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UBS Study Unpacks the Bundle’s Value

As distributors and programmers struggle to create packages of programming that will attract the right audience at the right price point, one constant is beginning to emerge: the traditional bundle offers the best value at the best price.

UBS Securities media analyst Doug Mitchelson probably made the biggest case for preserving the traditional TV bundle last week with a comprehensive look at the value of TV networks.

In a 44-page report, Mitchelson and his team combined survey data with algorithms developed by UBS’s Evidence Lab to create a software program that uses data from the survey, average pricing data from networks and its own survey information regarding such demographic and customer satisfaction data like age, size of household, pay TV status, as subscription video-on-demand services and annual household income to determine the combination of a la carte channels that would satisfy the most consumers.

Applying those factors, the UBS software can calculate 288 quadrillion possible bundles.

The UBS analysts concluded what many others also have in the past several months —the best bundle is the one that most distributors already offer.

But viewers didn’t reach that conclusion easily. UBS surveyed 1,855 individuals in April, ranging in age from 18 to 55 and across income levels. Like many surveys of the bundle conducted over the past several months, respondents were a study in contradictions.

For example, in the UBS survey, nearly 70% of the respondents said they were definitely or probably interested in an a la carte offering; 70% of those same people said they were satisfied with the value of pay TV.

Asked to create their own a la carte packages out of an existing 60-channel expanded-basic offering, their average custom bundle cost $127 per month, or about 20% more than the cost of an average expanded-basic package.

“Overall, we believe the evidence shows that the pay TV bundle is nowhere close to a tipping point, while OTT pay TV services will be challenged to offer a low-priced service that would also be popular,” Mitchelson wrote.

The study also found that so-called cost-conscious viewers are passionate about the TV they watch, even the channels they don’t watch regularly. On average, respondents to the study said they watched 17 to 18 channels (six of which were considered “favorites”), but chose 35 channels in their “custom” packages.

On average, respondents were willing to pay $15 more per month to add channels they did not initially choose in their custom bundles.

Age, not household income, played the biggest role in the respondents’ desire for a la carte. According to UBS, about 67% of households with incomes of $55,000 per year or less were interested in a la carte, as were 69% of households with annual incomes of $55,000 to $99,000 and 71% of households with more than $100,000 in annual income.

By contrast, about 75% of respondents aged 18-34 would definitely or probably be interested in a la carte, while 62% of respondents aged 55 or older were interested.

Millennials have long been the target of over-the-top and skinny bundle services, but have been reluctant to pay for TV, instead opting to watch online video and cheaper subscription demand services. While that separation from reality appears to be evident in the UBS survey — younger respondents generally wanted more channels for less money — there seems to be some light at the end of the tunnel.

At the Multichannel News/Broadcasting & Cable Next TV Summit in San Francisco last week, Sling TV senior vice president and chief product officer Ben Weinberger said millennials begin to warm up to the idea of paying for television at the ripe old age of 23.

That, said Needham & Co. media analyst Laura Martin, is good news for pay TV providers. “That’s a hugely positive surprise,” she said.

All this leads to what Mitchelson calls the real problem for cable, satellite and telco TV operators.

“Overall, consumers clearly want more choice, but even if they were given greater packaging flexibility we believe consumers would invariably end right back where they are now, in the big pay TV bundle,” Mitchelson wrote. “This suggests the industry has a significant marketing problem more than it has a price/value issue.”