Why A La Carte Cable Will Probably Cost You More

from the read-it-and-weep dept

Every time we write about the push for "a la carte" cable, where subscribers could pick and choose which channels they want, we make sure to point out that studies have shown most consumers would end up paying more for such a system. However, every time we write about it, comments fill up with people ignoring the study and insisting that if they only had to pay for the five channels they like, then obviously it would cost less than the 100 they pay for today. That, of course, ignores how the economics of the business would change if a la carte was being offered. Thankfully, someone over at the NY Times gives a nice straightforward explanation for why your bill would likely go up if we switched to a la carte. And, it doesn't even get into the increased overhead in the infrastructure necessary to offer a la carte, along with the more complicated billing and maintenance required.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Anonymous Coward, Nov 26th, 2007 @ 2:06pm

    Boo hoo it's hard.

    The fact that bills are no longer itemized. And the dubious TBS, ESPN, etc fees are hidden seem NOT to support the anti-"A La Carte" FUD. Also lack of CableCard to adoption and use of SAP demonstrates they make little effort to use the infrastructure effectively.

    What Mike is essentially saying is that everyone should just pay their "AdHSN Fee" and shut-up.

     

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  2.  
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    Danny, Nov 26th, 2007 @ 2:06pm

    If anyone was really concerned about lowering the cost of tv channels then they would target all those fee and charges that get tacked onto your bill that cause that $39.99/month you saw on the commercial to jump to over $50/month. I have no problem with paying for channels that I don't watch since I know that there are other people paying for channels that they don't watch but I do. I'll gladly pay for you to watch MTV while you pay for me to watch LOGO.

     

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  3.  
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    Le Blue Dude, Nov 26th, 2007 @ 2:09pm

    This is why...

    I don't have television. Internet costs enough, and is far more useful.

     

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  4.  
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    Deirdre, Nov 26th, 2007 @ 2:12pm

    Let's hear it for supply and demand

    The article quotes the study as ESPN costing $3 per subscriber, and in an a'la carte system it would cost $12 per subscriber "to make the same revenue."

    Ahem. Since when is it my job to make sure ESPN makes the same revenue? Plain vanilla market economics says that if ESPN raises its price to $12 a head, its subscriptions and revenue are going to drop like a streamlined crowbar. And if ESPN wants to keep their beer and car polish advertisers happy, they will have to find a pricing plan that is some compromise and settle for less profit. I doubt that an open market would support quadrupled prices. Many people just wouldn't buy it at that price.

    Only a few years ago I lived in the backwaters of the heartland and inherited a C band dish with my house. I could subscribe to a variety of tiered packages; $30, $40, $60 per month, or I could buy a'la carte. Those 5 channels I wanted to watch cost me $10 per month. Obviously it was the cable subscriber base that kept it that low, but I did get exactly what I was willing to pay for and saved money. If the world was a'la carte and prices doubled, I would have still saved money.

     

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  5.  
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    Oliver Wendell Jones, Nov 26th, 2007 @ 2:21pm

    Re: Let's hear it for supply and demand

    But do they do the math to show that there are people like me who are "paying" for ESPN but would never turn to that channel in million years?

    Claiming that you have 100 bazillion possible viewers because there are 100 bazillion cable/satellite customers who happen to receive ESPN sounds good when you're talking financials with a potential ESPN advertiser - but imagine how much better it would sound if they could say "we have 10 bazillion customers who actually pay to receive our programming and who are big sports fans." That raises the value of your commercial time significantly because you can actually point to a real number of potential viewers instead of a made up number.

    And as this website has made a point of time and time again - why is it the government's responsibility to support your business model? If you can't make it on the number of people willing to pay $3-12 per month to watch your channel, then maybe you're doing it wrong?

     

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  6.  
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    Mrrar, Nov 26th, 2007 @ 2:24pm

    Hardware

    So costs will go up because the Cable Companies are unwilling to invest in new infrastructure or a more efficient delivery system.

