Cable Unbundling Will Reduce Niche Channel Choices

I wish I could remember where I read this to give proper credit, but it is funny that the folks who are absolutely bending over backwards to bundle health care want to unbundle cable TV.  Think about it -- the person who just wants MSNBC but has to buy the whole cable package to get it is getting hosed far less badly than the young person next year who needs no medical care but will have to buy a pre-paid medical plan designed for a 65-year-old.

But I believe that cable unbundling will achieve the opposite effect from what most people expect.  And the key to my analysis rests, as do all important economic issues, on the difference between average and at the margin.  This is a repost from 2007

[A la Carte cable pricing] will reduce the number of interesting niche choices on cable.

For some reason, it is terribly hard to convince people of this.  In fact, supporters of this regulation argue just the opposite.  They argue that this is a better plan for folks who only are passionate about, say, the kite-flying channel, because they only have to pay for the channel they want rather than all of basic cable to get this one station.   This is a fine theory, but it only works if the kite-flying channel still exists in the new regulatory regime.  Let me explain.

Clearly the kite-flying channel serves a niche market.  Not that many people are going to be interested enough in kite flying alone to pay $5 a month for it.  But despite this niche status, it may well make sense for the cable companies to add it to their basic package.  Remember that the basic package already attracts the heart of the market.  Between CNN and ESPN and the Discovery Channel and the History Channel, etc., the majority of the market already sees enough value in the package to sign on.

Let's say the cable company wants to add a channel to their basic package, and they have two choices.  They have a sports channel they could add (let's say there are already 5 other sports channels in the package) or they can add the Kite-flying channel.  Far more people are likely to watch the sports channel than the kite flying channel.  But in the current pricing regime, this is not necessarily what matters to the cable company.  Their concern is to get more people to sign up for the cable TV.  And it may be that everyone who could possibly be attracted to sports is already a subscriber, and a sixth sports channel would not attract any new subscribers.  It is entirely possible that a niche channel like the kite-flying channel will actually bring more incremental subscribers to the basic package than another sports channel, and thus be a more attractive addition to the basic package for the cable company.

But now let's look at the situation if a la carte pricing was required.  In this situation, individual channels don't support the package, but must stand on their own and earn revenue.  The cable company's decision-making on adding an extra channel is going to be very different in this world.  In this scenario, they are going to compare the new sports channel with the Kite-flying channel based on how many people will sign up and pay for that standalone channel.  And in this case, a sixth (and probably seventh and eighth and ninth) sports channel is going to look better to them than the Kite-flying channel.   Niche channels that were added to bring greater reach to their basic cable package are going to be dropped in favor of more of what appeals to the majority.

I think about this all the time when I scan the dial on Sirius radio, which sells its services as one package rather than a la carte.  There are several stations that I always wonder, "does anyone listen to that?"  But Sirius doesn't need another channel for the majority out at #300 -- they need channels that will bring new niche audiences to the package.  So an Egyptian reggae channel may be more valuable as the 301st offering than a 20th sports channel.  This is what we may very likely be giving up if we continue down this road of regulating away cable package pricing.  Yeah, in a la carte pricing people who want just the kite-flying channel will pay less for it, but will it still be available?

Note the key to this analysis is the limited channel capacity of cable or satellite.  This is not a pure free market, where there is always room for another niche offering to try their hand with consumers.   Cable channels are more like products competing for limited floor space at Costco - to make the cut in an a la carte world, a channel has to do a lot of business.

  • LarryGross

    well.. I think what most people want is the ability to build their own bundles and not be restricted to ones

    that have been arbitrarily grouped.

    but people should have that option just as they might find most cars on a new car lot configured with "bundles" they don't want - but they can then factory-order what they want - and probably not as good a deal,.

    so you pays your money and makes your choice.. Of much bigger concern to me is the monopolistic "pay what we charge for cable or go without" providers. While Dish offers some competition on the TV end, the internet end is harder.... especially if you cannot get FIOS or DSL. And if you can't get a clear view of the sky, the dish idea go kaflooey also.

    but this part ".... the young person next year who needs no medical care but will have to buy a pre-paid medical plan designed for a 65-year-old."

    is that flat wrong. go to healthcare.gov for your state and fill in the short survey about your age, conditions, etc and then run the search. When I do that, I get over 100 different plans ranging from $50.00 on up to hefty priced plans.

