Preserving The Cable Bundle: Why FX Networks Is In No Hurry To Offer A Standalone Service

LOS ANGELES — It seems like everyone and their parent company are creating some sort of standalone, TV-over-the-internet offering these days. HBO launched HBO Now; CBS has CBS All Access, Showtime has Showtime online; and NBC has the comedy-driven SeeSo.

But don't count on FX following in their path anytime soon.

FX Networks President and CEO John Landgraf said a standalone product just isn't something he wants to focus on developing right now. "We need to fix the existing business model," Landgraf told International Business Times.

FX does have an app and website that allows people to see all its current content with FX Now, which Landgraf says had 12.4 million downloads in 2015. But you have to be a cable or satellite subscriber to use it.

Landgraf isn't the only network executive to admit that the way the TV industry makes money is in need of repair. FX's chief operating officer, Chuck Saftler, is responsible for all the acquired content on the network, and so he knows exactly how difficult it can be to renegotiate rights for content in an online context. "FX has the movies" because of Saftler, who also put together the billion-dollar deal that saw "The Simpsons" library available online in full for the first time.

But Saftler and Landgraf said they firmly believe in the value of the cable bundle. Not just the 200-plus channels of a traditional bundle — though Saftler is quite a proponent of the strange sort of socialism inherent in such — but the newer "skinny" bundles being offered by various pay-TV companies. FX's goal, per Saftler, is to be in all those bundles.

Offering standalone FX via the internet would run counter to that goal. A huge network like CBS can get away with offering a standalone product like All Access for now, particularly since it doesn't offer all the current shows CBS airs. But the instant a smaller network like FX goes over the top, in industry parlance, odds are it will find itself kicked off any tier that could make it money.

Not being on the basic cable tier means a big loss in subscriber fees, which providers pay programmers like FX for the privilege of carrying their feed. Media research firm SNL Kagan finds that FX currently receives 66 cents a month for every subscriber (and an additional 25 cents for every FXX subscriber).

This is the same reason AMC Networks has been pushing so hard for cable providers to include all of its channels (including SundanceTV and IFC), rather than launching an app that just lets you watch "The Walking Dead" live. (AMC is available on Dish Network's Sling TV service, which is essentially a cable bundle delivered via the internet.)

"You also can't just think of the lost subscriber fees," Saftler warns. "There's all that lost advertising revenue as well." Fewer subscribers, fewer eyeballs, fewer impressions to sell to media buyers.

That's one thing HBO and the other premium channels don't have to worry about. In fact, premium channels can in theory make more money by cutting out the middleman of pay-TV providers. (The caveat here is that certain premium channels like Starz are typically offered wholesale to providers, who then charge customers whatever they need to in order to make a profit.)

And while HBO and Showtime can skate by on a million or fewer online subscribers, the math for a basic cable network like FX is different. ("And by the way, we still don't know how many people subscribe to HBO Now or Showtime OTT," says Saftler, noting that those subscriber numbers have not been made public.) FX would need a truly massive number of online customers to offset the lost subscriber fees and ad revenue. Charging $10 per month might be too high a price, scaring away casual viewers; but going too low might not make the endeavor worthwhile from a business standpoint.

There's also the matter of discovery. While channel surfing is on the wane, Saftler doesn't want to lose out on potential viewers. "There may be someone out there who hasn't yet found the FX show for them, but maybe they're the biggest Zach Galifianakis fan in the world and they go, 'Oh my God, I've got to check out 'Baskets,'" he says, referring to the coming FX comedy led by "The Hangover" star Galifianakis. No bundle, no random viewers hooked by a flash of disheveled comedian.

It's a tricky line to walk; a reluctance to immediately jump aboard the latest tech bandwagon can be seen as clinging to an outdated business model. But, as Saftler says, "There's always a reason."