    Um. Okay.

    ...

    That's.. great. :)

    Corporate Extortion is awesome!

     

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  7.  
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    TSO, Nov 26th, 2007 @ 2:27pm

    Television? What's that?

    Oh, I'm told it's like analog BitTorrent.

     

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  8.  
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    Just Some Guy, Nov 26th, 2007 @ 2:40pm

    The fees and charges are usually taxes and franchise fees that a city charges a cable company to operate within the confines of the city. They do it to your landline phone and any other service you receive via a cable or wire that crosses or is contained in city property. You going to b*tch to the phone and power company too?



    Ala-carte cable is a bad idea. But morons refuse to see the numbers for what they say.

     

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  9.  
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    Wizard Prang, Nov 26th, 2007 @ 2:43pm

    If a-la-carte means higher bills and higher bills mean higher profits, why are the cable companies fighting a-la-carte tooth and nail?

    I say follow the path of most resistance. I suspect that a major reason that the cable companies are fighting is that there are a large number of channels that nobody really wants enough to pay for (HSN comes to mind).

    Another reason is that service companies do not like change of any kind.

     

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  10.  
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    Just Some Guy, Nov 26th, 2007 @ 2:46pm

    Re:

    Many people do not know that some(if not all) of the shop-from-home channels pay for carriage on cable and satellite operators. Rates would be even higher than they already are without these networks.

     

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  11.  
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    TheZorch, Nov 26th, 2007 @ 2:56pm

    Lies

    This whole article smells of cable industry propaganda to me. There is NO reason why the cable companies can't do this with existing technology and without extra cost. None what so ever. Don't believe these corporate approved lies.

     

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  12.  
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    Dutch Oven, Nov 26th, 2007 @ 2:58pm

    The article makes a reasonable point, but the solution would be to sell bundles is various tiers, 15 channels, 25 channels, 40 channels, etc., charging progressively less per channel as you add more channels, but, and here's the key, LET THE CONSUMER CHOOSE which 15, 25, or 40 channels he wants to buy! I don't watch more than 15 channels (more like 10) but if the price per channel for 25 channels is a lot less than the 15 channel package then I might be willing to buy the additional 10 channels which would be "fringe" channels that I would only watch occasionally.

    Lastly, the argument that some channels would die out due to lack of subscribers is ridiculous. I mean, of course that would happen! Why is this bad? Why would you produce a product that can only survive if it's forced on consumers when they purchase a competing product? If you own on of these channels you deserve to go out of business.

     

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  13.  
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    That Guy, Nov 26th, 2007 @ 2:59pm

    What if I only buy milke and bread?

    What if I only want to buy Milk and Bread from walmart?

    Should I have to contribute money that ultimately funds the large superstore building? Should I have to fund the tens of thousands of items in the store I'm NOT buying?

    And I sure don't think I should have to pay for the massive logistical machine and warehouses that keep the Walmart store full of things I never want to buy.

    Walmart should open a milk and bread store for me, and provide those two items at a cheaper price. After all I'm only getting Milk and Bread.

    After all, Walmart is just out to screw me over by forcing me to cover overhead so they can sell items like medicine, tires, and video games that I would never buy from them when all I want is Bread and Milk.

     

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  14.  
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    Joel Coehoorn, Nov 26th, 2007 @ 3:08pm

    Points system

    How about a system that assigns a point value to channels based on their expense to the cable operator. Channels like CSPAN and HSN would be 0 or included by default, since they don't charge the cable companies anything. Then you have to buy a base package with a minimum of so many points (say, 50 to start). There are enough points in the base package that most consumers are going to include most of the bigger networks.

    This way, if ESPN goes up higher than $3, it's because not enough people actually want it. And it might go higher, but then again it's now having to compete with Fox Sports and the like directly, which it hasn't had to do before. If it goes too high it will lose market share to it's competitors. I'm pretty sure the NYT piece ignored that factor.