    I don't get it how Warren is so methodical and probing on some issues then turns around and spouts blatant propaganda on others.

    ObamaCare is a long way from perfect, no question about it - and ultimatey could see major changes, perhaps even be substantially gutted by future legislation and legal challenges - who knows.

    the the plain fact is - it offers quite a number of private sector (not govt) plans that range from fairly cheap high deductible catastrophic plans all the way up to caddillac plans.

    A gal that works 30 hours a week at a retail job can buy basic catastrophic health insurance for 50.00 a month AND it is PORTABLE so she can switch jobs whenever she finds something better or work two part-time jobs - a wide range of options that no longer have her worry about where she can get insurance.

    This gal - will visit the doctor regularly - and he/she will run routine tests - and find something that needs to be treated early and do it and basically keep that gal from going to the ER a year from now with a dangerous and expensive condition that the hosptial will then have to treat for 'free" and then shift that cost to you and me.

    The folks who talk "repeal" basically have litany of what they don't like including a plethora of just plain wrong propaganda - but they have no real REPLACE alternatives. Seldom do you hear any of them say - "this is what we should be doing instead" .... except inane unrealistic stuff like "get the govt out of health care"...

  • alanstorm

    I'm looking at it from the opposite perspective - I'd like to de-select (and not pay for) the incredible number of shopping and infomercial channels, which seem to take up 3/4 of what's available.

  • LarryGross

    well..me too.. but some of those stations, in effect, subsidize the others so if you remove them, it would be like opting for the "ad-free" version of something, eh?

    we'd have more options if we had a competitive environment but we don't. It's a virtual monopoly because the cable companies own the physical cable plant much like electricity providers do.

    i'd love to have 3 different cable companies trying to serve me but the reality is that if you actually could allow 3 separate cable plants (hell they can't even keep the one intact now) - that it would change the business feasibility with respect to how many homes per mile are necessary for a break-even operation.

    One more thing. Cell phone companies. There ARE companies out there that sell modest mix or match services - like Consumer Cellular but the big boys Verizon, ATT, etc are still selling the hell out of their overpriced bundles....that people have no problem with - as many, many people now days pay MORE for their cell phone service than their cable service and beyond that people pay more for cable than they pay for electricity. Pick the 1 out of the 3 you'd like to most not have!

  • slocum

    I don't want cable at all. I just want to be able to subscribe to ESPN and HBO directly and watch over web (as I do now with HBOGo and ESPN360) without having to be a cable subscriber. Youtube, Vimeo, etc can handle all my 'kite flying channel' needs better than a dedicated niche channel anyway.

  • LarryGross

    how do you get internet if not from cable?

  • slocum

    Well, of course you can subscribe to broadband over DSL as well as over cable, but what I meant is that I don't want cable *TV* service at all.

  • WillusM

    In addition to the average versus marginal distinction, I think it's also important to consider market inefficiencies. Bundling improves market efficiency by simplifying the decision making process of the consumer.

    Personally, for example, I'd rather pay $5/month extra for 50 long tail programs than spend the time to consider whether the kite-flying channel is worth $0.08/month to me, whether CSPAN3 is worth $0.12/month, whether Golf History is worth $0.07/month. I'd rather pay $5/month for all this surf space and be done with it.

  • MNHawk

    It's all moot now that we're entering an era of a la carte PROGRAMMING, thanks to mega bit internet service. Adapt or die, programmers. I don't need 200 channels of reality TV, with the best of the world at the beckon of my Roku remote, at a fraction of the price.

    One element Warren missed was the incredible corruption in the current (pun intended) system. Al Gore was allowed to build up a $500 million empire, just by using his political connections to get his channel carried, not by actually attracting $500 million worth of viewers.

  • irandom

    Actually, this might make me opt for more channels. Currently, I only get what comes "free" with the cable modem. This year they decided that Discovery would not be included, but I like the Mythbusters even though they are idiots. For a few bucks more I might subscribe to it. Same thing for the Walking Dead or Falling Skies. It seems that every channel has decided to have one good thing and use reality TV as filler for the rest.

