As pay TV takes a hit, Dish Network's Sling TV is fighting back with 'synthetic' bundles to retain subscribers
- A Sling TV exec said the company plans to partner with peer companies to offer bundles to customers.
- While companies like Comcast can offer broadband and video to customers at a reduced price, Sling and parent company Dish only has a video product.
- The company said it would target regional broadband operators, with "many" partnerships to be announced in the coming months.
- Sling hopes such bundles will help counter a recent decline in subscriber growth.
For the pay-TV industry that just experienced its worst subscriber losses in history, the bundle is king.
Companies from AT&T's DirecTV to Comcast lean into their broadband and mobility services, offering price incentives when customers sign up for multiple items. But Dish Network's Sling TV, the largest service that provides live TV over the internet, only has a video product. The company plans to change this in the coming months.
"I think, over time, the fact that we don't have broadband means that we'll probably partner with a lot of broadband players," Warren Schlichting, president of Sling TV, told Busines Insider. "It [would be] a synthetic bundle, so it's their broadband and our video. They get out from under the burden of these crazy programming prices and still have this stickiness just using our video."
The company has already formed partnerships with RCN Corporation, Wave Broadband, and Grande Communications, and plans to seek others with additional regional broadband operators. There are "many more in the works" that will be announced in the coming months, a Sling spokeswoman said.
The goal of these third-party bundles is to stymie the churn that all pay-TV operators experience. In the third quarter of 2018, Dish had its worst subscriber loss yet, with 367,000 satellite TV customers dropping the service. Sling added 26,000 subscribers in the third quarter, continuing a declining trend in new adds through 2018. In the first quarter of the year, Sling added about 91,000 subscribers and in the second quarter, it added about 41,000.
"The Dish video business has been struggling because they don't have a broadband connection," Macquarie analyst Amy Yong told Business Insider.
Broadband growth offsets video losses at cable companies
Cable companies have also seen declines in their TV subscriber base. Comcast lost 106,000 cable subscribers in the third quarter. But they are able to retain the overall customer relationship because the have a broadband offering. The company actually added customer relationship in the third quarter, with 363,000 broadband additions.
Cable companies can also control margin losses because they can charge more for standalone broadband prices when customers unbundle video packages. And when users drop their video service, cable providers can make up for that revenue loss by shedding the programming costs it takes to provide subscribers with content, like ESPN.
Read more: A new survey says cable will win the battle for broadband customers
Dish and Sling see an opportunity to create third-party bundling relationships.
"The margins on video are shrinking. The margins on broadband are enormous and over 90 percent," Schlichting said. "I think you'll see more as programmers continue to jack up prices. The smaller broadband players for sure are already losing money on video, so there's a chance that they could outsource that to us in the larger players. It's only a matter of time before they eventually give up the video business in favor of broadband."
Challenges lie ahead as a result of programming blackouts
Of course, that means Sling needs to work hard to retain its video customers. Sling thinks it stands out from competitors in the vMVPD space in that it's still one of the cheapest digital live TV offering. Its cheapest option, at $25 a month, includes ESPN, CNN, and TNT, which typically runs in more expensive tiers at other vMVPDs.
It's able to keep costs down by omitting local broadcasters like ABC, CBS, and Fox, which typically have have high programming fees. Instead, the company advises customers to access these stations for free over the air using an antenna.
"I think they've been the most aggressive in getting the programming piece thinner and thinner," Yong said.
But Sling also faces challenges in retaining video customers as a result of blackouts from contract disputes with premium programmers like HBO, Cinemax, and Spanish-language programming channel Univision. The declining subscriber figures may worsen by year end.
"If anything, we might see subscribers deteriorate more in the fourth quarter," Yong said.