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New content and data services are challenging traditional broadcast and cable networks like never before.

The media industry’s content and platform fragmentation is now being compounded by consumer desire to aggregate the disparate parts, resulting in a shift from media bundles based on price or product to ones predicated on customer experience.

Here are six factors forcing providers to rethink their media bundles.

Factor #1: Re-bundling is riskier than unbundling

TV networks were the original bundle of video content, followed by cable TV where complementary content was bundled together at fixed price points. While each channel represented a different value to each viewer, the consumer recognized the overall value of the bundle.

In today’s fragmented content landscape, where the same video content is available on various platforms, content services are seen as substitutes for one another, not complements. A bundle of substitutes has less value to consumers than the individual products, so providers will need to come up with a new way to construct their bundles – containing the products consumers actually want – or be left behind.

Factor #2: Video is data

Distributors have tended to bundle TV and broadband for price efficiency. Now that video and data are no longer separate products, this model is becoming increasingly irrelevant. This trend has been accelerated by the explosion in wireless devices, with some countries leapfrogging fixed broadband connections altogether. As such, a wireless bundle that allows unlimited streaming may be viewed as more useful than a cable and broadband bundle in many parts of the world. This means bundling video with wireless is likely to become more common, driving down prices.

Large emerging markets in Asia and Latin America are
moving straight to mobile
Graph depicting fixed broadband penetration versus wireless penetration by region

Source: SNL Kagan, GlobalWebIndex, World Bank, Barclays Research

Factor #3: Broadband pricing models will move away from speed

Cable operators and wireless providers have priced data based on speed and volume, respectively. However, faster speeds are unlikely to be a differentiator when speeds across wireless and wireline become comparable, especially with the arrival of 5G. On the other hand, the growth in streaming video and connected devices will enable operators to price data by application or number of devices connected. As these other ways of pricing data take hold, it is likely to lead to more immediate parity between cable and wireless operators.

A household now has 10 active connected devices on average
Graph depicting number of connected devices on average and by household size

Source: Comscore Home Sweet Digital Home, June 2016

Factor #4: Tomorrow’s media bundle won’t look anything like yesterday’s

Historically, a finite number of US video distributors carried essentially the same content. Today, legacy and new content creators and distributors all offer overlapping products directly to consumers, so bundles will have to become more diverse to win market share. Aggregators that can bundle video with data, music, shopping and more will prove problematic for legacy distributors unable to offer those products together.

For example, if a content streaming platform were to introduce a wireless subscription, it would be able to offer everything legacy distributors can, while the opposite would not be true. So aggregation interfaces will become a powerful driver of bundling.

Factor #5: Content experience will become more valuable than the content itself

With greater video content available to them, consumers have more options, but less time to search through them all. This opens the door for disruptors offering the same products but with a better user experience. Content streaming platforms will be the likely beneficiaries, as they can use their core technology and data skills to offer up customised content. An outstanding user experience is difficult to replicate, giving incumbents a competitive advantage.

Time spent on connected devices continues to grow and has just surpassed time with television
Graph of time spent on TV, connected devices and other from 2016 to 2Q 2017

Source: Nielsen Comparable Metrics Report Q2 2017

Factor #6: ‘Freemium’ bundles will gain more prominence

Major internet companies have entered the premium video market, offering free content made possible by their use of customer data to drive people to transactions (see Advertising's new rules of engagement). The rebundling of video content into streaming services further accelerates internet-based companies’ ability to divert more of the $62.1 billion spent on TV advertising in the US into online advertising (see Why TV advertising may be headed toward a cliff). Thus, most emerging video services are wholly or partially ad supported.1

Going forward, we believe internet-based video bundles will fall into one of three camps: no advertising support (subscription-based services like Netflix and HBO Now); partial ad support (Hulu and YouTubeTV); and full ad support (currently dominated by YouTube).

The future of bundles

With bundling coming full circle, we believe streaming services could become the go-to media bundles for consumers. Social media platforms and others are likely to also play a bigger role over time as they expand their video offerings. Both of these trends will have implications for TV ad revenues. And the legacy video distributors? Their strength in providing connectivity means they will most likely remain part of the mix.

1 Magna Global US Media Forecast Spring 2018

Read the full report

Authorised clients of Barclays Investment Bank can log in to Barclays Live to read the full report, entitled Future of media: Future of bundles.

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This podcast series features lively debates between Barclays’ Research analysts on important topics facing economies and businesses around the globe.

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About the analyst

Kannan Venkateshwar joined Barclays in September 2008 and is currently a Director covering the U.S. Media, Cable & Satellite Communications sectors. Kannan has 13 years of experience across corporate and investment banking. Prior to joining Barclays, Kannan was with Lehman Brothers working on cross asset strategy research and responsible for publishing relative value trade ideas between debt and equity, equity options, and convertible bonds.

Prior to Lehman, Kannan worked at Bank of America and Citigroup in corporate banking, both as a credit officer for large corporates and on the relationship management side in India. Kannan earned a B.A. in Economics from University of Madras, India and an M.B.A. from the Darden School, University of Virginia. Kannan also has a post graduate diploma in management from the Indian Institute of Management, Bangalore.

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