Why A La Carte Cable Will Probably Cost You More
from the read-it-and-weep dept
Every time we write about the push for "a la carte" cable, where subscribers could pick and choose which channels they want, we make sure to point out that studies have shown most consumers would end up paying more for such a system. However, every time we write about it, comments fill up with people ignoring the study and insisting that if they only had to pay for the five channels they like, then obviously it would cost less than the 100 they pay for today. That, of course, ignores how the economics of the business would change if a la carte was being offered. Thankfully, someone over at the NY Times gives a nice straightforward explanation for why your bill would likely go up if we switched to a la carte. And, it doesn't even get into the increased overhead in the infrastructure necessary to offer a la carte, along with the more complicated billing and maintenance required.
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Filed Under: a la carte, cable
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The fact that bills are no longer itemized. And the dubious TBS, ESPN, etc fees are hidden seem NOT to support the anti-"A La Carte" FUD. Also lack of CableCard to adoption and use of SAP demonstrates they make little effort to use the infrastructure effectively.
What Mike is essentially saying is that everyone should just pay their "AdHSN Fee" and shut-up.
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This is why...
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Let's hear it for supply and demand
Ahem. Since when is it my job to make sure ESPN makes the same revenue? Plain vanilla market economics says that if ESPN raises its price to $12 a head, its subscriptions and revenue are going to drop like a streamlined crowbar. And if ESPN wants to keep their beer and car polish advertisers happy, they will have to find a pricing plan that is some compromise and settle for less profit. I doubt that an open market would support quadrupled prices. Many people just wouldn't buy it at that price.
Only a few years ago I lived in the backwaters of the heartland and inherited a C band dish with my house. I could subscribe to a variety of tiered packages; $30, $40, $60 per month, or I could buy a'la carte. Those 5 channels I wanted to watch cost me $10 per month. Obviously it was the cable subscriber base that kept it that low, but I did get exactly what I was willing to pay for and saved money. If the world was a'la carte and prices doubled, I would have still saved money.
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Re: Let's hear it for supply and demand
Claiming that you have 100 bazillion possible viewers because there are 100 bazillion cable/satellite customers who happen to receive ESPN sounds good when you're talking financials with a potential ESPN advertiser - but imagine how much better it would sound if they could say "we have 10 bazillion customers who actually pay to receive our programming and who are big sports fans." That raises the value of your commercial time significantly because you can actually point to a real number of potential viewers instead of a made up number.
And as this website has made a point of time and time again - why is it the government's responsibility to support your business model? If you can't make it on the number of people willing to pay $3-12 per month to watch your channel, then maybe you're doing it wrong?
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Re: Let's hear it for supply and demand
Damned if they didn't use all that advertising money to provide a free service...No way, that would be crazy, it would never allow any company to turn into a global powerhouse!
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Hardware
Um. Okay.
...
That's.. great. :)
Corporate Extortion is awesome!
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Oh, I'm told it's like analog BitTorrent.
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Re:
Actually, the *digital* Bitorrent cannot be used by comcast subscribers since they banned it.
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Ala-carte cable is a bad idea. But morons refuse to see the numbers for what they say.
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Re:
Free markets will always dictate price. Like Deirdre stated above, since when is it my job to make sure ESPN generates the same revenue. If ESPN needs to adjust their price to balance consumers' subscriptions vs. advertisers' campaigns in order minimize their revenue hit, SO BE IT.
And if we lose some obscure channels along the way, GOOD. There is way too much crap on TV anyways.
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I say follow the path of most resistance. I suspect that a major reason that the cable companies are fighting is that there are a large number of channels that nobody really wants enough to pay for (HSN comes to mind).
Another reason is that service companies do not like change of any kind.
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Re:
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No change then
And those channels will continue to be available for free.
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Lies
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Re: Lies
Mike was making a good argument until that last sentence. I expect that kind of spin from an telco or cableco shill, not from Techdirt staff.
With the switch to digital cable it should not be that difficult to bill users and maintain the system. My cable company keeps adding more On Demand channels so it seems they have the infrastructure to provide and maintain that service.
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Lastly, the argument that some channels would die out due to lack of subscribers is ridiculous. I mean, of course that would happen! Why is this bad? Why would you produce a product that can only survive if it's forced on consumers when they purchase a competing product? If you own on of these channels you deserve to go out of business.
