Yet Another Report On Why Forcing A La Carte Cable Is A Bad Idea
from the think-it-through dept
If there's one topic that we regularly discuss that many of our readers (even those who agree with us on most other things) disagree with us on, it would be mandatory a la carte cable. We've explained repeatedly why forcing cable companies to offer a la carte cable is a bad idea that would likely lead to higher prices and less choice. Yet people still argue against it, claiming (incorrectly) that they would just order a few channels and prices would decrease. Instead, those fewer channels would inevitably cost a lot more (if they were still available at all) because a la carte pricing for channels reduces demand for individual channels, resulting in higher (not lower) prices per channel. Jeff Eisenach and Adam Thierer have put together a short report looking at the problems of a la carte cable, and noting that even if the intentions of those supporting mandatory a la carte cable are strong, the end result isn't likely to be what they'd expect.On top of that, it's probably worth pointing out that this debate may soon be moot anyway. As we move increasingly to a world where most TV programs are available online, the entire concept of the channel will go away. It won't matter what channel a particular program is on, because you'll just subscribe to that program, and it will get delivered over the internet. In the meantime, though, there's simply no reason to force cable companies into providing a la carte channel selections.
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Filed Under: a la carte, cable, costs, economics, infinite goods, prices
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I still hate bundling
I don't think we should need to have a forced a la carte system, but I do think that we DO need to have one. Why? 'cause the cable co's were idiots in signing their contracts, to the greater detriment of all (except the minority channels, of course). Since they made their beds (and have right of way), now eeveryone must sleep in it. So either we dispose of their right of way, or we step in and disrupt their lose-lose business model.
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Re: I still hate bundling
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Re: I still hate bundling
It's not really the fault of the cable company...it's caused by the fact that the content (i.e., the channels) is owned by a handful of companies.
The reason Time Warner (or Comcast, or Aldelphia, or DirecTV, etc.) forces you to have "ABC Family" on your cable lineup is because ABC/Disney tells them that in order to get the very desired "Disney Channel", they must also take "ABC Family".
ABC would charge the cable company $2/month/subscriber for Disney Channel, but if the cable company takes ABC Family, Toon Disney, etc., the price for the whole bundle is $2.50/month/subscriber. And, if all those channels are part of the most non-basic cable package, then the price drops to $1.75/month/subscriber. ABC can do this because then they can charge advertisers more for all those channels, and the cable company likes it because it costs them less and they can appeal to a wider variety of subscribers.
NOTE: I use ABC as an example, but every content owner (Fox, Time Warner, Discovery Networks, GE Universal, etc.) does exactly the same thing. Also, the prices are completely made up, but other than that it is exactly what happens.
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Re: Re: I still hate bundling
Exactly, finally someone else that understands it!! And for those that think that the cable providers can just boycott all those channels until the content providers give in, that is just unreal!! How many complaints do you think we'll get when we take those channels off the air to boycott a provider. It wouldn't work. It's like that mass email that goes around saying if everyone stops buying gas from ExxonMobil the gas prices will come back down....Not gonna happen!!
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There's no excluded middle
Overpriced is relative. If I could get just CNN, Discovery and SciFi for $15 a month, it might be overpriced but I'd gladly take it over the 62-channels-of-krappe @ $60/month I'm paying now.
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Understanding but hating it
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I agree with Klahn - it's relative to what the customer wants - they could continue to offer 'packages' as well.
And I agree with 'some old gy' too - I pay for channels that I have to go and block, just because I don't want to deal with passing them up each time I change channels, if I didn't at all - I'd flip through 15 channels of junk to check one I like - then 15 more channels of junk until the next one.
Just this week I was talking about dropping way back down to regular cable with the 'HD package' - because it's too much paying for all these extra channels, and I only watch two in that whole package - I'll just live without those 2 channels... heck, thing is, that's 50% of my already narrow time watching TV - if they go, I may start to see even less reason to have cable altogether.
With choice in media now - it seems to me, the cable companies best start giving more choice - if not, maybe it's a good idea for Telco companies to start offering channels on an 'a la carte' basis.
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Unpredictable effect
Bundling is a bunch of crap... why must I pay for 20 sports channels I'll never watch to get one or two channels I do? Thats total bulls**t. And yes, I know ordering ONE channel will cost more but my guess is they'll find an opportunity and offer custom groups and other options (too).
