Philo has officially launched as a $16 per month entertainment-only skinny bundle targeted to viewers who don’t care about sports. The company has also raised $25 million from Discovery, Viacom, Scripps, A+E Networks and AMC, which are represented among the 37 TV networks included in Philo’s base tier. Another 9 TV networks are available for an additional $4 per month.

Philo’s primary value proposition is that it frees non-sports fans from paying the exorbitant costs of sports programming that are embedded in the typical monthly pay-TV bill. A while back I estimated that at least $2 billion per year flows from non-sports fans to sports-oriented TV networks as an annual subsidy for networks that are rarely, if ever viewed. These billions in turn fund massive player salaries and support team valuations. The wastefulness of tens of millions of non-sports fans paying for programming they don’t care about is the single most inefficient aspect of the TV industry’s current structure.

High fees for sports-oriented TV networks are a double whammy for entertainment-only networks because they both raise pay-TV’s retail fee (which in turn causes cord-cutting) and squeeze pay-TV operators’ overall programming budgets (so they have less to pay for non-sports networks).  

Broadband delivery creates the opportunity for entertainment-only networks to band together and offer a direct-to-consumer package that better aligns with viewers’ interests and also costs far less without expensive sports. This is Philo’s core value proposition.

The main problem for Philo is that the most sought-after entertainment programming isn’t included and likely never will be. At the top of the list are broadcast networks, which still dominate the list of the top 20 most watched TV shows. All of the big 4 broadcasters also include marquee sports, so carrying them would be expensive.

Cross-ownership of broadcast and entertainment-oriented cable TV networks (e.g. Fox/FX, NBC/USA and ABC/Disney Channel) means corporate owners are unlikely to give Philo discreet access to their prized entertainment networks without also requiring their broadcast network also be carried. Unbundling these networks is a stop toward an a la carte model, which corporate owners do not want to encourage.

Yet another challenge for Philo is that low cost skinny bundles, which include sports, also provide solid entertainment value. Consider YouTube TV ($35) which includes all 4 broadcasters in most large markets, or Sling TV’s Orange package, which includes many of Philo’s networks and also Turner and Disney networks.

Last but not least is SVOD competition. With the billions of dollars that Netflix, Amazon and Hulu in particular have invested in entertainment programming, there is no shortage of great stuff to watch these days (mostly ad-free to boot). And back episodes of great programs that are in Philo (e.g. AMC’s “The Walking Dead”) are already available on SVOD. Other services like CBS All Access and HBO Now provide additional options for entertainment-only viewers.

Philo is inexpensive and has some great content. But it’s missing a lot and has stiff competition from other skinny bundles and SVOD providers. Add it all up and it’s likely Philo will find a small segment of viewers that will subscribe, but it will be dwarfed by the number of cord-cutters/cord-nevers and pure SVOD subscribers. Philo is innovative and offers yet another choice for viewers, but it’s not a game-changer for its stakeholders.