  • ColoComment

    What if you considered a "hybrid" type of bundle/a la carte plan? I.e., three tiers of cable channels to select from. First ("Platinum"?) tier: x number of top-choice channels; second ("Gold"?) tier: x+y number of middling-choice channels; and third ("Silver"?) tier: x+y+z number of "kite flying" channels to choose from. All for the one low bundle price of $###/month. Or you could offer multiple of that, i.e., increase the number of channels offered in each plan for a higher subscription price.
    I'm not smart enough to figure out how this would play out....

  • http://profiles.google.com/maruadventurer john mcginnis

    You can sign up with a local WISP if you have one in your area. Most have 2 or 3.

  • http://profiles.google.com/maruadventurer john mcginnis

    OP, MNHawk is correct your paradigm analysis is dated. Consumers don't need cable portals when they have access to Hulu, NetFlix and RedBox. Fact the whole idea of channel portals and programming managers is going the way of the dodo and that is from the content provider's prospective.

    Current paradigm: Content provider wrestles with cable provider for distribution. Of which the content provider has to provide a great many concessions.

    Pending paradigm: Content provider opens up their back catalog to all consumers via a direct channel over the cable company network via IP. Content provider does separate billing to the consumer. Loss of a single consumer is a pittance compared to the concessions previously lost to the cable carrier.

    The shift is happening NOW. There are two on-air channels COZI and THIS already trialing this. THIS for example is composed of the catalog from MGM and affiliated companies. Its only a matter of time that Sony or someone else does this as a monthly charge for the entire back catalog.

    When it occurs cable portals are toast.

  • alanstorm

    "...some of those stations, in effect, subsidize the others..."

    I'll grant you that's possible, but
    is it actually the case?

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    AT&T Uverse.

  • http://profiles.google.com/maruadventurer john mcginnis

    Comcast already has a offering like that. But the control is still under the programming office, not the consumer.

  • http://profiles.google.com/maruadventurer john mcginnis

    By the way, as an example of what I am talking about YouTube is now lauching thru various content providers ala carte channels of various content -- http://googlesystem.blogspot.com/2013/05/paid-youtube-channels.html

    The splits on what constitutes a channel will get even smaller.

  • LarryGross

    Yep. I note that in the last year I did receive from good old Comcast a notice that my internet connection was capped at 250gb for the price tier I was paying for.

    Of all the various options for broadband, most people best bets are cable and I suspect that Comcast and COX are way ahead of us on viewing TV on a cable internet connection.

    In other words, they still have us by the "short hairs".

    ;-)

  • Broccoli

    I went to broadcast only + internet connection. The only thing not available either free or for pay is HBO and similar premium channels, a good chunk of non-football sports, and 24 hr news channels. Considering they want me to pay $100+ a month for that dwindling list of exclusives, I passed. That is not worth it to me.
    Even if I am in love with shows that can't be found for free, almost everything except HBO/showtime can be had for at most $2.99. I'd much rather pay $2.99 an episode a time than $1200 a year and get them all for "free" along with ads.
    And the only reason HBO and sports are not available outside of bundles is because the cable bundlers are scared to death of losing the last of their exclusives. Take away ESPN alone and I bet over time cable bundles subscriptions would decline by 25%.

  • ColoComment

    Thx. I don't have a TV (by choice) so was unaware that was available. Or how the whole thing works.

  • marque2

    If the kite flying channel is so good, it will move onto the Internet as a streaming feature - might even do tie ins with Hulu and Netflix.

    I might have some sympathies for the argument if this were 1995 - but nowadays folks are dropping cable like flies because with Netflix and Youtube and other Internet options allow them more freedom. I haven't had cable in my house for about a year now. Yeah, I miss Restaurant Impossible, but that is about it. Kids don't miss it much at all. I live in a valley btw, so the over the air channels don't come it, but in my previous home we got all the local channels plus extras like 2 cartoon channels for kids. Ion TV a learning channel, weather channel, etc. It was surprising how much more is available with digital TV.