    In this system, the real cost of the channel is exposed to the consumer rather than hidden away in a package, and they can make better decisions about what they want to pay for, even if what they pay for after the change turns out to be about the same things as what they pay for now, but since you still have to buy a base package not all that much would change. The real advantage would be in the ability to add more channels beyond the basic level on an ad hoc basis rather than as a group.

     

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  15.  
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    Matt (profile), Nov 26th, 2007 @ 3:11pm

    Re: they already have this

    in many forms they already have this, people just complain because of a few stations that they just don't want. In reality though, as they say, costs will go up dramatically. Ala carte would basically shut down TV as we know it, or all stations would have to be public/national and we wouldn't really be able to have a non public system due to costs.

     

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  16.  
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    Matt, Nov 26th, 2007 @ 3:12pm

    Yeah but....

    What about the recent FCC study that concluded it would save consumers money? You know, the one that contradicted the previous FCC study.

    As others have mentioned, supply and demand should determine the price of cable channels, as it does for other items. If bundled separately, I might be willing to pay $5/month for ESPN, but not $12. So, I would decide not to subscribe if they wanted to charge $12. Funny how that works.

    And where is it writ that ESPN must maintain the same amount of revenue? Do we really need the "Ocho" (kidding I know) and all the other flavors of ESPN?

     

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  17.  
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    Just Some Smarter Guy, Nov 26th, 2007 @ 3:17pm

    Re:

    Morons refuse to see the numbers for what they say? No, morons actually watch ALL 120+ channels they subscribe to.

    Free markets will always dictate price. Like Deirdre stated above, since when is it my job to make sure ESPN generates the same revenue. If ESPN needs to adjust their price to balance consumers' subscriptions vs. advertisers' campaigns in order minimize their revenue hit, SO BE IT.

    And if we lose some obscure channels along the way, GOOD. There is way too much crap on TV anyways.

     

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  18.  
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    Nismoto, Nov 26th, 2007 @ 3:30pm

    Re: Re: they already have this

    No. A la carte would not shut down TV as we know it. It could potentially change it drastically (which would be a good thing) but it would not shut it down.

    As Deirdre stated above, prices would go up. If prices went up too much, subscriptions could decrease. If subscriptions decreased, profits would go down and the reduced viewership would affect advertising. A reduction in advertising base and profits would necessitate an adjustment in price. For example, ESPN would have to balance their cost to the consumer and take a revenue hit.

     

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  19.  
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    Medbob, Nov 26th, 2007 @ 3:46pm

    Enough frimping debate already!

    We've carefully weighed the pros and cons already. We've come to the conclusion that we want to have A la carte! Just do it and quit whining. Quit spinning, quit whining, and ask me which ones I want already! Sheesh! Some people!

     

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  20.  
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    Wes, Nov 26th, 2007 @ 3:56pm

    A la Carte vs. Bundling

    I'm sure I've read complaints about the evils of telco bundling services. What's a-la-carte but an un-bundling of cable channels?

     

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  21.  
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    Stephen, Nov 26th, 2007 @ 3:58pm

    Sorry, the math does not work

    You're trying to tell me that Food TV + Discovery would cost me more than the current $70/month my satellite provider wants for service? I highly doubt it. Sure, it might be $20/month, which is definitely paying more per channel, but you know what, I've got everything I want, and I'm still saving $50/month. ;)

     

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  22.  
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    Petréa Mitchell, Nov 26th, 2007 @ 4:14pm

    If the providers can get them a la carte

    I think an unspoken assumption behind this article is that cable and satellite companies would have to continue paying the channels per total number of subscribers to the cable/satellite service, rather than per the actual number of subscribers to that channel. In that case, the providers would have to jack up the prices to afford the big-name channels. So it's important that any offer-- or mandate-- of a la carte to consumers make sure that the channels are compensated per real subscriber.

