FanPost

Affordable Dining

The consumer benefits of a la carte cable are overstated and the projections are not realistic.

The misconception is analogous to expecting to pay less by ordering only the beef and potato instead of buying the buffet which has the beef, potatoes, chicken, soups, salads, and other vegetable dishes.

Paying less is a realistic option for the customer just ordering soup, but the restaurant owner would extend this to the person only ordering the high price items.

Packages

In a sense, whether it is basic, expanded basic, or a sports tier, the channels you watch are subsidized by subscribers who watch different channels. You may be paying for channels you never watch, but others are paying for your favorite channels which they never watch.

Packaging Results

The result of the packages is that you have the option of watching more channels. Even though you may not watch a channel now, they might add a show in the future that catches your interest.

For example, prior to 2007 AMC didn’t offer programming that would attract many a la carte subscribers, but now has some of the most watched series on cable. If subscriptions were a la carte, these series probably would have never developed. Even if they were developed, they would have a hard time developing a following in an A la carte format.

Subsidized Viewership

I couldn’t find a more recent listing of cable channel subscription prices, but the 2009 chart below offers a good reference. (Note – the BTN is the Nationwide average, while the network charges drastically different rates between those in and outside the B1G footprint.)

Cable-sub-fees_zps0dd80ef8_medium

(click on image to enlarge)

A quick comparison shows the subscription price of ESPN and ESPN2 is roughly the same as the 75 cheapest channels.

You may never watch these 75 cheapest channels, but very little of your cable fee goes to these broadcasters. On the other side, viewers who have little interest in sports are paying a lot more to subsidize your sports channels.

Under A La Carte

If ESPN doubled their subscription fee in an a la carte format, you would be paying the same as you do now with these 75 cheapest channels in your bundle.

If ESPN tripled their subscription fee, it would be the same as dropping over 130 of the cheapest channels.

If ESPN quadrupled their fee, it would be the same as dropping nearly 150 of the cheapest channels (leaving only the 22 most expensive channels).

At 5 times their expanded basic fee, it is about the same as all but the 10 most expensive channels.

It would probably reach up much higher in the list because your expanded basic lineup probably doesn’t offer all of the cheapest channels, but does offer the more expensive channels like ESPN.

This is understated since it only looks at ESPN and ESPN2. A sports viewer watches more channels than these 2 channels, and watches more than just sports – these other channels you watch would also be increasing their subscription fee under a la carte, and ratings indicate you are probably watching the more expensive channels.

Sports viewers are on the plus side of subsidies in cable packages, and would expect to see the higher rate increases in a change to a la carte.

Cable Options

A host of internet streaming and downloaded video providers offer a viable option to most cable viewing.

Most series can be downloaded, sometimes delayed by no more than the ending of their original network broadcast, and are rarely delayed longer than a season.

The downfall of these options is live sports. Few sports fans would be content to view an event after its outcome becomes known and discussed.

I believe this is why sports networks are able to command subscription fees proportionally higher than their viewership. Their value to the cable providers isn’t their viewership,. It is their ability to anchor subscribers – sports is a (perhaps the) major factor keeps cable subscribers from going to other sources of video.

Network Response to A La Carte

As the major reason viewers maintain their subscription to cable, sports broadcasters could expect to command the lions’ share of subscription fees under an a la carte pricing format.

Sports Channel a la carte subscription fee can be expected to be several fold their package fee – 3 times, maybe more. After all, if cable subscribers are paying an average of around $80 per month in a package pricing format, and the primary reason subscribers aren’t leaving cable for cheaper video providers is because of sports, why wouldn’t sport broadcasters be able to get the lion’s share of those fees in an a la carte format?

You can expect the development of new shows to decline. As the AMC example above notes, it would be much harder for a new show to build an audience if fewer consumers are subscribing to the channel.

Streaming and Downloaded Video Price Increase

Internet video providers can obtain broadcast rights cheap because it is a secondary income source for shows already aired on the cable network, analogous to movies released on DVD.

If viewers leave cable for internet providers, you would expect the networks to respond by increasing their fee to the internet providers as they become a primary source for viewers.

Broadcast Rights Increase

I think a less obvious effect is the number of networks broadcasting sports. Here I believe the result would be opposite what most expect.

Before ABC purchased ESPN, the B1G and Big XII football and basketball was tiered among 3 networks.

Existing companies would spread sports out among more of the channels they own to encourage people to subscribe to their full offering.

Sporting events would be more desirable to networks in an a la carte pricing format where networks need them just to get audience access. This would attract new networks to compete for sports broadcasting rights.

The increased competition for these rights would expand the number of tiers in the broadcast contracts to maximize revenue – a smaller network might not be able to afford the 1st or 2nd tier rights, but they could afford to bid for the 5th or 6th selection of weekly games. The value of lower tier broadcast rights would increase.

