As expected, Hulu announced its skinny bundle offering today at its NewFront/Upfront presentation. Dubbed “Hulu With Live TV,” and priced at $39.99 per month, the service includes 50+ live and on-demand channels, 50 hours of DVR recording, 2 concurrent streams and 6 profiles.  

Hulu With Live TV is the latest skinny bundle to come to market, joining Sling TV, DirecTV Now, YouTube TV, PlayStation Vue and others rumored still to come from Comcast, Verizon, etc. All of these skinny bundles are vying for a slice of the approximately 15-20 million broadband-only homes in the U.S. (and growing). And though they won’t say it, they’re also looking to draw some of the approximately 95 million existing pay-TV subscribers who are questioning the value of their expensive multichannel bundle as their viewership moves to SVOD services like Netflix, Amazon and others.

The latter issue is what jumped out at me a year ago when the WSJ first reported on Hulu’s plans. It’s one thing for Hulu’s owners (Disney, Fox, Time-Warner and Comcast, which is silent for now) to try to expand the pay-TV market by reaching broadband only’s, but by launching a lower priced service with their linear networks, they’re also directly competing with their best customers, the large pay-TV operators, who pay them billions per year. It’s a sign of these unstable times that Hulu’s owners decided it was worth the risk of any operator backlash to plow ahead.

VideoNuze readers know I’ve been plenty skeptical of skinny bundles’ potential in the past, primarily because of the holes in their channel lineups (the “Swiss cheese” effect as I’ve called it) that result from trying to keep their rates low and the modest cost-savings achievable compared with taking a package of broadband and video from a pay-TV provider.

A quick review of Hulu With Live TV reveals the Swiss cheese problem. All 4 broadcast networks are only available in a handful of major markets with the rest, such as Boston, my hometown, only having a subset. Major cable networks from AMC, Viacom, Discovery are missing entirely as is access to premium networks HBO and Starz (Showtime has been available as a Hulu add-on for a while).

Missing broadcast and cable TV networks is a critical issue, narrowing the appeal of Hulu with Live TV and all other skinny bundles. Consulting firm Altman Vilandrie & Company quantified these challenges last fall in extensive research that showed the importance of having all the broadcast networks, the diffusion of interest across networks and how varied the channel preferences are for men vs. women. How many people are willing to accept these sacrifices is the big open question for skinny bundles.

That said, Hulu With Live TV has some distinct advantages, starting with the fact that it includes Hulu’s SVOD library, which is an $8 per month value, effectively reducing the price of live TV to $32 per month, a relatively good value among the skinny bundle choices. And Hulu unveiled a fresh UI for the combined services which could help drive usage and satisfaction, reducing churn. Hulu also has a strong brand name and millions of SVOD subscribers to which it can promote Hulu With Live TV, which should reduce its cost per subscriber acquisition.

Hulu and other skinny bundles may also soon benefit from some important changes in the broadcast landscape, helping them address the Swiss cheese problem. Just last week Disney announced an agreement with affiliates representing 160 local stations giving it the rights to negotiate digital distribution on their behalf. That deal could become a template for other networks, accelerating the inclusion of broadcasters in skinny bundles.

And DirecTV Now announced it added 14 Fox affiliates, bringing its coverage to 90% of major markets. This likely softens the ground for other skinny bundle deals by affiliates. None of this will happen overnight, but at least it’s trending in the right direction.

Yet another trend that helps skinny bundles is that cord-cutting appears to be accelerating, creating more broadband-only homes to market to. MoffettNathanson estimated this morning that pay-TV operators lost approximately 762K subscribers in Q1 ’17, 5 times as many as in Q1 ’16 even as new household formation in Q1 ’17 was particularly strong. Of course this assumes that these new broadband-only’s are still interested in ad-supported pay-TV and haven’t just defected entirely to ad-free SVOD viewing and/or free OTT services.

It will be interesting to see how Hulu With Live TV fares in the increasingly competitive skinny bundle space. Hulu has had multiple incarnations in its short life, as well as plenty of corporate drama. The skinny bundle play is the company’s latest attempt to capitalize on viewers’ fast-changing behaviors.