You know those insulting fantasy football trade offers you sometimes get that start off with some pitch about how the proposed deal is so great for you? That's how I felt when I read this quote from an ESPN flack Tuesday in a Philadelphia Inquirer article on cable bundling:
"The report underscores what economic studies have said time and time again - that the cable package presents an undeniable value and the consumer would pay more and get less with a la carte."
The comment from ESPN spokesperson Amy Phillips came in response to the release of a report on the future of the television industry by analyst Laura Martin of Needham & Co. L.L.C. in Boston. Martin's analysis concluded that the pay-TV industry stands to lose billions of dollars if ESPN were unbundled from cable packages. The thinking goes that offering cable channels a la carte would have a three-fold effect. First, it would "raise" the subscription fee for ESPN from roughly $6 per month to $30. In turn, people who are paying the higher fee for ESPN would be less inclined to subscribe to other cable channels. With fewer subscribers, advertising revenue would shrink.
ESPN's argument about the "undeniable value" of the cable package rests on the very faulty premise that because ESPN charges cable providers $6 per subscriber, everyone who subscribes to cable gets $6 in value from ESPN. That couldn't be farther from reality.
These days, digital cable subscriptions offer literally hundreds of channels. However, given that we can only watch one thing at a time, consumers generally flip between a select number of channels.
When we send in our payments every month to Comcast or Time Warner or Verizon, we're not really paying them for every channel we get. We're paying them for the channels that we want to watch within that package.
So, what would happen to you, TV watcher, in an unbundled world? According to Martin's calculations, ESPN would charge you $30 per month. On the other hand, unless you like movies about the dangers of online porn and learning to love again after being hurt one too many times, you wouldn't be paying for the Lifetime Network.
Ultimately, this illustrates how ESPN is spinning this entire issue. The bottom line is that an a la carte television model would create a more efficient pricing mechanism for media content than the crude system we have now. The fact that a company like ESPN would use such a blatantly disingenuous argument in favor of the status quo shows just how strongly the pay-TV industry fears going a la carte.
So if we'd be paying the content providers more money for less product, why aren't they pushing for a la carte?
Likewise, if ESPN could get away with charging something outrageous for every football game it owns by putting it on pay-per-view, why isn't it doing that now?
If everyone on average proportionately paid the same amount to each content provider for fewer networks, that's less ad revenue coming in from those networks before we even consider the lower potential audience size per network. And for sports channels specifically, they rake in so many sports rights not just because of their money, but because of their reach. If ESPN suddenly is in only about a third of homes, bye-bye BCS and possibly a whole mess of other rights. A la carte would probably make the broadcast stations and networks a lot more competitive, assuming they're not included in the a la carte and aren't gutted by the time we get to that point.
Dude, you are INSANE if you think a la carte is better for us. I pay about $100 per month for, who knows, a billion channels. With a la carte, that $100 would get me like 10 channels.
Cable is expensive but, damn, the alternative is so much worse. I'd have to buy the channels I want...and additionally, my girlfriend has her go-to channels. Ugh, just thinking about this is making me queasy.
Frankly, I don't even understand how you came to your conclusion. "...learning to love again after being hurt one too many times, you wouldn't be paying for the Lifetime Network." I'm going to assume the writer does not live with a female.
And I'm speaking about myself. What about a family of four?? Channels for Dad, Channels for Mom, channels for Billy, channels for Sally...I mean, that monthly bill would skyrocket.
@stholeary Spot on. I made this same argument with a friend the other day. Most people I see making the type of argument in the post don't get what it is like to be a family of 4 or 5 with children in different life stages. You need the female networks for the wife, you need the cartoon networks for the kids, you need the MTVs of the world for the teenagers and of course you need sports.
The people I feel bad for are those who don't like/watch sports. Those are the ones who are getting royally screwed because about one-third of your cable bill is because of the sports networks. Nevermind if you live in a multiple-RSN market
Repeat after me: Internet. Internet. Internet. It makes traditional linear television entirely obsolete except for live events anyway. The people making money now really hope people don't realize this or their response to arguments like this one will be "So?"
Leverage is a big thing in the media industry. Yes, ESPN can probably charge an arm and a leg for the network(s) in an a la carte world but what you are forgetting is that ESPN is owned by Disney. Disney owns non-ESPN networks that get sold to MSOs because ESPN is the carrot. No Disney XD? No ESPN for you.
If ESPN goes a la carte, those other networks would likely die with the exception of probably Disney Channel which isn't good for Disney. In reality, Disney would end up bundling their networks, meaning you would still end up paying for a bundle just like you pay your cable provider now. Unless you decide you want independent networks (very few of em) you are going to get stuck with networks you don't want.
I unbundled 10 months ago - dropped all the TV parts, just kept the internet. I have access to another account when I really want to watch something streaming which requires a Comcast login connected to a TV account, and I occasionally head to a sports bar on a Saturday afternoon for lunch and some college football or pro baseball, and I have MLB At Bat for out of town radio feeds.
