Piling On The Hate: Stop Fighting Unbundling

Perhaps the most concerning quote in all the copy devoted to cable channels dumping on Verizon for trying to do something everyone in the country wants was this one from a 65-year-old retired electronics salesman, who told the WSJ: “I’ve been paying for ESPN for 30 years and never watch it.”

Really? My head would not have snapped back if he had said Nickelodeon or Home Shopping Network or even Food Network, but ESPN? As in no college football? No “Monday Night Football?” No Little League baseball playoffs? No "Around the Horn!!" I think that is grounds for excommunication from the "Mystic Knights of The Male Persuasion." Leave it to the Journal to track down the singular exception to the rule.

Cable companies, who own essentially geographic monopolies, have done everything in their power from "somewhere between 8 am and 8 pm" service calls to "leasing" boxes and controllers for ridiculous amounts each month just to pad their profits, to become the Hated Utility Company replacing landline providers (who would give up a first born child to make a sale these days).

Moreover, their business revolves around charging for an average of 189 channels while Americans watch only about 17. The only reason the citizenry has not shown them the door in cord-cutting greater numbers is that they also provide access to Internet broadband -- and so become the infuriating spouse that you stay with because divorce would be too painful on the kids.

It is hard for most Americans to separate cable programmers from cable providers since it all comes through the same box. So you can expect their loathing for their local cable company to be reflected in their disgust that the programming providers are fighting unbundling. They have voted their feelings in vast numbers by subscribing to Netflix and Amazon Prime.

At the same time they are howling about Verizon violating "our existing agreements," cable programmers are starting to offer direct-to-consumer packages delivered over the Internet, a form of unbundling to be sure. And they wonder why consumers are confused and angry with their efforts to stop Verizon.

What subscribers see as an evil alliance between programmers and providers to keep TV delivered through the set-top-box expensive and anti-choice will lead inevitably to change. Look no farther than smart TVs to see the future. I predict that there will come a time (sooner rather than later) where every form of video will be in on-demand movies, Hulu, ABC, Al Jazeera‎, AMC, YouTube, or the yet-to-be programmed "100 Ways to Cook Chicken Network" will all be offered a la carte to consumers who will build their own programming lineups in an interface that allows them to find nearly everything ever recorded on film or video. The notion of appointment TV with the exception of major live events, will essentially disappear. Consumers won't care if the programming was produced by HBO or FX or Nabisco.

In this near future world, how you ignite sampling and build loyalty will depend less on redundant on-air promotions and more on Big Data. Finding your audience will be algorithmically easy. Figuring out how to get their attention in an essential all-on-demand world will be a different challenge. Especially if the concept of networks collapses altogether.

This is essentially what viewers want, and I think eventually will get. It might, in the end, cost consumers more to pay for a la carte programming (something the cable programmers and providers claim now in defense of bundling), but they will enjoy having control over what they pay for and can adjust their spending from month-to-month rather than being stuck with a bill (that only goes in one direction) for channels they never watch.
12 comments about "Piling On The Hate: Stop Fighting Unbundling".
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  1. James Smith from J. R. Smith Group, April 24, 2015 at 9:19 a.m.

    George:  Great piece!  Questions.  Don't cable nets fear 'unbundling' more than the system operators?  What's the role carriage contract terms (years etc.)?  Imagine the nets' lost revenue in both subscriber fees and ad dollars. Apparently, both operators and nets are staying with "business as usual" as long as they can.  Some are just better 'preppers' than others for the consumer barbarians at their gates. J.

  2. Ed Papazian from Media Dynamics Inc, April 24, 2015 at 9:35 a.m.

    Let's take the figure of 17 channels viewed per American---which is what Nielsen reports as the average figure per home per week----as if this represented those channels that we were willing to pay for. So, if each of these 17 channels---whatever they might be---were bought individually, what would our monthly tab add up to? At an average monthly price of $8 per channel, we would be paying $136 per month. If the typical fee rose to, $10 or $12, our tab would be $170 and $204, respectively. What if prices went even higher? Would this really be a great deal for the average household, compared to what it pays now for 190 channels? And what if many of the selectively programmed channels we are picking from go belly up, because they can't garner enough ad revenues, due to a greatly reduced subscription base, to survive? In this event, there may be a very limited "menu" to choose from. The idea of unbundling sounds fine, in theory, but it ignores the underlying economics of the current system and assumes that there are no consequences for gaining complete freedom of choice. There are.

  3. Alex Miller from ViaSat, April 24, 2015 at 10:45 a.m.

    I watch ESPN once a year, when the Broncos' game is shown on there. I have to dig for it since it's not a favorite on our Tivo. Not every guy watches sports all the friggin' time!

  4. George Simpson from George H. Simpson Communications, April 24, 2015 at 10:47 a.m.

    Agreed, but not once in 30 years.....?

