We Hate Bundling: The Bullshit Meme Of This Decade?
Whoever came up with the concept that people hate bundled content was a genius… and insane.
I’m not sure the question of whom is rhetorical. It was someone who looked at their expensive bill for entertainment coming into their home and decided they wanted to whine about all those channels they don’t care about.
But that person… and a throng on the smartest media reporters on the planet… got sucked into an Alice in Wonderland tea party of absurdity, right up there with people hating Congress while always voting for their incumbent Congressmen.
In the entertainment universe, here is what audiences currently get on an a la carte basis: movies in theaters, post-release film and television they pay for on a per-episode basis or ultimately by seasons on DVD or download, live theater, live music, and… well, that’s pretty much it.
Everything else is in a bundle.
There is the most obvious “bundle”… the one on your TV. You get 250 channels and you watch, maybe, 50 of them more than once a year.
But if Netflix has 10,000 options of movies and tv shows and you watch no more than 200 of them in a year, how much different from cable/satellite is that? Or is it at all?
A broadcast network is a bundle. It bundles many varying ways of generating revenue – ads, affiliates, retransmission, streaming, post-broadcast sales, etc – into every TV show you watch so that it can afford to pay for every TV show you watch… and the ones you do not.
Currently, as far as I know, there are no circumstances in America where cable/satellite subscribers pay more to access any one of the 5 major Broadcast networks than they do ESPN alone… yet less than 30% of the public ever turns into ESPN and almost every subscriber tunes into the Broadcast nets weekly. Even with reduced dominance, the audience for any of the top 4 Broadcast nets is much greater than any cable net.
And yet, the Broadcast nets are paid less in retransmission fees than some “free” cable outlets or the pay outlets. There is a fairness to this because the history of broadcast is that America owns its airwaves and has “given” them to the broadcast nets in return for the public service that TV used to be. I get that. And I am not saying that the Broadcast networks have an inalienable right to the airwaves. The validity of this agreement between the government, the people, and the broadcast nets should be debated in depth. It may be time for the laws to change in this regard.
However, airwave bandwidth is a complicated and not very sexy issue. It’s not directly perceived by the public as a consumer issue… though it is one. It’s easier to focus on The Bundle.
It would also be reasonable to keep in mind that as the media licks Netflix like the last pork chop on earth, Netflix pays for the creation of less than 100 hours of original content a year. The Big Five Broadcast networks generally each broadcast over 30 hours a week of television, somewhere around 1000 hours of new content every year… each. Let’s say the Broadcast nets deliver 3500 hours of newly created programming every year… more than 35x what Netflix does. And the annual retransmission fees for the 5 Broadcast networks combined are about half of what Netflix charges its subscribers each year… and Broadcast is a villain.
Now… Broadcasters run ads. Netflix does not. Obviously. The models are different. The revenue streams are and should be different.
But the two things are not so different. How they get paid is different. How they are perceived is different. But in reality, Broadcast nets bundle together programming, some of which they simply acquire and some of which they create, and use many different ways of paying for it and making a profit. Netflix does the same. And cable/satellite networks do the same.
The paradigm shift for cable is competition. First, from satellite. And now, from streaming. But there is no revolution happening. How your TV is delivered is not something that many consumers care about. They want the picture to look good and the words to be audible. After that, it’s a competition – a relentless one – for which shows will garner the audience’s attention… same as it was when whomever was on against Uncle Miltie was trying to survive, back when there were 2 or 3 channels available, depending on where you lived.
Media and many consumers have already forgotten when satellite was introduced and there was no local TV available on it. If you wanted to be a satellite customer, you had to get your rabbit ears – or better – set up for yourself, to go along with your satellite access. Moreover, if you wanted local HD, you had to have 2 or 3 pieces of equipment. it was work. And it didn’t always work. And it was a pain in the ass.
When DirecTV started offering local channels, they charged $5 a month (as I recall) for access to those channels via your satellite. And people – millions of them – paid it happily for the convenience. Now, because of competition, DirecTV doesn’t charge for local TV access. But people are willing to pay for – and do pay for – all kinds of things that they don’t need, but make life more convenient.