    Once you've got that in place, show me the amount I'd have to pay for the channels I really want, and let me make up my own mind.

     

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  23.  
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    Vincent Clement, Nov 26th, 2007 @ 4:22pm

    Re: Lies

    I was thinking the same thing.

    Mike was making a good argument until that last sentence. I expect that kind of spin from an telco or cableco shill, not from Techdirt staff.

    With the switch to digital cable it should not be that difficult to bill users and maintain the system. My cable company keeps adding more On Demand channels so it seems they have the infrastructure to provide and maintain that service.

     

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  24.  
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    Mark Murphy, Nov 26th, 2007 @ 4:33pm

    Trickle-Down Economics

    As a superficial analysis, the NY Times article is OK. But it doesn't take an economist to see that it's pretty weak sauce.

    Note the heavy emphasis on percentages. The only concrete dollar figure we see is $3/cable subscriber for ESPN. There, we see it potentially "having" to rise to $12 to keep ESPN's revenues level.

    But, for the BET scenario, all we see are evil-looking percentages like 588% and 1200%. By using evil-looking percentages, the article makes it seem like this is a whole lot of money. It's not. By comparison, ESPN's theorized $3 to $12 increase is a 300% jump. And, since ESPN "charges the highest amount of any cable network", it's a safe, er, bet that BET charges less (20 cents?). It's well within reason that BET would wind up also around $12.

    Furthermore, the article's author assumes everything else in the world is permanently frozen, never changing. Needless to say, that's a wee bit of hogwash. So, in an a-la-carte world, you'd see things like:

    -- Some households paying less, particularly DINKs (dual-income, no-kids) who may not watch a lot of TV in the first place
    -- Some households paying a bit more, stretching their budget to maximize the number of channels they pick up
    -- Overall cable network revenues dropping, causing them to cut expenses
    -- Pay for "talent" falling to the floor, whether that's news anchors or professional athletes (whose contracts shrink when TV deals shrink for their leagues)
    -- Increased delivery of subscription content online, to cut out cable TV 'middlemen', if they can do better via Akamai or BitTorrent or other means of delivery
    -- Merging of cable networks, so those with similar audiences pool their better-pulling shows and cut out the programming that's not helping pull more subscribers
    -- All this happening somewhat slowly, as "mandatory a-la-carte" would probably be implemented as an option with a timetable for making it available, so some cable companies will move slower than others, meaning cable networks won't see their revenues vanish overnight

     

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  25.  
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    Walter Dnes, Nov 26th, 2007 @ 4:38pm

    So each channel costs 4 times as much... BUT...

    ...if I only pay for 1/8th of the channels on "basic cable", it still cuts down my bill by 50%. Next question.

     

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  26.  
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    Walter Dnes, Nov 26th, 2007 @ 4:45pm

    Dear That Guy...

    > What if I only want to buy Milk and Bread from walmart?

    Guess what, you CAN walk into a Walmart and buy Milk and Bread. And you don't have to pay for an "extended basic shopping cart" containing blue jeans, diapers, and Ipods. What people are complaining about is that they can't pick and choose cable channels.

     

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  27.  
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    Matt, Nov 26th, 2007 @ 5:16pm

    Here's the FCC report I was referring to. In the NY times no less!

    http://www.nytimes.com/2006/02/10/business/media/10cable.htm

     

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  28.  
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    OTA, Nov 26th, 2007 @ 5:23pm

    Tell-A-Vision

    My bill would not go up.

     

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  29.  
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    Country Boy, Nov 26th, 2007 @ 6:28pm

    A la TV

    There are a lot of good "ideas" expressed in the posts and a lot of sensible solutions to the cost of entertainment. I, who have no cable company to hassle me, think it makes the best sense to see satellite companies like mine sell "packages" as suggested. Quote me the price (the REAL one, like comes in the mail on my bill every month!) for, say 20/30/40/whatever channels and let me select them. I would even accept it if I only chose the majority of them with the Dish company sticking in a few of their choices. I pay for a basic package now and, with no kids at home, don't really need all the cartoon, MTV, VH#, and those wonderful (oh just gag me!) shopping channels! Let me pick the ones that broaden my imagination and education and entertain me on Saturday and Sunday afternoons!