Is it perfect? No. Would I pay for MLB.TV if it included local market games? Yes. But I figure that I've cut my costs by over 40%, and I don't miss Sportscenter at all.
If you give consumers the a la carte choice, EVERY network would see their potential audience shrink. And EVERY network will raise their prices to keep their budgets balanced. If EVERY channel goes up in price, every consumer will then be paying more for the same amount of product.
@Geneseo98 Except that many of the marginal networks would either go out of business, or switch to a different streaming delivery model.
@ConfuciusJcksn And that's good for consumers, again how? Paying more overall to have fewer options to watch?
Yes its spin, but not totally wrong either. Another thing you aren't thinking about is the smaller networks around. There are plenty of networks that frankly wouldn't survive if they weren't getting that $.25 per customer. So by bundling everything together, you really are getting more for the money. Here's an example, I enjoy the show Top Chef. Now there is nothing else on that channel I would ever watch, so I probably wouldn't pay for it. I think there are a lot of people out there that have 1 show on a specific network they otherwise wouldn't watch, but they wouldn't buy it themselves. That would lead to the network not making money and making their a la carte prices so high that even the fans wouldn't want it.
ESPN may charge the most, but that model really does benefit many other networks.
@bwatson1002 If the only thing you watch on that channel is Top Chef, why do you want to pay for the rest of it? Why not pay for Top Chef on its own? Or force the networks to consolidate the shows you like?
@BlatantHomerism Seriously? You want to give cable a "pay-per-view" option? That's even dumber than your original article. I mean, do you like paying $70 to watch Floyd Mayweather fight? Then have fun pay $30 to watch your favorite team play every week. Geez.
@BlatantHomerism if I had the option of purchasing a season of a show, such as Top Chef, I would probably be fine with that. My point is though is that this model would make it near impossible for a network to survive, and it would be really hard for shows to find an audience and grow.
Another consideration is offshore streaming of live sporting content readily available on the web.
It's highly probable that the majority of viewers want the simplicity of just flipping on ESPN on that HD tv and watching the SEC game every Sat. night. Is it worth $30 a month to those not that interested who can just stream the content for free? Even hooking that subpar stream to a large TV?
Admittedly, the introduction of online streaming for free is something outside the jurisdiction of this article's quote/analysis, but it's a growing reality and not likely to go away. It might sound silly, but as technology becomes more advanced and the global web becomes more tightly knit, the real question might be whether ESPN will be justified in that $6 per head figure when everyone will be able to get their LIVE game fix for free or at lower cost.
In this time of year, the sporting deadzone, it's easy to claim that ESPN is overpriced. But when college/pro football rolls around, ESPN is a bargain for its live content alone.
I'm not sure that there's much economic research to suggest that a la carte models are inherently more efficient. Bundling is common all over the economy, from fast food to automobiles to gym memberships. I think you discount the value to consumers of knowing that you have the option to go to one of these stations that you're not really interested in most of the time. Despite that you can stream most of the movies from NetFlix by paying a la carte prices, NetFlix exists because it provides value above that.
Now I agree that there are different implications in TV. And the internet is likely to force some of that upon the service providers (it likely already has). But the solution is not to force unbundling... it's to eliminate all of the barriers that local governments continue to put up that prevents any sort of competition in cable.
This assumes you're the only person in the household. Or everyone in the household likes to watch the same programs
As much as I've heard about the ala carte pricing, I'm not 100% sure that I would benefit from it.
1) Assuming every household gets only one plan(which admittedly is a big assumption,) there will be a lot of households where the woman wants to watch sports and the man wants to watch heartbreaking movies about the dangers of learning to love on-line porn again.
In an a la carte scenario, they each get what they want and pay roughly $20 for ESPN 1 and 2, kick in another $5 for the B1G 10, another $1 for Fox Sports 1, and 2, and 50 cents for NBC Sports. Then they pay for the lifetime stuff.
And while I generally am a sports fan, there are times where I want to see a National Treasure for the 500 time this summer. So I'd have to pay every month for the stations I occassionally watch.
What would be particularly nice as a consumer, (and terrifying for a network) is a true pay per view scenario. You want to watch the Reds vs Pirates? $1. Want to watch Big Bang Theory? $1
This of course would lead to people actually having to choose how much they value each program and would likely lead to them choosing better things to do.
Somehow I think that $30 "fee" for ESPN would be high. Maybe they'd get that at first. But ultimately, supply, demand and competition would bring the cost down to its "water level". That's what they are afraid of, as Allen points out. IF we can get a la carte and NO contracts, then Econ 101 would really take effect.
@kdjohn34 - I have to agree. I'd be perfectly fine stripping out all sports channels from my satellite feed and going simply with NFL Sunday Ticket and NHL Center Ice provided that they lose the blackout when the game is broadcast nationally (which irritated the hell out of me during the playoffs because my package does not include NBC Sports so Center Ice only had value during the regular season). Even more so, if those two services (and others like them) offered a one-team package for those viewers who are followers of a specific team that is not otherwise available in the area in which they live. ESPN no longer has any value for me and losing it from my satellite feed would not bother me in the least.