Cable/satellite bundling is one of those things. You may not watch most of the channels you get. But someone does. Or someone requires them to be there as payment for something else. But all in all, the large group of channels creates an ecosystem that thrives and cannot with a significantly smaller audience. This is why Netflix is chasing 80 million+ subscribers… because it is the only way to make the economics work. And the only way to reach that broad a base is to have a lot of programming that only part of that audience wants.
There are a million tolls on the way to having your TV come to life with more than Broadcast television. And a great many connected to Broadcast television alone. It’s all well and good to simplify it. “Okay, now I’ve got a foot… now I want a yard for the same price.” And in many ways, bully for the consumer. Wanting and demanding can be a very effective tool in pushing forward.
But those of us who write about this industry – even some of those who position themselves as stock market analysts – have a responsibility to remember the complicated reality under the simple faced of “I want my MTV” or whatever outlets you want.
In the end, they are all bundling. They are all building programming packages to maximize interest – whether measured in viewership or paid subscriptions – and to do it to create the best financial return possible. There are few true heroes… few true villains.
Finally, people have stopped seriously considering what would happen to an entertainment universe that chases the a la carte dream.
You liked “Breaking Bad” or “Mad Men” or “The Walking Dead”? BZZT! None of these shows would have probably ever been made were it not for AMC embracing the idea that they had to find a differentiator to get audience for drama shows off of networks, pay or broadcast. Before these shows happened, AMC was American Movie Classics, and in an a la carte delivery world would have either been out of business or struggling so much that creating orginal shows would have been financially impossible.
You like “Nip/Tuck” or “Justified” or “Sons of Anarchy”? BZZT! FX exists because Fox had the power to force a new network into the game because of the value of the broadcast network.
Would “The Bible” have been on The History Channel? Would Bravo be the reality show network? Would there be any music television left on music television? Would Lifetime have still been there to steal “Project Runway: for its airwaves? Would we have “Pawn Everything” or “Angry Assholes: The Series”? All much less likely in an a la carte world.
To me, as primarily a movie business guy, the joke is that the same outlets that are wetting their pants over cord cutting have some other writer crowing about how horrible it is that the movie studio business has become so mega-movie oriented. Well, how the hell do you think that the movie studios became such big stakes gamblers? Because selling things a la carte is incredibly difficult, incredibly expensive, and incredibly risky. So – the thinking goes – why make small hits that have no chance of making a fortune when you can take these giant risks and even though the cost is steep when you lose, the wins are so big, it makes up for those losses… and if you have a hot streak, you get to be a golden god.
(No one point out, please, that New Line was shuttered after the Rings series ended or that almost no one who drove the Harry Potter bus is left at Warner Bros, etc, etc, etc)
There is another major paradigm shift or two coming to your TV and various portable devices, make no mistake. And the machine of the industry can be too slow for comfort. But the drive to cord cut… the delusion that bundling is exclusively the provenience of cable and satellite providers… that there is some world in which you can have as much or more access to content than you do now, but at 20% of the cost… is simply insane.
I can only speak for myself, but I don’t want to be the 21st Century equivalent of Burgess Meredith, the only person on earth, with all the books in the world at my disposal, only to see my glasses break.
Virtually everybody, when it comes down to it, wants new content and wants it on a consistent basis. That content needs to be paid for. It needs to be nurtured. It needs an opportunity to find the sunlight.
I don’t think the cable/satellite bundle of today will exist in a decade. I think it will be much more dense, much more consumer-friendly, with cross-over delivery platforms, and be no more than 20% more expensive. But if we burn the town to save the town, it won’t happen. It will force content into much more controlled circumstances. And entertainment will be oppressed by the very people who are so anxious to make it free. History tells us this is how things work out.
The irony is, I think the people most actively pushing the “bundle slave rebellion” are the people who are most comfortable… the ones who can most afford to access whatever they want whenever they want it. They can afford not to think too far down the line. In in some cases, they can afford to steal all they want, so they value nothing. Strange bedfellows indeed.
