-demand." He notes not only would advertisers have more opportunities and more demand, measuring ratings would be less relevant - possibly even irrelevant - since back-end data (which Apple is rumored to be offering) could be used for targeting.
With much of the cable bundle still centered on sports and ESPN in particular (ESPN is part of Sling TV, but only as an "experiment," according to Disney CEO Bob Iger), packages with the most sports will likely outperform, Kraft noted.
Kraft also noted that many of the larger media companies who are part of the bundles will get paid in full for their content, and it's possible they will do better with Apple as a partner. "Consequently, we believe that Apple will pay more than incumbent pay TV operators for the same channels," Kraft wrote in the note.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