I'm honestly torn on the issue but since I hate the monopolies that ARE the cable companies... I'm siding w/ala carte.
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Re: Unpredictable effect
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Re: Re: Unpredictable effect
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Re: "todem"
Now you give each toad an ear trumpet, and then connect their little toad ******s to the Toadnet port ...
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by the same logic...
the only ones that benefit from programming packages is the cable industry.
"L"
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I don't want to subsidize...
The claim that bundling can lead to lower prices might have merit. However, there is no way to know because even though cable is a government granted monopoly, the cable companies will not state the cost of carrying a particular channel.
So, given I only want to watch at most 4 channels and in every city in which I have lived in the last 10 years those channels have always been in different tiers, packages or groups or specials, I don't give the "increased costs" mantra much credence.
If my favorite channels fail because of insufficient viewership, then that is decision of the marketplace shoulod make and not some incompetent cable executive who has decided what is best for me.
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Here is why there should be bundles
"those fewer channels would inevitably cost a lot more (if they were still available at all) because a la carte pricing for channels reduces demand for individual channels"
I do disagree, There are channels I DO want but don't get because of the way they have them bundled with other channels. Marketing people doing this no doubt.
You see, I'd love to get some of the other family channels, like noggin or sprout but they've bundled them together with a ton of other channels that not only do I not want, but I don't want to have in my home. Additionally the extra $30 a month to end up getting the channels... I mean PACKAGE that contains the channels... isn't worth it to me.
As for reducing demand for those channels. I don't believe that is true either. If the subscription rates for the channel go down then the demand at most was only induced by it being bundled with a package or the pricing is to high.
Personally, I remember a day when you paid for cable and there weren't commercials on most of the channels. Why? Because you were PAYING for it and it wasn't free.
I also remember a day a long time ago where Music Television (MTV) actually played music and there was only one channel. Now they have 3 and I never see music on any of them. I rememebr a day when VH1 came out and it played music as well, now I rarely see videos on them either. The current state of affairs has allowed these channels to change and not suffer any loss of subscribers because they are bundled together.
Like others have said, especially with digital cable boxes, there is no reason the cable companies can't offer both a bundle and a subscription package for channels. Sure, if you want several a la carte channels it may end up costing more per channel, but at least we'd be able to send a message to the cable companies (and stations) what our choices and tastes were in the programming we brought into our home.
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Re: Here is why there should be bundles
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Forced socialism
The monopoly with a wink and nod from the government gives us choices of various bundles.
The bundles are to support alternative tastes and increase variety, and spread costs.
Translation:
1. Government screwed up by granting a monopoly.
2. The monopoly takes advantage of government's refusal to admit error or correct same.
3. Monopoly (effectively) forces customers to subsidize losers by forcing everybody to pay their "fair share" to ensure those "less fortunate" have access to "quality programming."
4. I am forced to pay more than I want to (that is key) to access programming that I am discovering is available under various torrents online.
5. Hmmm, I think I just convinced myself to kill my cable account. Torrent my favorite shows and avoid both the cable costs and the advertising annoyances.
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Re: Forced socialism
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Re: Re: Forced socialism
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Re: Re: Forced socialism
Well, that would be the advertisers.
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Bad logic
What you miss Mike is that if I have to pay $50 per month for fewer than ten percent of the channels I get now then I've still cut my bill by half and gotten all I want. Paying for cable now is like having to buy a two liter of soda every time you want a can. It may be a lot cheaper by the ounce but it costs far more out of my pocket.
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Re: Bad logic
That is one of the best analogies for cable bundling I have seen so far!
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Yeah, very good Analogy.
The other option is - I can dump cable altogether and go with rentals/netflix, etc.
Considering Blockbuster and Netflix, and perhaps some others are like 20 a month for all I can watch - heck even paying for *both* might make better sense than cable.
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Result: Overall revenue for cable companies is the same (they'll adjust prices until this is true), and some channels die. Survival of the fittest, on a channel by channel basis.
Perfect! And, as many have pointed out, that's what is coming via other distribution methods anyway: Granularity of choice. Survival by success, not bundling.
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I'm in...
I'd like to have this option of a la carte. I think one thing we'd see is that certain shows on channels that failed would get picked up by a better channel and hopefully replace the crappy shows on those channels.