Fantastic, the ala carte arguement always seemed idiotic to me. Treat cable like a co-op, you subsidize what others are watching because they are subsidizing what you watch. There is no real saving to be had by going ala carte other than half of the channels fold so there is less to subscribe to. Launching new shows will be difficult when no cable channel has a subcriber rate over 30 million viewers, and launching a new channel will be near impossible.
Even now that I have cut the cord I am still connected to the cable empire, every show I watch on DVD or Netflix exists because people paid for the cable that funded it, as my viewing it in the ancillary market creates another revenue stream that creators can count on.
Launching new shows will not be difficult on a pay by episode or subscription basis. it will actually be easier to make shows because you will not have to clear so many hurdles to broadcast. have an idea? get it financed, film it and release it. how do you draw attention to it? by gaining a critical internet mass. this whole article also assumes that people “discover” hit shows by channel surfing.
this whole thing sounds like “if the newspapers go out of business how will people find out about news?”.
people will always want to watch content. but they do not also have a necessity to watch that content solely in the present cable tv structure.
hcat-advertisement paid for the shows. not cable. advertising can also be sold on a subscription based shows as well.
lastly, who cares if bravo ever became the “housewives” network?
I don’t know, there’s some level of gray here. While I agree that the a la carte argument is heavily skewed and the conversation should be more nuanced, to call it the bullshit meme of the decade is just as stupid an argument.
Take HBO. It’s not bundled with basic cable, and yet many people choose it and it puts together some of the best content on TV. But it also subsists on carriage fees. It’s a nuanced argument both for and against.
Both Netflix and Amazon are creating great original content for subscribers who are choosing to buy it.
We’re still in the streaming infancy and I think the Netflix/Amazon model have yet to show what non-bundled content will look like. How they succeed or fail will point to the idea whether a non-bundled world can exist.
But here’s the thing: We live in a country of over 300 million people — almost all of them, presumably, potential cable viewers. And the overwhelming majority of these people don’t watch, and never will watch, Mad Men or Breaking Bad or Justified or The Walking Dead or even (my personal favorite) Hell on Wheels. And they can’t understand why, under the current system, they have to underwrite these shows for people who do watch them. It’s very simple.
Thank You!
No one ever thinks through the death spiral of unbundling. My personal pessimistic projection is that only about 20 cable channels will survive unbundling, less than ten percent of the current number of channels.
Cable channels sell advertising, that advertising pays for everything else.
If you switch to ala carte, the advertising sales model changes. Advertisers want to know how many eyeballs are on their ad on the Golf channel, but they also want to know how many POTENTIAL eyeballs could see their ad–how many households is our channel available in.
If your channel is only in the most expensive block of DirecTV and you are only in a smaller percentage of households who can afford the 200 a month they charge for the bundle of 10,000 channels, then ads on your channel are cheaper. The tradeoff is the ads are more targeted and the viewers who see it are more likely reliable viewers, but advertisers are rarely chasing the baked in guaranteed eyeballs, so they don’t want to pay a premium for the people who are already seeing, have seen, and are buying or have bought their product.
What this means is that the 300 channels out there are all sustained on an advertising ecosystem that depends on bundling to get their channels into households, regardless of the viewership of the channels.
If you go to ala carte, immediately that ecosystem is radically changed. There is no longer any potential viewers, the only number that matters is the number of paying subscribers who have bought your channel.
So Golf Channel goes from 40,000,000 potential viewers to having 25,000 people willing to pay $5 a month for Gold channel.
The result is that the advertising rates Golf Channel commands fall by an enormous amount.
The entire business model is unsustainable, people are fired, shows are canceled, the channel goes into a death spiral, and within a year or two of unbundling, the channel is gone.
Repeat for 90% of all channels out there.
Okay, so not catastrophic right?
Wrong.
When a show goes into production (i.e. a channel cuts a check to a production company to go make the show for them), the following happens:
The production rents office, hires staff, begins logistics planning for executing the show, the production purchases or rents various office equipment.
Then they go into production: They rent all their production equipment, they hire all the production staff, purchase consumables, they pay all the travel expenses and per diems and ship everything back to post.
Then they go into post. They rent all their post equipment, they hire all the post staff, they purchase all their consumables and do all the editing.