  • marque2

    ESPN would be the real loser in unbundling, they know of the fear and charge accordingly. My family isn't all that into sports, we would drop all the ESPN 1,2,3,4, ... (n-1). . - of course since then we have dropped all of cable for about a year now. Pay for netflix, it all works out.

  • nehemiah

    If I could only get 1 channel it would MSNBC, right guys?

  • marque2

    That is the point. I would probably choose, History, Discover, Travel, Home, Food, and Nick - all the rest be gone, even the local channels. Rarely watch those either.

    So no I wouldn't have to decide on 100 choices, I would think, Hmm we watch these 6 and nothing else. I'll check those off.

  • marque2

    You can get internet only service from the cable companies. Some have a no cable, penalty where they make you take up basic for $10 extra. But 50 bucks for Internet only is still better than the $125 combined package they try to foist upon me. Cox is giving me 25mb/s Down and 10mb/s up speeds as well. Everyone in my home can watch what they want at those speeds.

  • marque2

    Nah, I could go to AT&T if COX gave me sh*t and COX only lets you watch over internet, if you pay for the cable TV service.

    You are being pedantic again.

  • marque2

    There are enough people who like QVC and HSN that they probably can command a fee rather than pay to get on.

  • LarryGross

    I was not aware that ATT offered cable-type broadband. I was under the impression that COX and COMCAST were themselves basically "streaming" video when they delivered cable TV.

    it's all digital now right?

    If someone had only internet but they did use it to watch TV would that end up exceeding the allowed bandwidth?

    My thinking is that Comcast/COX are really selling bandwidth and you can buy their bundled products or you can stream your own but in the end both rely on the underlying cable bandwidth.

    have I got this wrong? is it possible to buy only internet and watch say 4-6 hours of streaming TV per day and stay within an allotted cap?

  • FelineCannonball

    Who cares about cable? The only thing keeping it alive is sports. Everything else will go to internet streaming (the ultimate a la carte) and then the whole thing will die in ignoble death.

  • marque2

    My cap seems to be much higher than yours. The video and the internet are separate. Not sure how the signals are combined, but I definitely has a situation where digital cable was coming through but the Internet signal wasn't strong enough - it had to be repaired. We do so much streaming I bet we use about 15 gigs of data a month - no complaints from Cox.

    Something else to note - even in these enlightened days I would loudly proclaim my love or hate of Cox in an office environment :P

  • http://devilish-details.blogspot.com/ mesaeconoguy

    You would be their 3d viewer.

  • MingoV

    People will be able to build their own bundles, but only after "cable" channels are carried on the Internet.

    The bundling--unbundling issue has reappeared once or twice each decade since the 1970s. Unbundling was unsound the first time it was suggested. As both total channels and basic service channels increase in number, the argument for unbundling gets weaker.

    The local monopoly issue has no relationship to bundling. Bring your gripe to your city, town, village, or county government. A side note: my small city had a cable monopoly, but the rates were lower than the nearby big city that had competition between two cable vendors (plus the satellite dish vendors).

  • LarryGross

    I've never hit my cap and further reading indicates they backed off of it but what's coming across cable is digital bits... then converted back to video or internet at the point of service. they are separate frequencies and one can go out and not the other but both can "freeze" midframe...if you have noticed..... whereas a pure video signal that went belly up (as in the old days) just goes to "noise".

    so my take on it is that if people start to migrate away from pure video to internet video that the cable companies are going to find a way to recoup that ..... just my suspects.

  • FelineCannonball

    I'd be all over the kite flying channel. Building kites, flying kites in sketchy winds, kite fishing, kite fighting, kite aerial photography, kite-related deaths and decapitations, man-lifting kites, giant kites, kite festivals, ancient kite history, military kite history in WWI and before, etc.

  • skhpcola

    Exactly. IIRC, cable mafias charge each subscriber >$5 for piping in ESPN. I couldn't give two shits less about sports and I know many people just like me in that regard. Allow us to knock that channel off of our bill and save the monthly charge. The people that are so gung-ho about seeing grown men prance around in leotards and such can pony up extra.

    And, really, would the absence of 80% of these channels that Warren references be missed? We have the intarwebs these days, with millions of people and organizations offering unique content...both video and print media. Having 600+ channels (or whatever) isn't a virtue in and of itself. Most of that is just dreck and filler for the advertisements that make money for the channels.

