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CandW discuss Time Warner and the Hulu skinny bundle

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Time Warner took a 10% stake in Hulu and says all its premium TV properties will be available live and on-demand in the impending Hulu skinny bundle. Why would TWI sign up with Hulu and compete with its best customers, the pay TV operators?

Chapter 1: The Hulu Time Warner Inc. deal (1:10)

Time Warner Inc. (TWI) purchased a 10% in Hulu for $580M. That values the streaming site at a very healthy $6B. TWI also pledged to make all of its premium TV networks like TNT, TBS and Cartoon Network available in the Hulu skinny bundle. Hulu is scheduled to make this available early next year. TWI content is already part of Sling TV, Dish Networks skinny bundle.

Chapter 2: Why the Hulu skinny bundle is a risky play (2:55)

Will is concerned that the content owners are planning to compete with their best customers, the pay TV operators. He is not clear that the economics of a direct model will be as attractive as the wholesale model they primarily use today. He also wonders how skinny, and expensive, the bundle will really be. With so many content owners vying for position in the base package, it could end up being fat. I recently analyzed Comcast’s Q2 results and found that over 50% of the pay TV subscription goes directly to content providers in license fees. This shows that putting all the channels in the bundle would make it very expensive.

Chapter 3: Why the Hulu skinny bundle is the right move at the right time (6:35)

I think that Hulu is a perfect vehicle for content providers to try new models. A couple of years ago Time Warner Cable was trying to buy a substantial ownership stake in Hulu. Had that happened, it would have made a lot of the experimentation that Hulu is engaged in impossible.

Providing an aggregation point for TV content online is a great move. It will be a magnet for Internet users. Content owners can experiment with different models and see all the data on the success or failure of the approaches. This flexibility and freedom is well worth the risks of competing with pay TV operators.

Chapter 4: How skinny will the Hulu bundle be (12:30)

How much flexibility will there be in the core bundle offered by Hulu? This is a key question which is far from clear today. Will doesn’t think there will be much flexibility. He thinks if Hulu offers a lot of channels a la carte, operators will want the same rights so that they can remain competitive. As well, he is concerned that when consumers add all the channels they want any cost savings will evaporate.

I argue that even pay TV operators are trying out the skinny bundle approach, so change is coming to the industry anyway. I am convinced that Hulu is a perfect platform for content providers to take control of their destiny. With it they will see precisely how well the different price points work, and will be able to react accordingly.

Chapter 5: Skepticism about the skinny bundle (19:25)

Will points out that growth at Sling TV seems to have slowed. He says if that persists it casts doubt over the whole skinny approach. I still think the approach has a lot of merit. The idea that people have to pay for content that they don’t use in the big bundle is changing. This shows that the economics of the TV business are changing and that the only guarantee is that good content is valuable.


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