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Re: they already have this
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Re: Re: they already have this
As Deirdre stated above, prices would go up. If prices went up too much, subscriptions could decrease. If subscriptions decreased, profits would go down and the reduced viewership would affect advertising. A reduction in advertising base and profits would necessitate an adjustment in price. For example, ESPN would have to balance their cost to the consumer and take a revenue hit.
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Re:
I'll be in the crowd with pitch forks and torches If they manage to get Ala Carte and it goes as badly as the NYT article forecasts. That is one vote that would kill political careers.
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What if I only buy milke and bread?
Should I have to contribute money that ultimately funds the large superstore building? Should I have to fund the tens of thousands of items in the store I'm NOT buying?
And I sure don't think I should have to pay for the massive logistical machine and warehouses that keep the Walmart store full of things I never want to buy.
Walmart should open a milk and bread store for me, and provide those two items at a cheaper price. After all I'm only getting Milk and Bread.
After all, Walmart is just out to screw me over by forcing me to cover overhead so they can sell items like medicine, tires, and video games that I would never buy from them when all I want is Bread and Milk.
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Points system
This way, if ESPN goes up higher than $3, it's because not enough people actually want it. And it might go higher, but then again it's now having to compete with Fox Sports and the like directly, which it hasn't had to do before. If it goes too high it will lose market share to it's competitors. I'm pretty sure the NYT piece ignored that factor.
In this system, the real cost of the channel is exposed to the consumer rather than hidden away in a package, and they can make better decisions about what they want to pay for, even if what they pay for after the change turns out to be about the same things as what they pay for now, but since you still have to buy a base package not all that much would change. The real advantage would be in the ability to add more channels beyond the basic level on an ad hoc basis rather than as a group.
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Yeah but....
As others have mentioned, supply and demand should determine the price of cable channels, as it does for other items. If bundled separately, I might be willing to pay $5/month for ESPN, but not $12. So, I would decide not to subscribe if they wanted to charge $12. Funny how that works.
And where is it writ that ESPN must maintain the same amount of revenue? Do we really need the "Ocho" (kidding I know) and all the other flavors of ESPN?
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Enough frimping debate already!
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A la Carte vs. Bundling
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Sorry, the math does not work
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If the providers can get them a la carte
I think an unspoken assumption behind this article is that cable and satellite companies would have to continue paying the channels per total number of subscribers to the cable/satellite service, rather than per the actual number of subscribers to that channel. In that case, the providers would have to jack up the prices to afford the big-name channels. So it's important that any offer-- or mandate-- of a la carte to consumers make sure that the channels are compensated per real subscriber.
Once you've got that in place, show me the amount I'd have to pay for the channels I really want, and let me make up my own mind.
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Trickle-Down Economics
Note the heavy emphasis on percentages. The only concrete dollar figure we see is $3/cable subscriber for ESPN. There, we see it potentially "having" to rise to $12 to keep ESPN's revenues level.
But, for the BET scenario, all we see are evil-looking percentages like 588% and 1200%. By using evil-looking percentages, the article makes it seem like this is a whole lot of money. It's not. By comparison, ESPN's theorized $3 to $12 increase is a 300% jump. And, since ESPN "charges the highest amount of any cable network", it's a safe, er, bet that BET charges less (20 cents?). It's well within reason that BET would wind up also around $12.
Furthermore, the article's author assumes everything else in the world is permanently frozen, never changing. Needless to say, that's a wee bit of hogwash. So, in an a-la-carte world, you'd see things like:
-- Some households paying less, particularly DINKs (dual-income, no-kids) who may not watch a lot of TV in the first place
-- Some households paying a bit more, stretching their budget to maximize the number of channels they pick up
-- Overall cable network revenues dropping, causing them to cut expenses
-- Pay for "talent" falling to the floor, whether that's news anchors or professional athletes (whose contracts shrink when TV deals shrink for their leagues)
-- Increased delivery of subscription content online, to cut out cable TV 'middlemen', if they can do better via Akamai or BitTorrent or other means of delivery
-- Merging of cable networks, so those with similar audiences pool their better-pulling shows and cut out the programming that's not helping pull more subscribers
-- All this happening somewhat slowly, as "mandatory a-la-carte" would probably be implemented as an option with a timetable for making it available, so some cable companies will move slower than others, meaning cable networks won't see their revenues vanish overnight
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So each channel costs 4 times as much... BUT...