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That's a lot of channels!
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I got an idea for the cable companies
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Re: I got an idea for the cable companies
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it's no monopoly
Pure A La Carte would NEVER work unless it was a hybrid based average user interest in a channel. For instance, the company could say pick 5 channels from this lesser watched group, and pick 5 channels from this actively watched group, and so on... You have to think about all the advertising that is being aired, even on the unwatched channels. That equals $$$ to the cable/satellite companies and would be gone when those channels go away with a la carte due to lack of interest. What company wants to pay for advertising on a channel that nobody picks in their a la carte package?
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Re: it's no monopoly
So there are many people that can ONLY get cable from one company, unless they get a dish of some sort.
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and your point is?
That's the free market in action. If "The Paint Drying Channel" is only financially viable because it gets bundled ESPN, then it deserves to die. The amount of content available has not kept pace with the number a channels available. Fewer channels will not result in less content. The winners will have more/better content and make more money, the losers will disappear. This is the natural order of things that has been distorted by bundling. By the way, I only read your web site because my ISP bundles it with Google. :-)
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wrong thinking
The popular channels would be lower as more people would pay for them. If I had may choice it would be about 12 good channels and my top choice would most likely be the same for about 90% of the rest of the population. Those 12 channels would then be really cheap. If you are the 10 people in the world that really must have "The Paint Drying Channel" then you pay for it not me. It is these 'add' on filler channels that are driving the price up.
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My current revenge is to demand a credit on my account every time any channel has a service disruption. I tell them if I have to pay for 200 simultaneous channels going 24 hours a day, then I should get credit back when they are not.
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Bundling shouldn't cost more.
What you fail to realize with this analogy is you'll be paying much more for one can. If a two liter is $1.50 and a can is .50, you're instantly limited to 3 cans to maintain the same price. Who wants a limit of 3 cans?
I'm not impressed this discussion continues to omit the biggest scam in the cable industry: tiered programming. Consumers are forced to "one up" their tier just to get the one or two channels they want. From this, bundling is only efficient to the cable companies while consumers must shell out too much for a few additional stations.
What needs to be done is a restructure of the tiered programming. By breaking down tiers into content type (music, news, sports, etc.), consumers can easily decide on what they want to pay for while cable companies still pay for bundling.
Unfortunately, doing this borders a la carte programming because consumers will get pissed they're paying more for their sports tier than others do for their general tier.
There are pros and cons to both sides, but bundling still remains the most cost-effective way for consumers to enjoy cable. It's not going to change for a very, very long time.
It just pisses me off my cable bill continues to rise while the cable company now pushes ads in their on-screen menus.
Mike, tell us again who benefits from bundles programming?
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They try to have a broad offering to interest everyone. Just cause you don't care for a certain channel, doesn't mean that its not 1000 other customers favorite channel. I know everyone knows someone (usually a woman) who loves Lifetime, Hallmark, WE, and the like. I personally hate those channels, and block them so my girlfriend cannot watch them.
Now I agree that alot of the channels are absolute garbage, and I only watch about 5 of them on a regular basis. The problem is, it could potentially cost me 100 bux a mo for just those 5 channels I like, when the whole package is 60bux. Tell me how that makes sense..
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Just which are the "minority" or "junk" channels?
I watch the History Channel a lot because it has value and interest for me, but the Golf Channel and Noggin are flyover channels. So you've set up a world where I pay $30/month (roughly the cost of a premium movie channel, give or take) for my History Channel, and you pay $30/month for the Golf channel, and someone else pays $30/month for Noggin. Just that alone seems unreasonable, and is made even more so by the fact that I don't want to pay $30 per channel because if I want a meager 10 channels it'll be $300/month. Today I have $100/month. (And who knows, maybe I'll stumble across something compelling on Noggin one day and discover it really does have some value for me. For less than a buck a month I'm willing to take that gamble, but for $30 a month, no way.)
Of course, very few people will pay $300/month for 10 channels, so the cable company will have to respond by offering me a price break for a 20 channel bundle that may include channels I don't want but others do. But this maintains the cable company's economy in a scale across it's viewer base that they are willing to pay for.
Which is, of course, what they're doing now. So if you want to have your boutique channels you must subsidize others' boutique channels. And if it isn't worth it to you, you can do what some old guy did and say "no thanks".