Then they go into finishing. They rent space at a finishing space, and pay the finishing talent for the brief time they’re massaging the show into the final airable master.
And they deliver the show to network.
Do you see the enormity of the ecosystem there? They are paying rent on office space, on production equipment, on post production equipment, on finishing etc.
So if 90% of channels are killed by unbundling, suddenly you have 90% fewer shows (which drives down everyone’s rates as they panic in pursuing one of the few remaining jobs), and at 90% fewer jobs, expect a commensurate collapse in all the equipment rentals, post rentals, finishing facilities etc.
When we did the auto industry bailout in 2009, we were told it wasn’t just the direct jobs of car making, the 200,000 or so jobs involved in making the cars, the real problem was all the jobs connected to manufacturing that SUPPORT making the cars, those jobs were all going to go away, and numbered in the millions.
The same is true of TV. Sure, only a hundred thousand people in Los Angeles are employed making television directly, but there are a million jobs involved in an ancillary fashion that depend on the fact that television for 300 channels is constantly being produced, day in and day out, every year.
So when you talk about unbundling you are really talking about whether or not we should let Los Angeles go Bankrupt.
(and the biggest irony of all, is that if you unbundle you’ll pay more for TV, because even the 20 channels that survive won’t be able to make it work for less than $9 per subscriber, and high demand channels like ESPN will be charging $30 to $50 per subscriber because they know their subscribers are incapable of living without having their channel).
And even though there are only one or two thousand jobs in LA directly making feature films and network single camera television, you’re going to see the collapse of cable television channels trigger a smaller collapse in feature film and network television production.
Feature film and network TV dramas people work really hard to maintain their segregated system, but the reality is there is enormous overlap in the ancillary support system they depend on. Most of those ancillary jobs make their business models work because of the fact of the massive cable television industry, the feature film and network dramas world gets to use all those same facilities, but the business they supply to those ancillary employers is minuscule compared to the business supplied by cable television production.
So feature films, if 90% of the equipment rental houses and 90% of the post facilities all go out of business are going to be pretty profoundly effected.
And all the unemployed cable television personnel who are content to not bother the country club or challenge the profoundly segregated system that keeps them firmly out of feature films and network TV worlds now have massive incentives to ardently pursue those feature film jobs and break the back of television segregation They’re going to offer themselves for employment at rates that undercut feature film wages (and their own previous television wages) by 50%, maybe even as much as 66%.
All those Reality editors making $4500 a week will be trying to land jobs in the country club by offering themselves at a rate of $2000 a week.
It will be really hard for shows not to bite at the wage deflation offered by the collapse of cable television. You’ll see some ossification against the invasion, some attempt to protect the country club and preserve the segregation, but the shows that embrace the old way will eventually be outcompeted at their own networks by the shows that do embrace desegregation of personnel.
Is that necessarily a good thing? The few people who manage to sustain their careers are going to see their standard of living halved. and you’re still talking about 90% of the direct television production personnel unemployed and millions of indirect unemployed.
It’s going to be a radically different world if we unbundle. I don’t think it is worth it.
And that doesn’t even get into advertising production.
The ad companies and the innumerable jobs made producing and posting commercials is mammoth.
If there are 90% fewer channels, then there are going to be 90% fewer commercials being made.
There will be an echo collapse in the ad firm ecosystem in NYC.
Adam: I have no doubt that everything you’re saying is true. But, forgive me, what you’re saying is cable subscribers should prop up production, advertising, etc. And while I might see this as a good thing — a common sense thing, actually — millions of others will view it as another type of corporate welfare. Or, worse, socialism.
hcat-advertisement paid for the shows. not cable. advertising can also be sold on a subscription based shows as well.
There is no way that places like AMC and FX can make original programming if it were not for carriage fees. New cable shows typically draw one to two million eyeballs, and the advertising income on that is unlikely to cover the cost of production. Getting into original programming is more of a loss leader for networks, at least an investment for down the line disguised as a PR campaign.
Adam: Wouldn’t ad rates go up for the surviving channels since their viewerships would increase?
And wouldn’t the same amount of ads be produced, just broadcast less, don’t you see the same ads over and over and over?
