There was a column in the L.A. Times yesterday from David Lazarus entitled: “Let’s pay only for the TV we watch.” So, once again, back we go to the topic of “a la carte” cable service.
I get it. It feels like much of the content world is going to a pay-only-for-what-you-want model. Certainly, it feels right emotionally to only pay for the stuff you’re going to use. But this argument is almost always predicated on one premise: If I could pick and choose, my bill would go down.
The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly.
That’s more than 100 channels that most cable subscribers are paying for but seldom if ever watching.
Because of the number of cable systems nationwide, it’s hard to get a fix on the average monthly bill. But many estimates place this figure at $60 to $70.
This means, if all channels cost the same, the typical cable subscriber is spending about $9 a month for the 17 channels he wants to watch and about $55 for the 101 channels he never sees.
There are big problems with the figures here, so let’s break it down.
If you’re getting 118.6 channels, that means you’re getting digital cable service, because analog can’t deliver that many. SNL Kagan estimates that the current average monthly price for digital service is $59.23 (expanded basic is $44.28), which not only provides a wide range of programming but also opens up the door to high-definition and Video on Demand.
The first important point that Lazarus overlooks is that the average cable subscriber has elected to switch from a cheaper level of service with fewer channels, in order to take a more expensive level of service with more options. Perhaps people like the greater choice that comes with digital?
For example, Cablevision recently reported that more than 90% of its video customers subscribe to digital service, which means that 9 out of 10 of its customers want more channels, not fewer. If you look at the largest cable operator, Comcast, you find that 69% of its video customers elect to subscribe to digital service. Industry-wide, approximately 62% of cable’s video customers have made the decision to receive more channels via digital service.
But all channels don’t cost the same amount. By most accounts, the sports channel ESPN is one of the most expensive carried by cable systems, costing by some estimates more than $3 a month per subscriber. Many other channels are said to cost as little as 25 cents monthly.
I never watch ESPN. When I watch TV, it’s usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.
That, of course, is not what the cable industry wants.
Lazarus leaves out all of the relevant content here. Those figures he cites are carriage fees that cable operators pay programmers in order to carry those services and offer them to their customers (The real rates are found in private contracts; actual figures will vary by company and circumstances). It’s not what those networks “cost” and it’s not a reflection of what you would be charged in an a la carte world.
He also writes:
According to the FCC, average cable rates nationwide more than doubled over the last 10 years.
In fact, the FCC has not released any reports containing this information. There have been statements in the media to this effect, but the Commission has not released any reports to back up this assertion. It is irrelevant to compare today’s rates to the rates from more than ten years ago, since the nature and value of that service has changed over that same time-frame, but it is worth noting that over the last several years, the increases in cable rates have actually lagged behind inflation rates.
Read this post for the financial details, but the short version is that if each network lost the carriage they have now and then had to market and sell the channel to individual consumers, revenue goes down, operating costs go up and programming quality probably also goes down. And the price you think you’ll pay for individual channels on an a la carte basis? You’re probably grossly underestimating it. The reason why you should pay for more than you watch is that it beats paying more to have fewer options.
Lazarus writes that cable needs to be brought “in line with the wholesale shift in how consumers now approach entertainment.” But different distribution outlets have different pricing models. If you saw Iron Man in the theaters, you probably paid ten bucks. The DVD is probably $20. Buy it on iTunes for $15 or watch it on VOD for $5. As I’ve written previously, different businesses operate on different models and it’s a mistake to assume they should all be the same.
Lazarus makes a comment early on about knowing “as a newspaperman” a little something about “outdated business model[s].” The print edition of his newspaper, the Los Angeles Times, is not sold on an a la carte basis, with the option of buying just the sports section or the business section. They did experiment a few years ago with putting their online entertainment section behind a wall and then charging a subscription fee for access. They later ended the experiment. The New York Times did something similar with its TimesSelect service. In these instances, the free market determined their actions, not regulation. Business models change over time and the models of the cable industry will undoubtedly do so as well.
If you look at the comments of this column, you’ll find some other reasons given why mandatory a la carte would probably be problematic. You could also check out some of Mike Masnick’s posts at Techdirt, such as here, here or here.