A La Carte Cable vs. Bundling Nonsense

Categories: TV Business

Written By

November 26th, 2007

HD DVR from Comcast/MotorolaIn an article in Saturday's New York Times, Joe Nocera proves he wasn't listening in Econ 101 when he talks about the potential for A La Carte cable and its pricing effect.

Nocera goes so far as to say:

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.

That is just nonsense.

That simplistic analysis assumes absolutely no price elasticity of demand at all from consumers. As if the cable networks would maximize their revenue by simply increasing prices to attempt to achieve the same gross revenue in a retained subscriber x monthly cost basis.

The cable networks aren't fools and they know that to maximize their revenues even the popular ones [like ESPN] would likely end up charging consumers something close to what they charge the cable systems today, particularly when the revenue from advertising is added in. Most cable networks would receive less from subscriber fees than they do today, but most consumers would pay less. That's only bad if you're a cable network.

Or course, as I have written about before, there certainly would be winners and losers in an a la carte cable world. I'll repeat myself here for completeness.

Winners: Most consumers, a few very high value “basic” cable channels [ESPN and a few more on this list]

Losers: A few consumers who want “everything”, and the vast majority of cable channels.

Unknown: Cable MSOs. I think if they play their cards right, they could come out fine. If they bungle the politics of such a change, they could get hosed.

 
  • Rena Moretti

    You're 100% right. For some reason, the press has aligned itself with the cable industry's effort to keep on fleecing customers.

    Cable companies should be leasing their pipeline to consumers and let the consumers order through them from the channel providers. This would create a true market where pricing would reflect actual demand and where most channels would be free or really, really cheap.

    There would also be nothing to prevent Fox (as an example) from offering a bundle of all of its channels if it so desired. Consumers would be free to take it or leave it.

  • Rena Moretti

    You’re 100% right. For some reason, the press has aligned itself with the cable industry’s effort to keep on fleecing customers.

    Cable companies should be leasing their pipeline to consumers and let the consumers order through them from the channel providers. This would create a true market where pricing would reflect actual demand and where most channels would be free or really, really cheap.

    There would also be nothing to prevent Fox (as an example) from offering a bundle of all of its channels if it so desired. Consumers would be free to take it or leave it.

  • http://entertainment-technology.blogspot.com/ Roger Goff

    There are additional winners in the long run. Much of the niche cable programming that currently rides the coat tails of the more popular networks would be driven off of cable and onto the Web. This would actually increase the quality of online programming and facilitate the growth of the digital media industry. That would benefit technology companies, as well as online networks, advertising companies and other online players. In fact, Google should be lobbying hard for this proposal!

  • http://entertainment-technology.blogspot.com/ Roger Goff

    There are additional winners in the long run. Much of the niche cable programming that currently rides the coat tails of the more popular networks would be driven off of cable and onto the Web. This would actually increase the quality of online programming and facilitate the growth of the digital media industry. That would benefit technology companies, as well as online networks, advertising companies and other online players. In fact, Google should be lobbying hard for this proposal!

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