January 25, 2023
A La Carte Pricing Would Hurt TV
- by David Goetzl @dgoetzl, July 15, 2013
Cable
operators moving to a la carte pricing would leave a massive financial hole in the TV business, according to a new report. Needham analyst Laura Martin estimates that so-called unbundling would remove
50% of total revenue for the industry at large, which comes out to about $70 billion.Also, fewer than 20 channels would make it if consumers paid network-by-network carriage fees as ad dollars would crater, Martin says. Advertising accounts for about 50% of total content costs.
With ESPN costing operators so much, there have been suggestions about putting it on a sports tier, but Martin indicated that widespread sports tiering -- she did not cite ESPN by name -- would cost the TV ecosystem $13 billion.
A la carte is constantly talked about in Congress -- where Sen. John McCain (R-AZ) is a proponent -- and elsewhere, but few material steps are taken.
In her “Future of TV Report,” Martin restates the argument that bundling brings a sort of shared sacrifice. Those who subscribe to a cable package largely because of sports help fund carriage of networks such as Bravo, A&E and Food Network -- and vice versa.
Martin offered networks some encouragement to find more ways to drum up video-on-demand viewing. Notably because fast-forwarding is disabled in many VOD fields and could bring more ad viewing.
Addressing cord-cutting, Martin attempts to place a value on lost revenue for the TV ecosystem when a 24-year-old goes without a pay-TV subscription: some $40,000 over a lifetime. That’s $70 a month in subscription fees for his/her household for 50 years. However, TV Everywhere could allow the industry to hold on to some potentially lost dollars.
Martin writes that if the opportunity to watch on digital devices keeps 5% of TV homes a year from dropping a subscription, that would save the industry $4.2 billion a year.
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Viewers don't care how much the advertising industry stands to lose from cord cutting. People already know they're paying to support channels they'll never watch, and once a service comes along that can remedy that while still keeping a similar viewing experience they will get the business.
TV is as popular as ever, cord cutting seems more prevalent to MediaPost readers but that's an inside perspective. Instead of battling with the obvious direction TV is moving, advertisers and networks need to focus on staying at the forefront of change in the industry.. Or give all your dollars to digital, we would like that
As an advocate of each channel needing to prove its value to consumer and distributor and an advisor to start-up channels, I understand why a la carte seems like an attractive response to the issues with respect to cable costs for both MSO and consumer. Yet I also believe that many new and niche channels are at great risk of never getting stated and disappearing. Trying to get consumers and advertisers to choose these channels and pay separately for it among the major broadcast, cable, sports, news and movie brands will likely be an impossible task--at least in sufficient numbers to sustain quality and production. The market reach and ad support from the OTT and broadband markets are not anywhere near enough to provide a stand-alone market for many channels. MSO/DBS/TV distribution remains a bedrock platform to reach consumers even as other platforms are expanding. Netflix, Hulu, Roku, etc. are part o the future but in this moment a full professionally produced channel needs a chance for access to cable homes through packages and some bundling. Cost pressures from sports and powerful network groups are real; but that should not lead to a la carte as the only solution. Consumers and programmers and program diversity will not be winners in that game.
There are a lot of channels that I want to support and quite a few I don't. There is a perception issue with A-la-carte that people will need to get over, right now folks are pushing the 500/1000 channel universe. If I think that I only want 10 channels, the perception is that my cost will go down by the 90% of the channels that I cut. This is simply not going to happen. I happen to like BBC America, so I will support it, I don't watch, Syfy, Logo, O, Lifetime, Home and Garden, but then again quite a number of people don't want to pay for BBC America. So when we go to A-la-carte the market will find the equilibrium between what customers are willing to pay, what advertisers are willing to pay, what channels want from the Cable Companies and how many channels the cable companies can fill up. My guess would be that there will be tons of start up channels as old channels go away, there will also be consolidation. If BBC America can't survive someone else will pick up Dr. Who. Chances are in the end there will be fewer channels, but those channels that exist will have better viewership and the available bandwidth will be able to be used to High Speed Data to support OTT viewing.
Has anyone considered that if someone pays for ESPN but never watches it, then advertisers are paying for that part of ESPN's "circulation" but not for actual eyeballs?
On the other hand, a la carte means the "circulation" becomes the number of households that have made a conscious decision to subscribe. If I were an advertiser I'd rather have an audience for my commercials that was motivated by that decision.
Constance,
I think I accidentally touched a nerve, my point was basically I don't know if there is a demand for BBC America, ScyFy, Lifetime or O. If there is great keep them on, if there is some demand, let them consolidate, if there is no demand let them die and free up spectrum for other uses (channels or data).
A-la-carte, in my mind would, bring an information of the marketplace that will give signals on the most efficient use of scarce resources.
This is like saying that bakeries would suffer if we are do away with the requirement that anyone who wants a loaf of bread has to buy one of every kind of loaf on the shelf, even though most of them will be thrown out uneaten. What a ridiculous argument in favor of bundling.
This piece does not mention any facts...no analyses...just conclusions from an employee of an advertising agency that stands to lose buckets of money if bundling went bye-bye. David Goetzl should be sent back to journalism school for the silly act of taking a Needham press release as gospel. My grandson could do better than that...and he's 5 years old.
This issue is funny... Because I've never seen so many otherwise smart adults forget basic economics of bundling. Yes, you can have the completely overwhelming complexity of ala carte so you end up paying more... But why would you want that?
The industry is changing, let it change...
Social media,search, and aps along with the early days of broadcast TV have proven ad supported content has a way of controlling costs while subscription has done just the opposite with skyrocketing content costs to subsidize athletics at obscene levels. Actually the message sent is that hurting TV bundling may have similar results to Apple & music, Amazon & publishing, Google & newspapers, and Walmart & streaming. Some recent activity between Apple & Time Warner may be the start of productive joint ventures.
Change has never been easy, not to change is harder. The market place has always been the true fair weather-vane...get on with it, while I'm young...