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Posts Tagged ‘Cable’

Yes, A La Carte Cable is a Sucker’s Bet

Posted by Fred on April 1, 2008

Chris Albrecht at NewTeeVee asks whether a la carte pricing for cable is a sucker’s bet:

“A la carte” pricing for cable has been a hotly-debated topic since… well, since people first looked at their cable bill and cursed their provider. Yankee says the average cable subscriber pays $60 a month for basic cable, and Nielsen Media Research said that the average cable subscriber pays for 85 channels and only watches 16.

The implied question here is why pay for 69 channels you don’t watch (or, conversely, why pay $3.75 per channel you do watch).  Phrased that way, it sure sounds better to pay $22.67 for the 16 channels you like and tell the cable company to pound sand.  It is, however, precisely the wrong question (which Chris probably realizes).  What we need to know is the net cost to run the network (overhead-non subscriber revenue) and the number of people willing to pay for it.  Add some margin to A and divide by B, and you have a nice a la carte price.

Unique viewer numbers are virtually impossible to obtain.  Suffice it to say, a highly rated cable program would be an abject failure on network TV.  Beloved darling BSG averaged 1.8 million viewers last season, according to this week’s Entertainment Weekly. Recently-canceled Internet cause célèbre Jericho drew about 6 million for its March 25 episode.  And no, that doesn’t mean there are 1.8 million people who would pay a la carte for SciFi Channel (the actual number is n-x, where n is the total number of unique viewers and x the number of cheapos who won’t pay for it – I have no idea what n or x is).  Dividing net cost by (n-x) is certainly more than $1.25.

So what would you pay for a la carte cable?  Almost certainly more than you pay for a bundled package, wherein you subsidize me watching Katie Sackhoff on Friday nights (or whenever I get around to watching the recorded show on the DVR), and I subsidize you watching The Hills.

NewTeeVee thinks (duh) that the answer is New TV:

Of course, proping [sic] up cable companies and their dying business models isn’t a good reason to keep a la carte around. But go ahead, keep fighting; we’ll be over here watching Hulu.

Now I like Hulu as much as the next guy, but how much did NBC-U get for the “limited commercial interruptions” in the 2-part BSG Season 3 finale?  Certainly not enough to pay for the production costs, even if all 1.8 million descended on Hulu and crashed the stream.  Hulu is also a poor substitute, given the paucity of its library and the limited number of episodes for shows that are there.

Eventually, cable may go the way of the buggy whip, but not yet.  Internet-only video is still somewhere between Adequate and Sucks Ass.  Internet distribution of Old TV is still hamstrung by content providers and bandwidth.  So we suck it up, pay The Man, and complain about our miserable fate.


Posted in economics, TV | Tagged: , , , , | 1 Comment »

Here’s One Justification For Capping Cable Growth

Posted by Fred on December 4, 2007

Techdirt wants to know what’s wrong with cable industry consolidation:

Because cable is geographically constrained, from a consumer perspective, all that matters is the market power my provider can exercise locally. If I’ve got three regional cable providers to choose from, it makes no difference whether two of them each hold a 40 percent national share. If I’ve got only one serving my area, the fact that it only controls 3 percent of the national market is similarly irrelevant. And if I’m in the latter boat, declaring that the largest firms with the most resources are forbidden to expand their operations into my neighborhood scarcely seems calculated to increase my access to alternatives. The FCC cites regional consolidation as a motive for the cap, but if cable providers are gunning for such regional monopolies, then won’t they divest first in the regions where they do face competition, and hold on to the areas where they’re the lone option?

There’s a certain element of truth to this, of course.  In determining the price I pay for TV service, it matters little whether Comcast has 5% or 50% national market share.  Comcast just raised my rates for cable service, but left their rates for phone and internet service the same.  They face little competition in the Richmond market for TV service (FiOS is available in limited areas, but not at my house), but compete fiercely against Verizon for telephone and internet customers.  The problem with Julian Sanchez’ thesis, however, is that if freed from the 30% cap, Time Warner or Cox would come into the market to provide cable competition.  They wouldn’t, and in most places they can’t, due to local monopoly franchise contracts.  What the cable companies would do is expand nationally via acquisition of smaller rivals, with TW and Comcast heading inexorably toward a cable duopoly.  They have very little interest in competing against each other, mirroring the situation in telecom in 1996.  Bell Atlantic, while hamstrung in its region, could have offered competitive service in the BellSouth or Ameritech regions, but they had absolutely no interest in doing so, to the detriment of consumers.

So if cable consolidation wouldn’t drive prices down, what’s the harm, given that cable companies already have local monopolies in many areas where IPTV or satellite isn’t an option?  The harm isn’t horizontal market power expansion (going from 30% to 50% of the cable TV market), it’s vertical market power expansion.  Time Warner already produces content through its myriad entertainment properties.   Comcast owns E!, Versus (nee the Outdoor Life Network),  the Golf Channel and G4, along with Comcast SportsNet regional networks in DC and Philadelphia.  Comcast also has partial ownership interests in MGM, United Artists and the Philadelphia Flyers and 76ers.  To the extent these cable giants get even bigger and squeeze out competitors, they have even more interest to play hardball, both keeping competing programming off their networks and refusing to provide their own programming to competitors.

This has already happened several times with regional sports programming.  After the Baltimore Orioles started a network (MASN) to compete with Comcast SportsNet, the cable giant sued, and said that “we think in most sports markets in the country, that it’s more efficient and better for the customer to have a single regional sports network.”  Similarly, Cablevision refused to carry the Yankees’ YES network after the team stopped selling cable rights to the MSG network (owned by Cablevision).  When the Twins tried to start Victory One Sports, TW and other providers refused to carry it, killing the fledgling network.

