Moffett : Subs Want Discounts, Not Bundles

WASHINGTON — Media research analyst Craig Moffett is not buying AT&T’s argument that it needs to merge with DirecTV to compete for the bundled television, Internet and voice services that consumers ostensibly favor.

In an advisory that makes his views clear from its title, “The Bundling Fallacy,” Moffett, partner and senior analyst at MoffettNathanson Research, pointed to AT&T’s claim in its public-interest filing to the FCC last week that “U.S. consumers prefer to purchase pay TV service in a bundle with broadband connections and access video programming anywhere on any device.”

Yes, Moffett said, but there is a caveat: Customers only prefer bundles at a discount.

He said when he was consulting a large telco he was shown an internal research study that showed customers “overwhelmingly” preferred bundles — at the time local and long-distance services. But when Moffett found that no questions had been asked about price, he repeated the survey with customers forced to make tradeoffs between price and combinations of service.

Turns out the customers did prefer a bundle, at a 20% discount.

“Customers simply assumed that the bundle would be cheaper,” he said. “Absent the discount, the preference for bundles went away. In microeconomics terms, this is clearly not a preference for bundles. Customers were saying, in effect, that they will only take a bundle if they are paid for the disadvantage of taking one.”

Deep discounts would be a tall ask for AT&T and DirecTV bundled service, because their services are over separate networks with different infrastructures and equipment, while cable and telco fiber competitors can add services at essentially zero cost.

AT&T can talk about a “consumer preference” for bundles, Moffett said, “citing the high penetration of bundled customer relationships at AT&T and at cable operators.” But that really is an “overwhelming consumer preference for discounts,” he said.

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.