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Big Cable CEOs Insist Viewers Like Their Bundles, but the Tide Is Turning

·Contributing Editor

CHICAGO — One of the most common questions I’ve gotten from readers and friends about my visit to the cable industry’s Internet & Television Expo is some version of this: When are they going to stop pushing these enormous bundles of TV channels?

Now that “INTX” has closed, I have an answer for most of you: not yet.

It’s not for a lack of hints from viewers or a desire for more flexibility. A YouGov survey paid for by the content-security firm Irdeto and released during the show found that 58 percent of U.S. viewers want to drop their current pay-TV bundle in favor of buying individual channels.

One viewer better known to the cable business than most, Federal Communications Commission chairman Tom Wheeler, used a speech Wednesday morning to implore the industry to realize what subscriber totals have shown since last year—that cable operators are now broadband providers first, TV services second.

“Your challenge will be to overcome the temptation to use your dominant position in broadband to protect your existing cable business,” Wheeler said. “Those who stay on top are the ones who embrace the change.”

The panel of cable CEOs that took the stage after Wheeler did not appreciate the hint. In their view, the industry was already meeting their viewers online via “TV Everywhere” apps that require an existing cable TV account. Further, its bundles represent a good deal, and could Wheeler please quit the net-neutrality persecution already?

“People have always had choice in what they buy in their subscription package,” declared Charter Communications CEO Tom Rutledge.

“The vast majority of customers tend to take the larger bundle, and the reason is, it’s a damn good value,” said Time Warner Cable CEO Rob Marcus after allowing that “More flexibility is better.”

But this industry is not a monolith. Among the big six cable operators, Cablevision announced last month that it would begin bundling Hulu Plus with its service. It already offers two Internet-only packages aimed at cord cutters that each throw in a digital-TV antenna.

During the panel, CEO James Dolan offered one reason for these moves: an internal study that found broadband was seven times more profitable than video.

Things are most likely to change first at smaller cable firms that lack the bargaining power the big six have when negotiating agreements with networks.

Sling TV, whose $20/month Web-only service represents the biggest challenge to the traditional TV model, is getting inquiries from those operators interested in bundling Sling with a broadband-only offering, spokesman Dave Arland told me.

I don’t see how this transition won’t happen, given the massive audiences online. Showtime CEO Matt Blank said that while the first season of Dexter had two-thirds of the audience watching live on Sunday night and only a third viewing online later on, by the final season, those proportions had reversed — and the total viewership was three times higher.

But even as he acknowledged that “The traditional business is very mature,” and didn’t offer many avenues to expand the channel’s audience, he ducked CNBC journalist Julia Boorstin’s question about when Showtime would follow HBO’s example and sell online subscriptions.

And even if you set aside the difficulty of getting more sports networks to let online viewers watch their own city’s teams, building a more selective bundle of channels can take a lot of billable hours from lawyers charged with negotiating rights deals.

Sling TV, for example, started with a decision five and a half years ago, CEO Roger Lynch said at a panel Wednesday. “We knew it was going to take a long time, principally because of the rights side.“ That work isn’t done: He mentioned that Sling will add broadcast networks in a separate tier later on.

Networks that don’t reject the sales pitch of “skinny bundles” like Sling can have their own selfish reasons for doing so. And it would be a mistake to neglect that as a force for change.

“One of the challenge is the number of channels that are out there,” A+E CEO Nancy Dubuc said at INTX’s closing panel. “You could imagine an environment where there are smaller packages, and there’s less competition for us.”

Email Rob at rob@robpegoraro.com; follow him on Twitter at@robpegoraro.