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Lifetime Television
Another great example is all the international programming. I understand some people would like to watch TV in their native language, but I shouldn't have to pay for channels that I can't even understand.
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Why bother
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Missing something big
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Re: Missing something big
Yes.. you'll get some bitching, but being a monopoly you can do this, AND, is CNN really willing to lose a large portion of viewers to further their point? This would be especially effective if more than one cable provider in large markets did this.
The content providers might be a-holes, but guess who's letting them get away with it? Not the consumer.
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Not really...
That is one of the best analogies for cable bundling I have seen so far!
It's more like a diabetic having to buy an assorted 12-pack of sodas every time he wants a Diet Coke, even though he doesn't want the other 11 sugary options.
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Re: Bundling shouldn't cost more
Actually, I don't fail to realize anything with this analogy - it's spot on. I'm waving my magic wand... POOF!... cans of soda no longer exist and all soda machines dispense 2-liters for a cost of $2. Consider the public at large and the implications of this on their wallets and argue your point.
Yes, I get your point. You WANT the huge bundle and you don't want your price to go up for that freedom to not watch most of the channels that you have available. Unfortunately, you want us to subsidize your package.
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Re: Re: Bundling shouldn't cost more
ONLY if you want x cans where x is LESS THAN the cost of the 2 liter.
Given the scope of the number of channels one has to offer, there's no way a la carte will give people choices to spend less when there's a limit and they want more than the limit offers.
Proof: A six pack of those same cans costs MORE than a 2 liter bottle and asking a company to break down the six pack into 3 isn't feasible and will cost them more to make, passing that increase on to you.
Yes, I get your point. You WANT the huge bundle and you don't want your price to go up for that freedom to not watch most of the channels that you have available. Unfortunately, you want us to subsidize your package.
No, I don't want the whole bundle. I want a subset of the bundle which I can then pay less for, but still keep it reasonably priced for everyone. Let those who want the additional bundles pay for them without passing the cost to other consumers.
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I pay $80 a month...
"But what of the poor special interest channels..." Let'em compete. If they are popular enough, they will survive. If not, it's the law of the jungle.
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Still wrong
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Where the money goes
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I think cable TV channels have become far too comfortable because they get paid for their content regardless of whether people are actually watching the stuff. Of course they probably get paid more if they can get more people to watch, but that's beside the point. The very fact that some of the channels would cease to exist if people had to specifically subscribe to them just means that they had nothing worth watching in the first place. That seems to me like a good way to take lousy programming off the air, and replace it with something people actually want to watch.
I myself am on a digital TV subscription through my local phone provider (along with DSL internet), and they give me all the channels I could possibly want (short of movie channels) in one of their most basic packages, which without any discounts would cost about $50 a month. And it's all pure digital signal, unlike cable which typically uses poorer-quality analog signals for channels under 100 and charges more. I consider myself very fortunate, but others simply aren't that lucky. Too often you're forced to buy an entire add-on package of channels for just one or two you want.
Maybe there could be a compromise here. Have a base set of channels that everybody has to take, and then offer either another tier of channels, or just so many dollars per channel for individual channels so a person can get just the extras they want and nothing more. Of course, you know the marketing people are immediately going to price the individual channels so high that after 2 or 3 extras you might as well have bought the whole extra package of 25 or so.
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Still wrong
This is just nonsense, and I don't understand why you cling to it. The *demand* for the different channels doesn't exist just because the cable company *delivers* the unwanted channels. AT BEST you are arguing in favor of viewers of unpopular channels being cross-subsidized by those who don't watch!
Is the problem that you are assuming that even if the customer is allowed to buy a la carte, the cable company still has to buy bundles from the content providers? If so, the cable company's costs would remain the same even though it can't pass on the cost of the unpopular channels to people who don't watch them. The answer to that, of course, is for the cable companies to exercise their economic power and refuse to pay bundled prices for channels they can only sell a la carte.
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Anti-competative practices
If the Department of Justice can make a case that Microsoft illegally forced OEMs to buy licenses of Windows for machines that didn't even have Windows installed, why can't they make a case that it's anticomptative to force cable companies to buy a bundle of channels just to get ESPN? It seems to me that it's the same principle.