I agree with you about channels failing, goodbye Headline News, SciFi, and IFC, BUT wouldn’t a larger amount of viewers be headed toward CNN, USA and AMC? Its not like people are going to be watching less TV, or that a bundled package will not be offered alongside of ala carte. Once people see what it would cost for the individual channels they might realize they actually were getting a better deal with the bundle (though of course people will claim price fixing).
Joe, how is it corporate welfare if the money is not coming from the government?
“And the overwhelming majority of these people don’t watch, and never will watch, Mad Men or Breaking Bad or Justified or The Walking Dead or even (my personal favorite) Hell on Wheels. And they can’t understand why, under the current system, they have to underwrite these shows for people who do watch them. It’s very simple.”
Joe, I don’t have any facts at hand, but isn’t it likely that ALL viewers have favorite shows whose success is underwritten by viewers who don’t watch those shows? Even if Duck Dynasty or Real Housewives of Whatever get more eyeballs than Mad Men or Hell on Wheels, are the numbers sufficient to make it possible for A&E or Bravo to survive unbundling while AMC bites the dust?
“have an idea? get it financed, film it and release it.”
Yep, it’s that simple, folks. Hey kids, let’s put on a show!
“lastly, who cares if bravo ever became the ‘housewives’ network?”
The answer to that one is pretty obvious — the millions of people who watch those shows. Oh — and everyone who makes money off them.
Hcat: To play devil’s advocate: Money doesn’t come from the government. It comes from taxpayers through the government. Just like money comes from cable subscribers.
Again: I am not saying I disapprove of the bundling concept. But you’ll need to convince a lot of other people by making a stronger case for it.
Yancy: Don’t claim to be an expert in media economics, but I strongly suspect AMC, A&E, Bravo and quite a few other cable networks have little or nothing to worry about, given their success with establishing “branded” TV series. Also: These networks might be even more popular with advertisers if it’s known that their viewers are so faithful, they go to the extra trouble of ordering them ala carte. On the other hand, I can think of several lesser known niche-programming networks that might not survive.
Of course, it will all depend on just how much each cable channel would cost a subscriber. That is, if de-bundling ever happens.
“Adam: Wouldn’t ad rates go up for the surviving channels since their viewerships would increase?”
You’d think so, probably by the end of the spiral you’d stabilize to a new normal and rates would start to climb again, but advertising companies will be failing as part of the negative reinforcing death spiral. For the ad companies and the channels to try to survive they’ll be in a price war with the competition. And that will drive ad rates through the cellar. The channels that survive will survive by desperately gutting the cost of production so that the lower ad rates can still cover expenses. Once the purge is complete you could see rates go up again just on basic supply/demand principles.
But rates will never reach the peaks of bundling, because again, you’ll know exactly how many eyeballs are seeing your ad, because it is impossible for your advertisement to reach more than the subscribers that opted into specifically paying for the channel.
Joe, it’s not the viewers that are subsiding the existence of a large ecosystem, the channels are supporting each other, they don’t realize it but the bundling is similar to collective bargaining, united they are strong. but individually they’ll all be stamped out of existence in a bloody purge of human misery that is every Capitalist’s market forces wet dream. 😉
Viewers benefit from bundling. Your per channel costs are lower, as you would expect from a bulk purchase. In the 90s, you paid $30 for 40 channels, now you pay $80 for 300 channels. Big difference, you’re getting a much better deal. If you unbundle, most people will pay about $50-60 for 5-10 channels, TERRIBLE deal (but you are paying a little bit less, so all good, right?) That’s how the market is benefitting you right now, open it up to true market forces by unbundling and ultimately the consumer will suffer the most by having less choice, less content and paying a MUCH higher per unit cost.
(and just think of how much the cost of netflix will skyrocket if there is less competition from TV!)
“The joke is, as primarily a movie business guy, that the same outlets that are wetting their pants over cord cutting have some other writer crowing about how horrible it is that the movie studio business has become so mega-movie oriented.”
Editor hat here: The joke is a movie business guy?
The Bundle is presented here as the best possible outcome, yet The Bundle has become so outrageously expensive that many are being forced to cut the cord.