  • skhpcola

    I had to "+1" that comment. It is the first comment made by you that I've ever seen that didn't contain at least one retarded point. Congrats!

  • skhpcola

    Mediacom was dinging me $15 a month on a surcharge for only having internet...after I paid them around $125/mo. for years for that and phone and cable. I raised hell, they made me sign a 2-year contract, and lowered my internet to 39.xx. Of course, after the fees and taxes, my bill is about 13% higher than that, but that is better than my cell phone bullshit. Those bastards are masters at bill inflation.

  • stan

    The kite channels won't die. Like many said, they will exist on the internet, since it's relatively free/much cheaper, especially if they use Youtube. With more streaming services and faster connections, I tend to think cable is a dying medium.

  • marque2

    Would it also cover flying sky lanterns:

    http://www.youtube.com/watch?v=hwvJkHV-HW8

  • marque2

    Are most of their viewers 2 dimensional?

  • marque2

    I just of this - I don't why it didn't come to me before. Currently I get a lot of Internet over my phone. Mostly for listening to the radio - but I have turned my phone into a hotspot several times when I needed the full power of a laptop. Right now I get 5 gigs of unlimited data before they throttle me to modem speeds - and yes most carriers block usage, but if the FCC got off their @sses and auctioned off more spectrum and confiscated it/redistributed it from the cable companies (Some bureaucrats thought it would be a good idea to give cable companies cell phone spectrum for free, the cable companies have just been sitting on it) then the bandwidth restrictions from cell phones would go away and we would all use our phones for Internet.

    The only reason the cell guys started throttling is because they ran out of bandwidth.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    1 dimensional. They put the "dim" in "dimensional."

  • marque2

    I care about the cabal!

  • JRB

    " to make the cut in an a la carte world, a channel has to do a lot of business." Fine, but do it on your own dime, not mine.

  • Corky Boyd

    There are two layers of bundling.
    The first is the bundling done by the ESPNs and the like when they deal with the cable and satellite companies. Right now ESPN is telling them they must buy all if they buy any. Before consumers can buy a la carte channels, the cable/satellites must break their stranglehold. The public shouldn't be worried about being forced to by the kite flying channel. Most like that are dirt cheap..
    It is the sports channels with their multi-billion dollar contracts with MLB, NBA, NHL, Nascar etc. that make your cable more and more expensive. Unless the cables/satellites can buy individual programming themselves,all the legislation and lawsuits won't work. And the only way they can challenge the ESPN's is by brute force. By that I mean, not reaching contract agreement with them and cutting them off the air. So if this happens, which is the approach DirecTV plans to use, don't lose heart. It's the only way a la carte will come to the consumer.

  • Incunabulum

    Not initially, but over several years its coverage will morph, first showing a greater percentage of non-kite-flying shows until finally the name is only a hold-over and its nothing but a bunch of crappy reality shows covering the sordid social lives of 20-somethings flying sky lanterns.

  • marque2

    It gets even worse. On History channel they had Ice Road Truckers, which I have to admit is/was a fun show, but then after 3 seasons they moved the Ice Road Truckers from Alaska in winter, to India, and then South America, where they experienced very little ice. Even the shows morph into something else.

  • obloodyhell

    What?
    No kite-espionage programming?
    And what would we do without kite(fin) shark week?

    :oD

  • obloodyhell

    }}} And, really, would the absence of 80% of these channels that Warren references be missed? We have the intrawebs these days

    Ummm... no one has a working model for making the interwebs pay for this kind of thing, really...?

    Part of that is a need for nickel-and-diming things. We really need an overhaul of copyright law that makes a substantial part of creation-and-release into a rewarded behavior.

    This kind of thing has been discussed but the endless interference of the RIAA and the MPAA has given it little of its obvious initial impetus. There's some element of it hidden in Netflix, Amazon Prime, and iTunes, but it's far from really complete yet. There's a lot of content that $3 bucks is too much for, but a few million people around the world would cough up a nickel for...

  • obloodyhell

    Natural Democrats.

  • obloodyhell

    LOLZ. Randall disagrees:
    http://xkcd.com/397/