The rights and broadcasts would be more likely to be split among more networks, increasing the number of individual a la carte network subscriptions needed to keep access to the same events.

The increased cost to acquire rights and increased number of channels needed to view all games would increase the cost to a la carte viewers looking to keep the same sports access they currently enjoy.

Loss of Negotiation Voice

Currently cable providers do their best to keep the cable networks in check. They have a vested interest in keeping the price of packages low. If a cable subscriber drops their subscription or drops to a lower cable bundle tier, the provider loses more than just their profit from the network that introduced the increase.

Under a la carte, this incentive is mostly lost. If the cable providers work on a percentage of the subscription fee, they have less incentive to try to negotiate for lower rates from ESPN, BTN, and other broadcasters.

For example – if a 20% price increase by ESPN loses 15% of his subscribers, the cable company still comes out ahead in an a la carte format. Under the current package format, the cable company loses money with less than a 2% drop in subscriptions.

ISP Fee for the Online Option

Most don’t realize most internet service providers charge a premium if a download limit is exceeded. In their current usage, the subscriber rarely or never encounters this limit… but if they begin downloading and streaming video, these limits will soon be encountered. Many IPS users would need to increase their bandwidth and usage limits.

I have never seen a comparison of switching to online video that factors in the increased charges from the ISP.

ISP Shenanigans

Internet service providers are suspected of already pulling shenanigans when it comes to streaming video. They don’t price and size their equipment with the expectation that everyone will be trying to use their full bandwidth allotment at the same time.

Netflix subscribers in some areas soon found their streaming speed dropping which decreased the quality. Curiously, when they went thru a VPN connection, rather than slowing down as expected, their speed increased. It is suspected the ISPs were throttling streaming video sites to save the bandwidth for other customers – they couldn’t easily do this when a VPN was used.

If a large portion of the populous began using streaming video as part of their alternative to cable, the ISPs would need to improve their infrastructure. This would likely result in increased ISP costs to the consumer.

Don’t Look for a Political Solution

Notice 1 of the most expensive channels is Fox News. If a political party will shut down the government in another failed attempt to eliminate a program they dislike, what lengths would they go to preserve access to their flagship news outlet?

For the Consumer

Unless he watches less than a handful of channels, the typical sports viewer will find himself paying more and/or accessing fewer programs that he currently enjoys.

The reason is 3 fold:

1. The channels nobody watches make up very little of the cable subscription fee – that’s why they are part of the package. The channels you watch, notably sports channels, make up the lion’s share of the subscription fee.

2. The lack of options allows the sports broadcasters to charge fees in excess of what their ratings would dictate.

3. The online option to cable would increase in price as broadcasters increase their licensing fees and customers have to purchase increased internet transmission allotments.

Online Option on the Horizon

At present most cable channels offer free downloading access and live streaming video, but only if you already subscribe to their channel thru a cable provider.

DishTV is planning to offer an online only cable package with both streaming video and downloading of all shows. They have already reached an agreement with Disney (Disney, ABC, ESPN). They are looking to add more channels before launching the package.

Best of all, with a much smaller broadcast infrastructure, DishTVs target subscription price is between $20-$30/month. This would allow subscribers to add a service like Hulu, Netflix, or Amazon Prime and still see a substantial savings.

DishTV won’t be without competition – DirectTV also signed an agreement with Disney and plan their own online only option.

While this is a ways off, you might keep this in mind in specifying features if you buy a new TV or home desktop.

The Current Unscrupulous Option

Most broadcast networks now offer downloading of their programs after they are aired and even live streaming provided you subscribe to their channel thru a cable provider.

Chances are you have a relative who isn’t computer savvy but does have cable. Obviously he has no interest in registering to view programs online.

A less scrupulous person (which is just about all of you vagrants) could use their cable subscription to gain access to the cable network download sites, notably the sports channels. If desired, you could mix this with online services like Amazon Prime, Hulu, or Netflix and really screw the cable channels.

The BTN does offer an online streaming and download international subscription, which doesn’t require a cable subscription. You might be able to buy a VPN connection thru an overseas server and subscribe to BTN2Go International thru it.

There are other costs. I noted the increased ISP price earlier. You may need some additional hardware. You might need a VPN. Some of the networks do charge. But it is an option available now which you can quickly move over to the online only packages when it becomes available.

I will be pursuing this with an additional twist. Unless there is a late hiccup, I will be moving overseas in the new future. I plan to move my video source to downloaded and recorded streaming video. If anyone has any helpful hints for streaming video, please note them below – your help will be greatly appreciated. I will blog my setup when I get it running.

In the meantime, enjoy your steak and ribs from the buffet, subsidized by those filling their plate with chicken and vegetables.


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