This isn’t merely a choice between paying for 250 channels or 5 channels, it’s a choice between participating or not participating.
Hey, how much would you charge me for like one McNugget?
What if you couldn’t get McNuggets if you didn’t also get a Big Mac, two cheeseburgers, three breakfast burritos, two McRibs, etc.? All for $80. Don’t like it, too bad, there are NO other options except what you can graze for free in the parking lot. But it’s great for McDonald’s and their food producers. You don’t want to put them out of work, do you?
Actually I would love for Mickey D’s to go under, but that is a seperate matter entirely.
Sam is correct, it is participate or not participate. Two years ago I looked at how many hours we watched our satelite feed and cut the cord, chose not to participate. That simple. The companies own the content and the delivery system and can charge you whatever the hell they want, in whatever form they want and you choose to pay it or not.
Cable television is not a basic human right. This is not some pharmacutical company jacking up the price of insulin, or having the price of milk out of the reach of all consumers- those demand government action. This is entertainment, if I want to visit Disneyworld I buy a ticket, but I don’t get the government to haggle a lower price if I promise to only ride the teacups.
hcat, the problem is the government has allowed too many mergers. If we still had the same level of competition we had in the 90s, companies would be offering packages with only 30 or 50 channels for $30, and you probably wouldn’t have cut the cord. But with the pro-monopoly, more monopoly, mega-monopoly governments of the last twenty years competition has been gutted and the companies can now set the minimum level of entry at the rate most profitable, which is providing you with the most channels they can per tier of subscription. The reality in our current era of extreme monopolies is that everyone has to over consume cable television if you want to consume cable television. Moderation or Conservative television consumption options have been destroyed. They want to maximize the number of channels per tier because it exposes their customers to more potential advertising. They don’t have much incentive in allowing you to have fewer channels other than competition on price.
“All for $80. Don’t like it, too bad, there are NO other options except what you can graze for free in the parking lot.”
A) But with ala carte the Big Mac alone will cost you $60, thats the point that people have been trying to hammer home, the cost of your bill will not go down substanially, for everyone who opts out of a channel you want you will have to make up the difference, or the channel goes under, or they switch to drastically cheaper programming.
B) There ARE other options, each sporting league is coming up with their own streaming and there are a myriad of services that show scripted content or will sell or rent you the dvds. Instead of paying for HBO, I wait a year and check out the DVD’s free at the library (Though how dare they use my taxes to stack the shelves with books I may not want to read)
Adam- So one of the problems is that the cable company wants me to use their product?
Whose mergers are you speaking of? There are about 6 major companies who own channels, The studios minus Sony plus Discovery and three smaller companies (AMC, Scripps, Hallmark) who are able to survive in the scrum. Where there significantly more at one time that have been merged away? As for the Cable companies themselves merging, I don’t see how that matters that much since you would only have one cable company for the area anyway. I don’t see how the pre satellite 90’s were somehow more competitive (unless you are talking about the fox rule that allowed studios to own networks).
Also Adam:
“If we still had the same level of competition we had in the 90s, companies would be offering packages with only 30 or 50 channels for $30”
This is inaccurate, If I was paying $50 for 100 channels (I think that was my promotional DirectTV Deal) and now I get to Cherrypick 20 channels, my bill will not be $10. The carriage fees that pay for content only make up half of the bill, the half that goes to the fixed costs of DirectTV will always be there.
“They don’t have much incentive in allowing you to have fewer channels other than competition on price.”
No industry in the history of the world has much incentive to offer me a lower price for their services as long as enough people are willing to pay a higher one. The most basic economic theory would say that if 100 million households in America pay for Cable, than the price is obviously not too high.
“A) But with ala carte the Big Mac alone will cost you $60, thats the point that people have been trying to hammer home, the cost of your bill will not go down substanially, for everyone who opts out of a channel you want you will have to make up the difference, or the channel goes under, or they switch to drastically cheaper programming.”
And I’m saying the $60 BigMac gets me only what I want and saves me $20. I understand the cost structure won’t keep the BigMac at $2, but it will still save me SOME money.
