Population Statistic: Read. React. Repeat.
Monday, November 26, 2021

We all endure it: Subscribing to a total package of 800-odd cable/satellite channels, just to get access to the half-dozen or so that you ever actually watch. It’s a rip-off, right?

Yes and no. The familiar bundling of tiers of channels is actually, due to the economics of television advertising, a cost-saving measure for consumers that the pick-your-own-channels alternative couldn’t match:

True, if you decide to take only one or two channels, à la carte pricing will save you money. But how many people are going to limit themselves to one or two channels? In fact, even if you pick as few as a dozen channels, à la carte will almost surely cost more than your current “exorbitant” cable bill.

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.)

And that’s one of the most popular channels on cable. What percentage of cable subscribers would take Discovery, or the Food Network, or Oxygen, or Hallmark — or the many, many more obscure networks that you can now find up and down your cable box? Five percent? Ten percent? According to Mr. Moffett’s analysis, if every African-American family in the country subscribed to the Black Entertainment Network, it would still have to raise its fees by 588 percent. He adds, “If just half opted in — still a wildly optimistic scenario — the price would rise by 1,200 percent.”

Ironically, the free-for-all under an a la carte system sounds awfully like the Web — a decentralized media outlet filled with mostly isolated content aggregations (channels/websites). Such a fragmented environment poses challenges for both building audiences and, subsequently, attracting serious ad money — thus the jacked-up subscriber fees. The counteracting solution would be an overarching advertising syndicate for the a la carte television universe, ala Google AdSense (which has actually made the Web advertising viable, for a change).

The big difference is that, while it can cost next to nothing to maintain a website, it costs tons to keep the lights on at a television network. One effect might be tightly-focused programming for each network, just like ESPN for sports (or perhaps more likely, single-purpose channels for each sport, etc.); but they’d have to have pretty large audiences to stay afloat, with high premiums per pair of eyeballs for ad placement. Pretty soon, the dollars simply don’t make sense.

by Costa Tsiokos, Mon 11/26/2007 11:06:58 PM
Category: TV, Business
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  1. Hmm. Sounds like these stations should investigate other income streams. Maybe they could license their brand to a line of clothing or restaraunts, maybe, or take time out of their busy programming schedule to allow manufacturers and service providers time to talk about their goods.

    Comment by Thud — 11/27/2007 @ 08:44:34 AM

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