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The Continuing Power of the Bundle

June 3, 2011

We haven’t heard about a la carte cable in quite a while, but this week we saw several items on the topic that we thought were of interest.

Alyssa Rosenberg, the new culture critic at ThinkProgress, wrote a piece earlier this week questioning the value of a cable subscription and calling for some kind of “à la carte” model. As a regular reader, this naturally caught my eye, since I have also blogged here in the past about the a la carte issue.

Her post seemed to have attracted some attention (Andrew Sullivan linked to it), prompting a response today from Megan McArdle, the business and economics editor for The Atlantic: Why Can’t We Unbundle Cable?

One highlight (although you should read the whole thing):

As James Surowiecki pointed out last year, most people actually like bundling — they don’t want to buy books by the chapter or newspapers by the article . . . or SyFy by the show.  What they dislike is paying so much for cable.  But they are mistaken in the belief that unbundling will bring their bills down; one recent estimate was that unbundling would lower prices by $0.35 a month.  Other studies indicate that the average consumer would pay more, to cover the transaction costs of an unbundled system.

Bundling is what happens in markets with a high fixed cost and a low marginal cost.  It costs a great deal to run cable to your house, and make or buy television shows to send down that pipe; it costs basically nothing for each show you actually watch.  In this environment, attempting to give people only the networks that they want simply adds costs and hassle for the company, which has to customize everyone’s feed and then deal with the inevitable errors.

Rosenberg then revisited the issue, nicely summarizing the problems with an a la carte approach, even if she seems to remain unconvinced.

The technological means of distributing programming are changing rapidly, not only through the popularity of services like Netflix, but also through the distribution to connected devices (as we recently wrote on this blog). Each of the new services is providing consumers many more ways to enjoy content, either as part of a bundle or on a pay-per-watch (a la carte) basis.

But the economics of program creation and distribution are pretty much unchanged so far. That’s why cable companies’ bundles of voice, video and data continue to provide a lot of value to their customers.

  • Job

    I now love Netflix for doing a partnership with facebook. It became such a burden paying for movies. But through this parnership, people around the world can now have an easy and cool online movie streaming.