NCTA — The Internet & Television Association

Does A La Carte Always Make Sense?

Does A La Carte Always Make Sense?

In the last few months, a number of blogs have written about "a la carte" consumption of content as a cost-savings measure. In these tough economic times, managing your entertainment and information budget is certainly a good idea. But much of the discussion I've seen fails to note that this approach isn't going to work for everyone. For example, in early June the I Will Teach You To Be Rich blog argued in favor of cutting down on unneeded subscriptions: "Instead of paying for a ton of channels you never watch on cable, buy only the episodes you watch for $1.99 each off iTunes." (Also see the discussion of this tactic on Lifehacker.) You also often see people talking about how little cable television they watch.
  • The Short Bus: "After all, I only watch about 5 or 6 channels - none of them are a major network."
  • jetdawgg at Leatherneck.com forum: "Frankly, the only Time-Warner channel I REALLY want is Turner Classic Movies. Maybe a couple others."
I've also seen people argue that they only watch a couple of cable series. And if you're a low-level consumer of such content, perhaps this makes sense. More and more television programming is available online, either as free streaming video or available for purchase on an a la carte basis via services such as iTunes or Unbox. Some have asked if Apple TV could be a replacement. As the supply of broadband video grows, the theory goes, consumers can turn to an online supply of a la carte video to satisfy their needs, saving money at the same time. So, let's run some numbers. According to estimates from SNL Kagan, the Average Monthly Price for Expanded Basic Programming Packages (2007 estimate) was $42.76. You can buy some television programs on iTunes for $1.99. Once you've purchased 21 or so shows at two bucks a pop, you've now matched the price of expanded basic cable service. At that rate, you could watch one show each weekday night, but you'll have to take the weekends off. But if you want to watch more than that, then subscribing to cable makes more sense. Another measurement is to take the average basic cable rates from SNL Kagan and divide it by average basic cable network viewing time from the Cabletelevision Advertising Bureau to obtain the Average Price Per Viewing Hour, which was 24.5 cents in 2006 (see an explanation of PPVH here). Since a typical hour drama can be purchased on iTunes for $1.99 - which makes their Price Per Viewing Hour about 8 times more. Keep in mind that a half-hour show also costs $1.99, making the PPVH for fare like Family Guy and South Park even higher. Naturally, there are a couple of built-in assumptions to the a la carte argument: how little TV you will watch and how much cable programming you can get online. A recent Nielsen report on TV, Internet and Mobile usage found that the average American is watching 127 hours, 15 minutes per month. To watch that amount of video at $1.99 per hour would cost more than $250 per month. And if half of those shows were half-hour sitcoms (also at $1.99) the monthly bill would come in at $380. The people above who are quoted as watching so little television fall well below the average. What's interesting about the discussion of this topic is that there's an assumption of how much video is watched online by consumers. Sure, there are certain groups who watch a ton of video online and watch little, if any, cable TV. But that Nielsen study found that Americans are not only using the Internet more, but are watching even more television. You might think this doesn't apply to young people, but the Nielsen study says that 18-24 year olds are watching over 103 hours a month, and a recent study from Alloy Media + Marketing found that 38% of college students aren't watching online video at all. This is not to say that there's not growth in broadband video. For example, 37 million episodes were watched on ABC.com's video player during the month of May, or a total of 815 million minutes of full-length content.. There's a good deal of broadcast programming online. But your local news isn't available online. And while some cable programming is available, much of it is not. Will Richmond explored this issue and explained the importance of cable programmer's dual revenue model. Finally, the study of economics demonstrates that people's mental states can affect their perception of this equation. You may think a subscription makes more sense because you pay once and get a lot. If you consume less than you think, a subscription approach might not be right for you. But when it comes to consuming television, consider your cell phone. Remember a few years ago when cell phones were new? You got one and selected a simple plan, because you were only going to use the phone for emergencies. And then you got in the habit of using the device, because it's so convenient, and then your bill went through the roof. Today, it's smart to get a plan with a lot of hours or unlimited texting or some other pricing system that's economical. Similarly, if you truly only watch a very small amount of cable TV, and if your favorite program is available in some other form, then it might make sense to purchase your video programming by episode. But if you watch an average amount of television, which is more than 4 hours a day according to Nielsen, then one of cable's various packages (basic, expanded basic, digital, etc.) definitely makes more sense. UPDATE:  I just noticed that this January post during CES touches on many of these same issues.