Also, what do I care if a channel switches to cheaper programming? They already do that. I watch one show on AMC and don’t watch their cheap reality shows or cheap syndicated movies. What do I care what other programming they have if I can still get that one show? And if they aren’t willing to produce that show then I don’t need their channel. And if that show goes off the air, I can find other shows or I can go read a book.
“B) There ARE other options, each sporting league is coming up with their own streaming and there are a myriad of services that show scripted content or will sell or rent you the dvds. Instead of paying for HBO, I wait a year and check out the DVD’s free at the library (Though how dare they use my taxes to stack the shelves with books I may not want to read)”
And I take advantage of those other options (I am a cord cutter), too. But forgive me for asking for more options to give content producers some of my money but not all of it. That’s the part that blows me away is that they can’t find a way to do variable pricing to get all of the money they can, instead of just the low-lying fruit (that is the most expensive).
It’s the same argument as the $30 million movie. It could make some money, but will never make as much as an Avengers, so they just stop making them.
“That’s the part that blows me away is that they can’t find a way to do variable pricing to get all of the money they can, instead of just the low-lying fruit (that is the most expensive).”
But what I don’t understand is how variable pricing helps them get all the money they can. I understand that you are saying they are leaving money on the table by not letting you buy the products piecemeal, but they are more than making up for that shortfall because people are willing to buy the whole package. 100 million plus households are not low-lying fruit its the massive bulk of the country, but if cable was really too expensive than it wouldn’t be in 100 million plus households.
Its like movie theater popcorn, they give you an insane amount for an insane price, but its their business to set the sizes and the price and my decision whether or not to buy. And when they won’t sell me a reasonable size for $2 I don’t go and call my Senator.
[Ed. note: fixed, thanks, LYT]
Sounds like you’re making my argument for me. The movie theater offers small that still costs a lot, but doesn’t cost a large. They also don’t only offer popcorn with soda only, despite that they’d make more by doing that.
I get the argument about not jeopardizing the golden goose of all the houses that have cable, but do you really think that if HBO offered HBO Go for whatever their subscription fee is plus whatever their carriage fee is, they’d really risk losing 20 million houses or more? I don’t think most of middle America is there yet. And in the meantime they might make a few million more in profit and possibly reduce piracy a little.
Offering HBO Go separately might risk their relationship with the television providers, still, I imagine it is in the cards. Amazon is the first test in that respect.
hcat, probably you’re right, I was thinking anecdotally, always a problem. In the 90s, I was in the midwest and we had 40 channels for 19.95 for most of the decade, pre-digital cable. Now I don’t think local cable providers like that exist anywhere anymore, they’ve all been mergered up by TimeCastChromeCrap national providers.
I need to spend more time reading every comment before I dive into this… but the HBOGo thing reminds me of the New York Times and Wall Street Journal, who are not completely out of the woods, but seem sure to survive.
But what about the rest of the newspapers?
The cable companies are so eager to have it their way that they’re merely encouraging piracy, so they earn nothing when one of their prized shows spends a few days on YouTube before it’s eventually found and deleted.
Back in the ’80s when videos cost $100 each and were therefore heavily pirated, MIT’s Media Lab came up with the idea of “paperback movies”, where movies would be burned to disc and sold for $5 or so. Great idea, but of course it never took off because the studios decided they’d rather have thousands of $100 sales than millions of $5 sales. The piracy continued unabated until they lowered the price to around $20. Still not $5, but no longer is there so much incentive to copy.
What about the rest of the newspapers? Is it really right to expect someone in L.A. to support the Wichita Gazette? If Wichita can’t support the Gazette’s content, maybe there really isn’t a need for the Gazette. Or maybe the few people who want the Gazette’s content will be willing to pay a 700% increase for it, to actually support it.
Or, instead of the all or nothing models we seem to be discussing, there’s an in between, where 50 million households still subscribe to cable, because it’s easier, and 50 million households go a la cart. That doesn’t mean they’re necessarily spending less (and anyone who thinks they’re going to save 80-90% is fooling themselves), but they get to pay for only what they use. That doesn’t seem so bad to me or the wasteland that is predicted here.
