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In Defense of the American Pay-TV Bundle

By Jason Kohn, Contributing Columnist

It’s not a popular opinion. On the internet, it goes over about as well as saying you hate kittens. But I have to say it: I love the cable bundle.

I realize this goes against the grain. Find any article on the web about bundling of TV channels, and at least 75% of the comments on it will be irate—people fulminating over the injustice of paying for channels they don’t watch, railing at networks for not selling their shows online the day they air, advocating that the entire pay-TV ecosystem be blown up once and for all.

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The Business Case for Unbundled IP Video

As I mentioned in an earlier post on the recent market study of U.S. pay-TV subscriber needs and wants, the segmentation of the video marketplace potentially  brings both new challenges and opportunities for incumbent service providers.

That said, the debate around what to do about the unprecedented growth of the Netflix phenomenon now seems to be a moot point – as incumbent pay-TV service providers openly acknowledge its disruptive impact on the traditional video entertainment industry. And, now they’re proceeding with their plans to execute their long-awaited counter strategy.

Clearly, 2011 could prove to be a pivotal year for testing new business cases, as the marketplace becomes more fluid and is subject to further significant changes that are on the near horizon.

While it’s perfectly understandable that incumbent pay-TV service providers might prefer to bundle a Netflix-like, on-demand IP video service offering with their standard digital cable tier subscriptions, let’s remember that this is but one potential scenario.

Revisiting the results of the Cisco market study, it’s interesting that note that – by far – “the most likely motivation to pay for an online video package…” is a low price point. Call this the “value-based” market segment, if you will – it likely includes some current subscribers and previously lost customers. To win-back these prior subscribers, such as those that are looking at more of an iTunes or Hulu approach to catch up on their TV, an unbundled IP VOD offering by the provider could be very attractive.

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