So long as multiple cable providers exist, there’s far less incentive for such shenanigans, but if there are only one or two large providers, the incentive to withhold content from competitors increases, and makes it harder for competitors to establish themselves.  Eventually, diversification and technology will win out, but in the short term, that’s one reason to fear consolidation.

Posted in Government, Technology, TV | Tagged: , , , , , , , | Leave a Comment »

NYT explains why à la carte cable is more expensive

Posted by Fred on November 27, 2007

The New York Times’ Joe Nocera explains cable economics:

The reason is that unmoored from the cable bundle, individual networks would have to charge vastly more money per subscriber. Under the current system, in which cable companies like Comcast pay the networks for carriage — and then pass on the cost to their customers — networks get to charge on the basis of everyone who subscribes to cable television, whether they watch the network or not. The system has the effect of generating more money than a network “deserves” based purely on viewership. Networks also get to charge more for advertising than they would if they were not part of the bundle.Take, for instance, ESPN, which charges the highest amount of any cable network: $3 per subscriber per month. (I’m borrowing this example from a recent research note by Craig Moffett, the Sanford C. Bernstein cable analyst.) Suppose in an à la carte world, 25 percent of the nation’s cable subscribers take ESPN. If that were the case, the network would have to charge each subscriber not $3, but $12 a month to keep its revenue the same. (And don’t forget: with its $1.1 billion annual bill to the National Football League alone, ESPN is hardly in a position to tolerate declining revenues.)

Of course, the real math is even worse for the consumer.  According to the recent Warren Communications study, there are about 67 million households that subscribe to cable service with at least 36 channels.  For the week of November 12-18, the top-rated prime-time cable channel was the Disney Channel, with an average of about 2.9 million viewers. For that week, less than 5% of cable households tuned into the #1 cable channel (ESPN’s at number 3, or 4.1%).  If you go down to number 20 (the History Channel), it’s only 1.5%.  Would any of these nets really get 25% of the total cable households to buy them a la carte?  It’s really pretty simple math: the revenue required to run the channel stays the same, but the customer base over which such costs are spread goes down dramatically, so the price goes up (also dramatically).  That’s not to mention the sharp cut in advertising revenue with far fewer potential eyeballs, and any increased overhead costs for the cable companies, who would have to implement a far more complicated billing system (and they can’t even get the simple one right much of the time).

A la carte programming sounds great in theory, but it would be bad in practice, and wouldn’t save anybody any money.  that’s not because the cable companies are evil, greedy bastards (at least not this time), but simple economics.

Update: As pointed out in the comments, the numbers above are average viewers (which I noted when I quoted them). Unique viewer data isn’t available. I stand by my original point, however. You’re not going to get from 2M average viewers to 12M or 15M subscribers for most channels. Even the #1 cable show (almost always Monday Night Football on ESPN) gets only about 10M viewers. Is the total ESPN subscriber base significantly broader than the pool of people who watch MNF? You’re certainly not going to get to the numbers needed to make the fee per subscriber cheap.

Posted in TV | Tagged: , , , | 2 Comments »

Cable industry really mad, calls FCC Chairman names

Posted by Fred on November 15, 2007

Cable companies have been taking it on the chin a bit of late, with Comcast under heavy fire for “traffic shaping” (a/k/a screwing around with BitTorrent rather than building adequate infrastructure), the Chairman of the FCC pushing a la carte pricing, and the FCC killing exclusive contracts with apartment building owners. Now the cable lobby is striking back.

“We’re not going to fundamentally wreck business models and hurt customers to appease the chairman of the FCC,” McSlarrow told reporters during a conference call yesterday. “If one looks at the commission’s agenda . . . the issues that have been teed up have been designed to hurt the cable industry. If I were in that position,” meaning the chairman, “that’s not the way I would conduct myself.”

There a many nuggets hidden away in that single paragraph. Note the implicit argument that the FCC has a duty to protect the cable industry’s business model. Note that the FCC’s attempts to help consumers are characterized as being designed to hurt the cable industry. Note the argument that the FCC Chairman shouldn’t be running around hurting the cable industry (remember who your true masters are, boy!). Note the threat at the end. It reads like the pathetic whining of a bully that isn’t getting his way for the first time.

The mission of the FCC was laid out in the statute that created it in 1934: “to make available, so far as possible… a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.” Nothing in there about protecting cable business models, but explicit reference to protecting consumers from inadequate service and unreasonable charges. The FCC’s baby steps in this area make the industry mad, and if the cable industry is mad, consumers are probably happy.

That’s not to say that a la carte pricing would be a good thing for TV viewers. Like virtually every cable customer since, well, ever, I’d love to jettison two-thirds of the channels Comcast delivers to me, and subscribe only to the channels I watch. I’d love to adjust the channels I subscribe to seasonally (get rid of ESPN U when it’s not basketball or football season, for example). But the system was clearly built on a foundation of bundling lesser-watched channels with popular ones. True a la carte pricing would kill some channels because demand would be so low as to make them economically untenable. Maybe that’s a good thing – if they can’t survive, maybe they shouldn’t. But that’s the reality, and it’s therefore incredibly unlikely that a la carte pricing would be attractive. Like everything else, cable companies would look at the change and raise rates.

The real answer ultimately is not additional regulation, but additional competition. The 1996 Telecommunications Act was intended to kick-start competition, but the facilities sharing requirements, which supposedly would have permitted upstarts to compete without building redundant infrastructure, instead just gave the incumbent monopolists loopholes and mechanisms to litigate their competitors to death. Only now are we seeing any real competition, with Verizon laying fiber and the satellite companies launching satellites. Eventually, this should improve cable service quality and drive prices down (although duopolies are sometimes little better than monopolies). Ubiquitous broadband and internet programming will help, too.

ico_shoutbox.gifvia CrunchGear

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