In general, I don't like it when the government tries to legislate the market, but in this case I think that it's warranted. You can argue whether or not the big media companies are collectively a monopoly, but it seems evident that they are using the same anti-competative practices that got Microsoft in trouble.
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The definition of insanity
Mike, I would have to say that I'm one of those readers who agree with TD on most things, but disagree on a la carte pricing. One of the most frustrating things about this topic is that you "repeatedly" explain why forcing a la carte pricing is a bad idea, but you don't seem to respond or counter what I think are well-reasoned arguments for a la carte pricing which appear in the comments sections. It's quite possible that I've just missed where you've replied to many of these arguments, but I don't think you should be surprised that people repeatedly bring up the same counterarguments when you don't reply to them in your repeated posts.
Other people have done a great job in the comments of pointing out some of these counterarguments, but here are some examples that come to mind...
1)
The common explanation of why the average person's cable bill would go up uses the current model where media companies force the cable companies to buy bundles of channels. But if part of the legislation to promote a la carte pricing addressed this root cause, then the formula could very well change to get the "expected" result of lower per monthly costs with an a la carte model.
2)
Another argument against a la carte pricing is that it would decrease choice and diversity. But this assumes that more channels equates to real diversity. For example, do you really have diversity if on separate channels you can watch Flip This House, Flip That House, Flip My House, Flip Your House, Flip Those Houses, or Flip Some Random House? Even if the dire warnings of the people who are against a la carte pricing would come to pass, it wouldn't be nearly as bad as they make it out to be. I think you'd just have less fat and more lean. As in, maybe you wouldn't have a choice of so many clones of the same show, but you'd still have access to the general show.
3)
And what about the people who would be willing to pay a bit more per channel if it meant that they could control (at least partially) where the money was going? I don't see anything wrong with someone not wanting to subsidize a particular channel for political, ethical, or whatever reason. To use another commenter's example, maybe you find people that watch paint dry revolting and don't want to give them any extra money by subsidizing The Paint Drying Channel. It's their right to have the channel and you should have the ability to have granular control over whether part of your cable bill is going towards their activity.
The point of my post is not so much these counter argument examples, but that you shouldn't be surprised if people bring up the same counter arguments if you don't address them. Remember, the definition of insanity is doing the same thing over and over and expecting different results.
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Re: The definition of insanity
I don't believe that's the most common explanation of why the average bill goes up, actually. There have been a few different reports on the subject, but the main point seems to be that it's a combination of factors that lead to the greater price: including changes to backend and administrative systems that would lead to the higher prices.
Another argument against a la carte pricing is that it would decrease choice and diversity. But this assumes that more channels equates to real diversity. For example, do you really have diversity if on separate channels you can watch Flip This House, Flip That House, Flip My House, Flip Your House, Flip Those Houses, or Flip Some Random House? Even if the dire warnings of the people who are against a la carte pricing would come to pass, it wouldn't be nearly as bad as they make it out to be. I think you'd just have less fat and more lean. As in, maybe you wouldn't have a choice of so many clones of the same show, but you'd still have access to the general show.
Well, I don't have much of a response to that one, since I don't make the "diversity of programming" argument. :)
And what about the people who would be willing to pay a bit more per channel if it meant that they could control (at least partially) where the money was going? I don't see anything wrong with someone not wanting to subsidize a particular channel for political, ethical, or whatever reason.
Sure, but should that be *mandated* by the gov't? I think not.
My point is merely that the evidence in various studies have suggested the pricing would almost certainly increase for most users -- while most users think it would go down. I believe they're wrong based on these reports.
I think Tim's analysis from a little while ago was the most accurate: basically it costs a certain amount for a company to offer a basic package of services. And that's true whether you have 1 channel or 10,000 channels. So, even if you were only getting 1 channel, the real cost to the cable company remains quite high, and you'd end up paying nearly the same amount as you're paying for your current bundle of 200 channels -- perhaps even more because of the additional administrative overhead.
If you really think of the price of the bundle as being the price of just the channels you want -- and all the other channels are basically freebies, that's perhaps more accurate.
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Re: Re: The definition of insanity
I don't believe that's the most common explanation of why the average bill goes up, actually.
