If you want cheap internet TV, you’ll have to give up a lot

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Internet TV poses an important question: Would you give up a name-brand channel for a version you’ve never heard of to save money?

For instance, would you take startup Cheddar over CNBC? Newsy instead of CNN? TheBlaze instead of Fox news?

Maybe not, but what if it meant a $10 bundle?

“We can debate whether Cheddar, which is basically 18 months old, is what percent as good as CNBC. Is it 3 percent? Forty percent? We can have that debate,” said Cheddar CEO Jon Steinberg. “But at the end of the day, it’s free to the distributor.”

Cheddar is one of a new group of media upstarts that have channels right alongside major cable companies on so-called “skinny bundles” of TV offered over the internet, such as Sling TV, which offers a base package of 29 channels for $20. The average cable plan hovers around $100.

The skinniest bundles, however, are yet to come. Cheddar and similar channels are providing TV-like content on the cheap, a prospect that could threaten their far bigger competitors. A super-skinny bundle would not just be smaller, but substitute in cheaper versions of some channels.

Newsy, for example, has around 80 people and is based in Columbia Missouri. CNN employs around 3,000 people across 38 locations around the world. They’re both on Sling TV.

“We don’t have thousands of people on staff, so we can make a product that looks good with stories that CNN wouldn’t necessarily cover,” said Blake Sabatinelli, general manager of Newsy. “And we can do it for so, so much cheaper.”

Price didn’t used to be as much of an object. Cable TV had a firm grip on its subscribers, who didn’t have options to look elsewhere. Bundles got bigger and prices went upand there was little anyone could do to stop it.

Until the internet came along. Now, online TV bundles are competing head-to-head with price as a prime factor.

“Price is very important. When you look at reasons people cancel pay TV, the top three reasons are all price related. Either the price is too high or you make me pay for channels I don’t want. It’s all price related,” said Roger Lynch, CEO of Sling TV.

Sling TV already has millions of subscribers and an increasing number of competitors, including DirecTV, YouTube, PlayStation, and Hulu. As more people cancel their hundred-channel cable subscriptions, these bundles are becoming an important lifeline for cable channels that are missing out on important viewership and revenue.

Whether cord cutters really want these channels is open for debate. The skinny bundles mostly have the same old channels, with some differing little from regular cable packages. And with younger people cutting the cord and getting less of their news from the TV, the value of channels like CNBC and CNN to them is immediately questionable.

That makes Newsy, Cheddar, TheBlaze, and others an interesting proposition for a distributor looking to differentiate their offering. Lynch said that Sling doesn’t have plans to test out a super-skinny bundle, but that he expects another company will.

The question will be whether distributors can keep channels that people want while substituting in others that help round out the package.

“I do think you’ll probably see other services launch that attempt to thread that needle,” Lynch said. “But I think we’re really well positioned for that.”

Demographics is a key part of the pitch. Cord cutters tend to be younger, Lynch noted. That means in some ways, the newer channels are better geared for internet bundles with young audiences.

“Maybe they don’t have the same level of investment, but I think they have strong appeal to the demographics they go after,” Lynch said of channels like Newsy and Cheddar.

“If you’re a 26-year-old male or female, you might prefer something like Cheddar or Newsy to Fox News because it just fits your demographic better,” Lynch said.

The introduction of super-skinny bundles wouldn’t on its own be a major blow to cable companies, but it could add to their already sizeable woes. Internet bundles have had some success in providing channels a way to transition online without completely changing their business model. But if distributors start opting for newer competitors to keep prices down, cable channels would be caught in a difficult position.

The only other option might be direct-to-consumer options like HBO Now, which are a tough sell.

“The reality is there’s almost no scenario of the world where five years from now we as consumers will be paying as much money as we’re paying now to have home video entertainment delivered to us,” said Zack Kaplan, vice president on the internet and technology team at venture capital firm General Atlantic.

Cheddar might not be forever free to distributors, but the impact of cheap TV options could have a lasting impact on the industry.

“What can [cable channels] do?” Kaplan said. “They can’t lower their cost to match or their business model blows up.”

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