  5. David Mountain from Marketing and Advertising Direction, April 24, 2015 at 12:05 p.m.

    Let's estimate that ESPN payment as $2 a month (it's currently over $5, but I'm guessing the early days were borderline free) for the life of his cable use. He's paid $720 for something he didn't want, and will pay $60+ a year for it moving forward. And it's not like he's alone in this.

    Heck of a business model, where 2 out of 3 of your paying customers don't use the service. And, one suspects, not sustainable in the long-term, seeing how it has Aspects of Fraud...

  6. Ed Papazian from Media Dynamics Inc, April 24, 2015 at 1:42 p.m.

    One thing that seems to be forgotten in these discussions is that a typical cable channel earns about half of its revenus and all of its profit from advertising. If you compromise the ad dollar stream by drastically reducing the channel's total audience base, most of those ad revenues will be lost. The only ways that I can see for a channel to offset such losses is by slashing program costs, thereby making it less appealing to would-be subs, or by dramatically raising its subscription fees---also detrimental to getting more subscribers. So, when one ponders the merits of an unbundled cable world, factor the likely possibility of much higher subscription costs or reduced program quality into the equation.

  7. George Simpson from George H. Simpson Communications, April 24, 2015 at 1:46 p.m.

    Would not the opposite also be true, that quality programming will be rewarded by larger audiences, thus more and better advertising? Should a cable channel with marginal content of interest be "subsidized" by all subscribers?

  8. Ed Papazian from Media Dynamics Inc, April 24, 2015 at 2:52 p.m.

    Possibly, George. However in the unbunded world of cable, where everbody subscribed to only those channels they "watch", there wouldn;t be much of an opportunity to sample what other channels have to offer. So how would a person make new choices? Perhaps this might be initiated by word -of-mouth endorsements or by something seen at someone else's home, or, maybe, it might be via advertising that the channels used in magazines or digital media. As far as ad dollars are concerned, if a cable channel, which now covers 100 million homes by virtue of bundling, fell to 8 million subs---a very likely scenario for many selectively programmed channels, I'm afraid---- it would lose ad revenue almost in direct proportion to its coverage loss. One solution might be to double its programming budget in the hopes that this would generate better content and be more appealing to more subscribers---if they knew about it. But it certainly wouldn't come close to doubling its subscriber base. And how would that happen without the kind of cross channel sampling that is so common today. Although the average home tunes in about 10-12 basic cable channels weekly, this figure expands to more than 22 in a month, around 30 in a quarter and even more on an annual basis. With unbundling, it would be the same 10-12 channels every week.

  9. George Simpson from George H. Simpson Communications, April 24, 2015 at 4:33 p.m.

    I think once everything moves through the pipe that big data will find those who like certain programs and rifle target them with new simialr program samples (like intro to on Demand movies). Kind of what a Simulmedia is going now with set top box and third party data.

    While is is nice that cable subs help keep marginal cable channels alive I cannot beleive that marketers are paying just because they are in the channel line-up, but rather on actual viewing, no? It is time for the weak to die.

  10. Ed Papazian from Media Dynamics Inc, April 24, 2015 at 5:39 p.m.

    @George, I'm not just talking about "marginal" cable channels but the bulk of what might be called "middle of the pack" channels as well. There's no issue about whether these are viewed or not---Nielsen has no problem measuring them adequetly---- and, as a matter of fact, a "programmatic" buying system would jump all over such channels as well as the really marginal ones as they tend to charge lower CPMs. The problem with the unbundling idea ---in my opinion---is that it will limit rather than increase a consumer's choices, by causing many selective channels to disappear while the mass appeal channels that survive will be able to charge more, not less, for subscriptions. Instaed of basic cable garnering over 50% of all viewing it would shrink to perhaps half of its size---audience tonnage-wise and there would be a reach problem for advertisers to cope with as many of the surviving channels would not cover as much as 65-70% of the market. Meanwhile, the broadcast networks and stand alone services would have a field day both in audience and revenue attainment, with advertisers flocking to such channels so they can continue to attain critical mass with their branding campaigns. Result: many consumers would be paying a lot more for access to TV/video content, but getting a lot less of it. Just my opinion, but I don't see this as the best of all possible outcomes.

  11. George Simpson from George H. Simpson Communications, April 25, 2015 at 11:09 a.m.

    I think you make a good point about the potential for higher costs but I am confident that once the cable cartels are reduced to just broadband providers the free enterprise system will keep entertainment costs at an affordable level.

  12. Ron & anna Winship from Parker-Longbow productions, April 26, 2015 at 1:40 p.m.

    *Sadly, the unintended consequences of this can be manifold.  We agree and we do not want the QVC Shopping Channel.  We do want our ME TV, Cozi; GET TV, ESPN Sports Center, NFL Channel and others.  Where these slime will go with this is to start charging for every Google inquiry or every browser seek.  We pay $219 dollars a month for Broadband and our TV Package with Stars and HBO and Showtime.  How much more will TWC want before they go A LA CARTE?

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