The premise that if you forced cable companies to use a la carte pricing, they'd have to charge you exceptionally high prices for the channels you selected (because they themselves have to buy bundles of channels from the media companies) seemed to me to be the main reason given in the following article, which was linked to in a TD post.
http://www.nytimes.com/2007/11/24/business/media/24nocera.html?_r=2&oref=slogin&ref =media&pagewanted=all&oref=slogin
There have been a few different reports on the subject, but the main point seems to be that it's a combination of factors that lead to the greater price: including changes to backend and administrative systems that would lead to the higher prices.
One of the commenters in a previous TD post about a la carte pricing mentioned that in his city, there were so many tiers and granular control over what channels that a particular customer gets, that moving to an a la carte model would be a rather small jump.
In any case, the cost of the technology to implement a carte pricing is a red herring. If all of the disgruntled cable customers in the world could snap their fingers and the hardware and software was magically in place to allow for a la carte pricing, the cable companies still wouldn't implement it. Why? For the simple read that they'd make less money if people weren't forced into paying for channels they didn't want. No company is willingly going to do that if they don't have to.
Sure, but should that be *mandated* by the gov't? I think not.
As I mentioned in a previous post, my personal political opinions run towards the "keep the government out of it" variety. So, I don't think that cable companies should be forced into a particular pricing model. But, I do think that the level of control which the media companies have -- which allows them to effectively force cable companies to buy bundles of channels -- rises to the level of illegal anti-competative activity. What the government should do is move back in the supply channel and prevent the media companies from forcing the cable companies to buy the channels in a bundle. Then let the market work by itself and give the cable companies a chance to implement new pricing options for themselves. In short, don't tell the cable companies how to price their product; just step in and stop some anti-competative pricing by the media companies.
If you really think of the price of the bundle as being the price of just the channels you want -- and all the other channels are basically freebies, that's perhaps more accurate.
But why should the customer think of it this way when the cable companies don't? Specifically, whenever I see a an ad for cable service -- usually in the form of junk mail -- one of the main benefits that is touted is the variety and sheer number of channels. Time Warner doesn't advertise "Hey, we know that you think most of these channels are crap, but just think of your triple digit cable bill as the price you have to pay if you want to see the handfull of channels that you like."
But even if it really is true that a la carte pricing would increase the average cable subscribers bill, there's the emotional impact as well. Is it really good business practice to implement a pricing structure that essentially guarantees that your company will inspire intense loathing? There's a reason that posts about a la carte pricing get so many comments; people hate cable companies. The cable companies are apparently used to being viewed somewhere between child molestors and car salesmen, so as long as they get their money, they're OK, but perhaps it's not such a great idea to be so hated when there are so many options on the horizon.
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On the Fence with Bundling
For example, I would never subscribe to the Home Shopping Network or ESPEN. Now if I am buying a bundle that includes these stations are they paying the cable company thereby helping me to lower my subscription cost or am I actually subsidizing these stations through my cable subscription????
One of the ironies with this bundling concept, is that those who are advocating that it is alright for a corporation to bundle a service claiming that is a social good are also opposed to government providing the same type of "bundle" to its citizens claiming that it prevents a free market from operating. If one is truly committed to free markets, bundling would not be allowed.
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Who decides what channel is cut?
Let's take this a step further: suppose the cable company did eliminate the "crappy" channels (meaning the channels that no one pays to watch).
Now suppose you're a while male living in a largely Hispanic area like Miami or Los Angeles. Now suppose the vast majority of the viewers want 25 Spanish-speaking channels and no one watches the Discovery Channel except you.
Guess what channel will be considered the "crappy" channel? It certainly won't be the 25 Spanish channels that everyone in the market is paying to see. In fact, if the cable company was smart, they would offer *more* Spanish channels since that's what YOUR market wants.
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Cable Sucks anyway.
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There is a great solution - I have it.
I get 12 channel basic cable with my internet for about $10 which I buy because of poor local reception.
With little ones in the house, I'm not too excited to pump "screw and kill TV" into my house 24 hours per day. I'd be happy to pay premium prices for the channels I would like, but I'm unwilling to spend an additional $40 so my 3 YO can learn a new way to rape or kill every time I turn my back.
Bundling is just a BS scheme that increases revenue by allowing providers to collect on infomercials and unwanted subscriptions at the same time. Neither of which would be viable under al a carte.
Why is it that the free market is always promoted by business until the very second it threatens their own market position?
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