    Dutch Oven, sorry to sound like I'm "borrowing" your ideas, but you have a good one and I support it! I cannot see how cable companies or satellite companies will go out of business by offering this concept.

    Of course, I would keep it just like it is rather than doing without it. In those days, out here in the country, the sheep start looking good!!

     

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  30.  
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    Anonymous Coward, Nov 26th, 2007 @ 7:09pm

    Theres something fishy about the source article here. The article claims that we are all subsidizing each others obscure channels. Ok, fine. Thats great for those who want the most obscure channels. Its not for those who don't.

    The article says that a consequence of ending these subsidies is that channels will go away. Well DUH! The whole point for wanting a la carte is so that we can all pay less, resulting in less money getting put into the system and less value to advertisers due to loss of channel surfing impression opportunities. So we are shrinking the whole industry by doing this. Of course there will be some channels falling by the wayside!

    I contend that you can't even imagine what the landscape would look like a few years after this got forced on the TV providers. Of course there will be pain--the industry is stuck in an evolutionary local minimum and needs outside force to kick it out.

     

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  31.  
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    John Duncan Yoyo, Nov 26th, 2007 @ 8:52pm

    Re:

    Uggh, Tiers around here were organized by COX in such a way that there was one channel in each tier that was worthwhile and six clunkers. If I got everything I wanted it approached $75 while DirecTV's expanded basic with locals came in for less than $50 for everything but Premium Sports and Premium Cable networks.

    I'll be in the crowd with pitch forks and torches If they manage to get Ala Carte and it goes as badly as the NYT article forecasts. That is one vote that would kill political careers.

     

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  32.  
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    Twinrova, Nov 27th, 2007 @ 4:27am

    A la carte programming IS possible despite the art

    Smoke and mirrors. That's what the NYT article just showed people. The example of using ESPN without the cheapest comparison rate doesn't give people the "facts".

    To think that ESPN would increase its channel to $12 per viewer is ludicrous because even the bean counters would know that would kill more subscribers than anything out there. The way that ESPN would do this is to BUNDLE their own channels!

    For example, menu option #1: ESPN @ $7
    ESPN + ESPN Classics $10
    ESPN + ESPN Classics + blah blah blah

    In addition, ESPN could also raise some of its advertising costs to offset the difference.

    Which brings me to a new (but relevant) point: Has anyone out there in TV land noticed the increase of the number of commercials viewable now?

    Especially on channels like Disney, Cartoon Network, TNT, and TBS. These channels are bombarding consumers with ads (content? riiiight) to such a degree that opening and closing credits are truncated!

    So if someone tries to convince me that ala carte cable programming would increase my bill, I'd have to reply "Really? Because in the past 10 years, my cable bill has far exceeded the rate of inflation and has gone up by 27%. Where's the 'savings' I'm supposed to be getting by this bundling of channels?"

    TechDirt often writes about how the music industry keeps shooting themselves in the foot, but the cable industry is doing the same thing by trying to convince the world that "bundled channels" save. Eventually, the cable industry is going to have to refocus its attention to the way "channels" are delivered because people are tuning into downloading as opposed to "recording". ABC, NBC, and CBS all have reported that online viewership has exploded in the last year.

    So what's going to happen in the future of this "bundling"? It's going to die a horrible death as more and more people begin realizing the potential of ON DEMAND downloading, which is just another word for "ala carte programming".

    The music and video (cable included) is all going downhill all for the sake of "profits". DVDs with unskippable ads, more ads on television, DRM technology, and raising prices.