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Dear That Guy...
Guess what, you CAN walk into a Walmart and buy Milk and Bread. And you don't have to pay for an "extended basic shopping cart" containing blue jeans, diapers, and Ipods. What people are complaining about is that they can't pick and choose cable channels.
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http://www.nytimes.com/2006/02/10/business/media/10cable.htm
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Tell-A-Vision
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A la TV
Dutch Oven, sorry to sound like I'm "borrowing" your ideas, but you have a good one and I support it! I cannot see how cable companies or satellite companies will go out of business by offering this concept.
Of course, I would keep it just like it is rather than doing without it. In those days, out here in the country, the sheep start looking good!!
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The article says that a consequence of ending these subsidies is that channels will go away. Well DUH! The whole point for wanting a la carte is so that we can all pay less, resulting in less money getting put into the system and less value to advertisers due to loss of channel surfing impression opportunities. So we are shrinking the whole industry by doing this. Of course there will be some channels falling by the wayside!
I contend that you can't even imagine what the landscape would look like a few years after this got forced on the TV providers. Of course there will be pain--the industry is stuck in an evolutionary local minimum and needs outside force to kick it out.
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A la carte programming IS possible despite the art
To think that ESPN would increase its channel to $12 per viewer is ludicrous because even the bean counters would know that would kill more subscribers than anything out there. The way that ESPN would do this is to BUNDLE their own channels!
For example, menu option #1: ESPN @ $7
ESPN + ESPN Classics $10
ESPN + ESPN Classics + blah blah blah
In addition, ESPN could also raise some of its advertising costs to offset the difference.
Which brings me to a new (but relevant) point: Has anyone out there in TV land noticed the increase of the number of commercials viewable now?
Especially on channels like Disney, Cartoon Network, TNT, and TBS. These channels are bombarding consumers with ads (content? riiiight) to such a degree that opening and closing credits are truncated!
So if someone tries to convince me that ala carte cable programming would increase my bill, I'd have to reply "Really? Because in the past 10 years, my cable bill has far exceeded the rate of inflation and has gone up by 27%. Where's the 'savings' I'm supposed to be getting by this bundling of channels?"
TechDirt often writes about how the music industry keeps shooting themselves in the foot, but the cable industry is doing the same thing by trying to convince the world that "bundled channels" save. Eventually, the cable industry is going to have to refocus its attention to the way "channels" are delivered because people are tuning into downloading as opposed to "recording". ABC, NBC, and CBS all have reported that online viewership has exploded in the last year.
So what's going to happen in the future of this "bundling"? It's going to die a horrible death as more and more people begin realizing the potential of ON DEMAND downloading, which is just another word for "ala carte programming".
The music and video (cable included) is all going downhill all for the sake of "profits". DVDs with unskippable ads, more ads on television, DRM technology, and raising prices.
Eventually, if this crap keeps up, people will rediscover the lost art of book reading.
;)
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Just one
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Re:
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alacarte
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Why hasn't anyone pointed out the obvious?
All your worry and hand-wringing over the cost increasing would be put down, eventually, by the same market forces you are always touting: competition. Of course that requires that we have real competition in this space, but that's something else that it is obvious we need.
And even if a la carte were more expensive, I'd bet many folks would opt for that given the TIME savings you would reap by not having to scroll through umpteen channels of crap to find the good stuff or spend the time making your 'favorites' list.
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Why not already?
So why is it that no company has done this already? Is there some industry agreement for buying channels that requires you to offer them in packages?
In general I think that the cable companies shouldn't be forced to offer a la carte if they think it's against their interests, and it is against the interest of the industry as a whole (overall less money going into the tv industry and fewer "apparent" viewers for add numbers) but it's only against their individual interests as long as no one else does it. So what is preventing some disruptive competitor from cashing in on this huge opportunity and bringing the market back to equilibrium (ie people only paying for what they want)?
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Re: Why not already?
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A la carte cable
This is as much about channels I REFUSE to pay for, as is channels I wish to purchase.
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Yep! That's why I use MyHomeDVR!
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