Commentary

A La Carte Cable Scenario: Pricey, Fewer, And Less-Profitable Channels, Viewer Hunger?

by Wayne Friedman , Staff Writer, June 25, 2012

In an unbundled, a la carte cable TV world, you are looking at a much smaller selection of cable channels being profitable -- maybe five to 10. This figure is what Laura Martin, media analyst of Needham & Co., estimates.

That's out of some 125 viable cable networks, which would then be uneconomic to run. (Of these, 60-plus cable networks sell significant advertising inventory).

This five to 10 range is also the figure some research studies have suggested is the real number of channels we regularly or semi-regularly watch -- this out of a 100 to 200 routinely available on cable, satellite, or telco multi-channel services.

Martin says there is more bad news should the Federal Communications Commission move in the a-la-carte direction: That $300 billion market capitalization among public traded stocks would disappear. This breaks down further to seeing 75% of all cable advertising revenues departing, along with 15% to 20% of all subscription revenues.

I'm guessing that with this model the consumer cost for monthly cable packages probably wouldn’t be lowered that much. Those surviving networks will need to charge a lot more to make ends meet. A la carte means we get what we want -- but the savings won't be as much as we think.

Who would be the surviving channels? You could imagine channels supported by big media companies that could amortize programming costs across other networks -- cable, broadcast, VOD, or otherwise. ESPN, USA Network, TBS, FX, and TNT perhaps? Many more niche networks like A&E, Discovery, Bravo, E! and MTV.

Who gains? Perhaps YouTube, Netflix, AOL, Yahoo and Hulu, as consumers gravitate towards cheaper options. Still, Martin says this group needs to do better in terms of quality, search/discovery, and longer length video/TV content.

In its more traditional association, a la carte means picking just one or two foods/dishes from the menu. You might proceed this way because your appetite is low. But restaurants are a savvy bunch, which doesn't mean you bill will end up lower. Even then, no one goes to a restaurant only to leave hungry.

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4 comments about "A La Carte Cable Scenario: Pricey, Fewer, And Less-Profitable Channels, Viewer Hunger?".

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Michael Kaplan from Blue Sky Creative, June 25, 2012 at 12:57 p.m.
It's hard to comment without reading the original research report, but this smacks of total hysteria and/or willful ignorance.
"...She calculates an aggregate loss of $300 billion in market capitalization [from unbundling]. She estimates that advertising revenue would drop by approximately 75% while subscription revenue would decline 15-20%. "
There's no evidence that going a la carte would cause people to cut the cord; there's as much anecdotal evidence that people would KEEP their cable subscription if they could pick and choose what channels to pay for. And this "analysis" dismisses the impact of advertising, as if cable channels live and die by subscriber fees alone. They don't.
Martin seems to be a big backer of the "free market," but cable is hardly a free market, when a few channels subsidize the rest, and consumers can't decide what they will or won't pay for. Instead of end-of-the-world predictions like a 75% ad revenue fall-off, isn't a more realistic scenario that new channels will rise in their place, properly priced, and with profitable business models? If you can deliver an audience, advertisers will find you.
I've often likened cable channels to magazines. You don't need to sell a million copies to be successful; there are lots of small-circ magazines that do just fine. Heck, newsletters with only a few dozen subscribers make their publishers lots of money.
Finally, there's the rather weird assertion that a million jobs would be lost in the TV industry, and many of these would be located in rural areas with people without college education (as opposed to the tech industry). I worked in the TV business for 20 years, and unless Burbank has suddenly been declared farmland, I have NO idea what she's talking about.
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Mark Walker from aka Media Mark, June 25, 2012 at 2:16 p.m.

So I'm thinking right now I watch about 13 networks over the course of any given week - 6 of them broadcast. With my DVR and HD package I pay about $53 for the video portion of my triple play package. Does that make these come in around $4 each? And to ME, there is absolutely NO VALUE for the hundreds of other channels I never watch, or am not authorized to watch now. As I surf the channels BEGGING for something worth watching I find myself wondering who the hell watches any of the drivel I see on a typical night?

Maybe it is a GOOD thing to weed out all these channels through natural selection.

I am willing to bet that few, if any, earn even a .01 rating, yet they can still make money with about a million eyeballs. Un-bundling isn't going to change how many viewers they get- so the ad revenue should sustain.

Funny thing is History Channel gets more viewers than Fox News- yet the country keeps making the same old mistakes... HMMM!

John Grono from GAP Research, June 25, 2012 at 6:52 p.m.

$4 per month per viewed channel is still hardly expensive. Maybe a cup of coffee, an iTunes download or two. A-la-carte pricing per channel would have to be at a premium to the bundled price. I know that here in Australia many of my (now) favourite channels are ones I would never have purchased a la carte. I enjoy 'discovering' these gems of programmes and channels and it's well worth the 'all-you-can-eat' bundled price.

Doug Garnett from Protonik, LLC, June 27, 2012 at 6:44 p.m.

Great post, Wayne. I had a Comcast research call come to the house once and they took me through each network asking me how much I would pay for it. My "just bundle it so I have the beauty of all those options" answer wasn't on the researchers list. My prediction: it's going to be far more costly unbundled. The cable infrastructure delivers tremendous value that is highly inexpensive when bundled...but highly expensive when broken apart.