Dish Network's (NASDAQ: DISH) official unveiling of its over-the-top television service, Sling TV, at CES brought an unexpected surprise for potential subscribers: They can sign up for $20 per month, a price point that is as much as $10 lower than some analysts had predicted.
"Dish's $20 price point for Sling TV is lower than first thought (DISH CEO Charlie Ergen discussed a price of '$1 a day' on the company's 3Q earnings call) and covers only a handful of channels, which makes sense given the cost of programming," wrote Craig Moffett, analyst at MoffettNathanson, in a blog post on Tuesday. "But it takes a meaningful step towards à la carte, at least of a sort."
ESPN is estimated by analysts as the priciest channel on Sling TV's base package, at about $6 per subscriber. (Source: Dish / Business Wire)
To hit that lower rate, however, Dish had to make some programming sacrifices. Subscribers won't be able to get major broadcast networks, meaning they'll need to also rig up an HD antenna to pick up local channels. And while a few popular networks, particularly ESPN, are available at the base subscription rate (dubbed "Best of Live TV" by Dish), customers will need to buy add-on packages to get a few additional channels.
Current Dish subscribers can check out the service for free on Roku 3 devices now through Feb. 3.
Dish's available OTT channels clearly skew to a younger demographic: The $20 rate will give subscribers access to ESPN, ESPN2, TNT, Disney Channel, TBS, CNN, ABC Family, Cartoon Network and Adult Swim, Food Network, HGTV and the Travel Channel.
For $5 more, they can add on a "Kids Extra" package featuring Disney XD, Disney Junior, Boomerang, Baby TV and Duck TV. Or they can add on a "News & Info Extra" featuring DIY Network, Cooking Channel, Bloomberg TV and HLN for $5 more. Or both, bringing their total linear OTT bill to $30 a month.
The pricing is largely due to the licensing costs of each channel, a challenge that Dish Network and other OTT hopefuls, particularly Sony, have faced while building their services. Moffett estimated that ESPN is the priciest channel to license, pegging it at $6.65 per month for each subscriber. By comparison, the cost of the Travel Channel he estimated at 16 cents per sub (allowing a 20 percent premium as estimated by SNL Kagan and a gross margin of about $7).
"Certainly, it's a far cry from the roughly $40 gross monthly contribution of a traditional Pay-TV subscriber. However, the real benefit for Dish would be in successfully upselling the add-on packages with only minimal programming costs," he said.
The Diffusion Group's Michael Greeson sees Dish's "skinny" bundle as a positive step forward for the provider and the TV industry as a whole, which he says is "due for reinvention." He pointed out that legacy pay-TV viewers watch only a fraction of the channels they pay for.
"Per Nielsen, the average TV household has access to an average of 189 TV channels, up from 129 channels as recently as 2008. Unfortunately, the number of channels viewed on a regular basis now stands at only 17," he wrote in a post on the Sling TV announcement.
Even worse, providers that don't adapt quickly to the changing entertainment model are in for very rough times, Greeson predicts. If the skinny bundle proves popular to consumers, he sees a "very stark, binary reality for TV content providers and MVPDs alike. For the content provider it is all or nothing. If your content makes it into a new skinny bundle, you get to keep your existing economics. If not, you get nothing."
Multichannel video programming distributors (a.k.a. pay-TV providers) can still realize positive margins by presenting thinner bundles--in addition to Dish, AT&T (NYSE: T) and Comcast (NASDAQ: CMCSA) have rolled out skinny bundles in the past few months--but not as large as their legacy model once did, he added.
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