“Viewers benefit from bundling. Your per channel costs are lower, as you would expect from a bulk purchase. In the 90s, you paid $30 for 40 channels, now you pay $80 for 300 channels. Big difference, you’re getting a much better deal. If you unbundle, most people will pay about $50-60 for 5-10 channels, TERRIBLE deal (but you are paying a little bit less, so all good, right?)”
You seem to be omitting programming quality from this argument. You said an increase from 40 to 300 channels provides a better value for the consumer, but if 99% of those additional channels are unwatchable garbage then the value is actually worse.
$50-$60 for 10 channels with consistently great programming is a much better deal than $80 for hundreds of channels I’ll never watch.
I cut the cord three years ago but I always hated the concept of bundling — mostly because I do not watch sports and I always had the impression that cable TV bills were predominately jacked-up by sports programming.
If my cable company offered me a lower-cost “no sports” bundle that had all the channels I had before but none of the sports channels I would re-subscribe tomorrow.
But consistently great programming is subjective, which is why the variety of channels serving different tastes seems to be working well. The great cable acension of original programming that people love to talk about happened after the explosion in the number of channels, couldn’t the reason being that the number of channels forced to step up their game to set themselves apart from the competition? With 30 channels in the 90s cable was reruns and wrestling.
Part of this I agree with, I think it is odd to have a variety of channels that only put on two hours of original programming a week and fill the rest of the time with syndicated fare, there is room for some compression, but thats not for me and certainly not the government to say.
There are a handful of quality cable channels (such as AMC) that have stepped up their game as you said. But there are many more redundant channels that put in minimal effort and air zero-budget reality shows/infomercials and/or relentlessly overplayed movies.
Certainly quality is subjective – I was just pointing out that for the average viewer having 300 channels at their disposal doesn’t provide much more value than having, say, 100.
Krazy Eyes:
“If my cable company offered me a lower-cost “no sports” bundle that had all the channels I had before but none of the sports channels I would re-subscribe tomorrow.”
Sports are the killer app that sells cable/sat to the vast majority of households. They cost the most, sure, but by including sports, the provider gets more subscribers, so the increased volume of subscribers drives down the cost of the tier. If you don’t have sports included in a tier, it will have very few subscribers, fewer subscribers increases the cost of the tier or further decreases the amount of channels in the tier. This is why ESPN is in every single tier offered by any company, because ESPN in the tier guarantees enough subscribers in that tier to make the tier cheap enough to be an attractive price to consumers.
You are not subsidizing sports, the sports are subsidizing your non-sports preference.
Have you ever noticed that the Venn Diagram of people who have cut the cord and people who don’t watch sports have almost 100% overlap? It’s a big mistake to extrapolate the cord cutters to being representative of majority market taste. You can live without cable/satellite, sports watchers cannot.
Therefore, because the demand is inelastic for the latter demographic, the market caters to them.
Interestingly, the Dodgers channel seems to illustrate the point on the high end of the cost curve where demand for sports content stops being inelastic and begins to respond to normal market forces.
The providers can bundle ESPN with a lot of cheap channels to give the illusion of value by providing a large volume, but if they subtracted ESPN from the tier, subscription rates in the tier would plummet, they’d have to cut the volume of channels to maintain the price and the perceived value of the tier by consumers would plummet with the decreased volume, consumers would opt out of the tier to other tiers with greater perceived value and the cycle repeats itself until the tier dies from lack of subscriptions.
“…until the tier dies from lack of subscriptions.”
Maybe that was true once, but in today’s digital world, surely there is virtually no overhead to offering an extra package without sports. Somebody in Comcast’s offices clicks some buttons on an administrative panel somewhere, and presto, suddenly they’re offering a new package that’s the same as another package only without ESPN, and it costs $10 less.
By your hypothesis (which I see no reason to dispute), only a few people buy it, but better to have those few people as lesser value customers than cord cutters. Meanwhile, the majority are still buying the one with ESPN and continuing to subsidize the other channels by doing so.
Channel packages aren’t physical products that require their own manufacturing and distribution costs that they have to recoup to be profitable. They are services that only incur costs when purchased, and are delivered through already established infrastructure.