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Cable Programming

A la carte: Less for more

April 15, 2008

The issue of mandatory “a la carte” for cable television service continues to be a hot topic. This is actually a pretty broad and complex topic, so I’d like to break it down a bit.

For some people, when they think of “a la carte,” they simply mean, “I feel that my cable bill is too high and I’d like to pay less.” Just remember than any discussion of price ought to include an examination of value. Is the product or service delivering value in proportion to its price? (For more on the relationship of value to price, see this earlier post.)

But, let’s accept the premise for a second. You think your cable bill is “too high.” Many fans of a la carte are making this calculation.

  • Average Monthly Price for Expanded Basic Programming Packages: $42.76
  • Average Number of Channels in Expanded Basic Package: 80
  • Average U.S. Household Tunes to Channels per Month: 15.7

“So, wait,” the thought goes. “If I pay 43 bucks for 80 channels, but I’m only looking at 15 of them, than the other 65 are wasted. There are channels I never look at. Why am I paying for them? If only I could pay for exactly what I want and nothing more, surely I would pay less.”

Let’s also accept another premise. You like some cable channels. You probably don’t watch them all, and there may be a few you actively hate. But if you get some kind of multichannel video service, it’s because there are channels you enjoy and want to see continue and prosper. So, while you might want to pay less, you don’t want that to happen at the expense of the viewing choices you now enjoy.

There’s the conundrum. Mandatory a la carte won’t satisfy either of these desires. You probably won’t end up paying less and you’ll also endanger the economics of the channels you love.

The Yankee Group recently issued a report entitled “A-la-Carte: The Demise of Television as We Know It.” The Research Recap blog has highlights of the report. It’s important to remember that most cable networks – except for premium services such as HBO, Showtime and Starz – have multiple revenue streams. They make money from cable operators for allowing them to carry the service (i.e., to deliver it to you in your home) and they also get advertising revenue. Both of these revenue streams rely on being in as many households as possible, even separate from the issue of ratings.

If I am the president of the Fly Sneaker Channel, in an a la carte world, I now have to market to each household individually to convince you to buy my channel. So, my marketing costs go up. Plus, I won’t make my advertising revenue, because now I’m in zero households to start and I’ll probably never build up to a very large number except very slowly. You might like my channel; you might want to skim it occasionally to check it or there might be a positive review that makes you want to see a particular program. But because it’s not on your lineup unless you choose to subscribe to it, that won’t happen.

Now read the recap of the Yankee Group’s analysis.

  • Under a la carte, programmers will lose their current economic model. Surviving networks will have to charge consumers between $5.00 and $10.00 per channel to overcome the decrease in carriage fees.
  • With a la carte, casual viewers go away, decreasing both viewers and advertising revenue. Niche networks won’t have enough reach to survive.
  • With mandatory a la carte, the 565 national video programming services and networks will dwindle.

Some networks will not be able to financially survive. Before you say “Good riddance,” don’t assume your favorites will survive. Many networks may not have the money to invest in new and innovative programming, so you may have to kiss your favorite shows goodbye as well. The networks that do survive may have to charge several bucks a month for subscription fees. Odds are you could select very few channels before you’re right back up to the price you’re paying now.

  • InKable

    One of the essential misconceptions made by cable is that the quality of the service, and therefore the justication of the cost of cable, is related to the number of channels. In other words, the more channels you have the more the service is worth. As a consumer, that is simply not true. The value of the service is in the content I view, not in the content you make available for reviewing. This fact is why IPTV has and will upset traditional cable distribution just as the Internet disrupted the music industry distribution model.

    It is unfortunate that cable doesn’t recognize in an a la carte model, each channel will be competing with each other and as a result programmers will be forced to become more competitive. Cable saves programming cost and the consumer’s bill is reduced. As it stands now, the cable company is forced to represent its entire customers interest in negotiation. If it goes badly, cable just has to raise its prices. What can the consumers do about it? Basically, there are no equal alternatives at this point. And if the public cry gets louder about its increased bill, cable can always add another channel and show that the cost of the service (on a per channel basis) is the same – so the value must be the same or better. Also the fact that some of my channels will cost me more because they are subsidized is not a reason to maintain the current system. If they cost more than I have the choice of excluding them. In other words, my choice will help indicate what survives in this market based model. And although I recognize that some channels will increase in cost doesn’t mean that my bill will increase because I have the option and power to remove the channels that are marginal until the value of the programming meets my needs.

    The funding of new content should be a risk proposition of cable and not the consumer. I suggest that cable package new programming and offer it on a trial basis to solicit subscriptions. For other programming, the FCC can institute regulation as it does in broadcasting. The ad based model should be used to cover these costs.

    Cable had better create a workable model that reflects my interest and sense of value or they will be overcome by events.

  • Paul Rodriguez

    Okay, I agree that quantity and quality are not axiomatically related. But are you really arguing that a service that delivers fewer channels is worth more?

    Before cable, viewers had a handful of choices: ABC, NBC, CBS, and maybe a few local independent stations. That set of options was free. If you subscribed to cable, it was just to get better reception (as my parents did). As the number of channels exploded in the Eighties, so did the number of subscribers. I jump to the conclusion that they saw a value (and were willing to pay a price for it) in having more channels.

    You make the argument “The value of the service is in the content I view, not in the content you make available…” I would counter that the value of the service is in the array of choices from which you can select. If I give you ten choices and you pick one, the value may be in the one you pick. If I give you 100 choices and you pick 10, the value is in having a wide array of choices from which you were able to select 10 things that met your needs.

    I think of it as a bit like the difference between going to the diner and a swank brunch buffet. I can go to the diner and get just what I want and nothing more: 2 eggs, bacon, juice. But I can go to the big buffet brunch and choose from a wide array of food. I didn’t waste money if I don’t eat from every dish; the value was in having a lot to choose from.

    Remember that the economics of selling eggs and selling a 24-hour television channel are completely different. The buffet model happens to work best in delivering a wide set of choices today.

    You also argue in an a la carte world, programmers would have to be competitive, which you then think will lead to programming costs lowering. The only way they go down is if there are fewer channels and the cost & quality of the programming on those channels also goes down. You seem to argue that you’ll select the channels that are of value to you, those channels that don’t meet your needs will be weeded out, leaving just the channels you want. You also seem to assume that in a market-based model, the remaining channels won’t have to charge a very high price in their new “a la carte” world that requires them to market to each individual viewer and convince them to but their service.

    Go back up and read the post again. I don’t think that’s going to work to your benefit.

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  • Rachel Jackson

    I second InKable’s analysis of the values of a la carte, but I think I would even be willing to pay *more* for the right to make my own choices and tailor my coverage. Perhaps I’m rusty on concepts of value when it comes to cable because I haven’t had it– or any TV channels–for close to seven years. To me, the ultimate value lies in how I spend my time and the freedom and flexibility I have in determining what to watch and when. If cable companies can’t flex even a little to meet my definition of value (optional a la carte at a premium price?) then I’ll continue to do what I’m doing now– withhold my dollar power until something better comes up.

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