    Eventually, if this crap keeps up, people will rediscover the lost art of book reading.
    ;)

     

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  33.  
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    Wizard Prang, Nov 27th, 2007 @ 6:35am

    No change then

    So they'll continue to pay.

    And those channels will continue to be available for free.

     

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  34.  
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    Michael Doornbos, Nov 27th, 2007 @ 8:52am

    Just one

    I really just want the option to add one or two channels at a monthly fee to an existing package.

     

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  35.  
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    Anonymous Coward, Nov 27th, 2007 @ 11:50am

    I don't really give a damn about ala-carte so much as I'd like to be able to remove stations that clutter up my system. Why do I need 15 informercial stations, a dozen idiotic religious stations, a bunch of sports stations, stations catering to women or gays and transgenders and a bunch of stations that aren't even in english?

     

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  36.  
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    jeff, Nov 27th, 2007 @ 12:55pm

    Re:

    "Oh, I'm told it's like analog BitTorrent."

    Actually, the *digital* Bitorrent cannot be used by comcast subscribers since they banned it.

     

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  37.  
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    JMchugh, Nov 27th, 2007 @ 3:00pm

    alacarte

    This strawman arguement assumes alacarte is required, not an option. Most subs would rather continue with the large package. Given the freedom to offer alacarte on the operator's terms, the price breaks would be marginal. With five channels (no sports) alacarte in addition to basic and the digital box, you'd probably save $20. If an operator can keep track of your PPV, it's not a stretch to keep track of five alacarte channels...but they don't wanna.

     

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  38.  
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    rastatech, Nov 27th, 2007 @ 3:46pm

    Why hasn't anyone pointed out the obvious?

    there's no reason a la carte has to be more expensive; you are suffering from binary thinking, i.e. either you pay a fee for a package or you pay per channel. What an intelligent cableco would do would be to charge a basic access fee, like the telcos do, and then pad that with your channel selections. Thenn you could have your choice of channel packages like are currently offered or pick and choose your channels at X amount per channel.
    All your worry and hand-wringing over the cost increasing would be put down, eventually, by the same market forces you are always touting: competition. Of course that requires that we have real competition in this space, but that's something else that it is obvious we need.
    And even if a la carte were more expensive, I'd bet many folks would opt for that given the TIME savings you would reap by not having to scroll through umpteen channels of crap to find the good stuff or spend the time making your 'favorites' list.

     

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  39.  
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    Will, Nov 27th, 2007 @ 4:58pm

    Why not already?

    Could someone explain why a la carte hasn't come about already? My intuition would normally expect that at least one company (satellite or over the internet) could start offering consumers what they obviously want, be able to charge a lot less (since the other cable companies would still be subsidizing a wide channel base) and quickly build a large subscriber base of people fed up with paying tons of money for worthless tv and make a ton of money with rastatech's idea. Obviously if it became popular, then the prices would go up as indicated in the article, but having an efficient marketplace doesn't seem like a bad thing.

    So why is it that no company has done this already? Is there some industry agreement for buying channels that requires you to offer them in packages?

    In general I think that the cable companies shouldn't be forced to offer a la carte if they think it's against their interests, and it is against the interest of the industry as a whole (overall less money going into the tv industry and fewer "apparent" viewers for add numbers) but it's only against their individual interests as long as no one else does it. So what is preventing some disruptive competitor from cashing in on this huge opportunity and bringing the market back to equilibrium (ie people only paying for what they want)?

     

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  40.  
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    Joel Coehoorn, Nov 29th, 2007 @ 6:45am

    Re: Why not already?

    Two words: politics, money

     

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  41.  
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    Boost, Nov 29th, 2007 @ 10:06am

    Re: Let's hear it for supply and demand

    Amen, sister.

    Damned if they didn't use all that advertising money to provide a free service...No way, that would be crazy, it would never allow any company to turn into a global powerhouse!

     

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  42.  
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    Chuck Norris' Enemy (deceased), Dec 7th, 2007 @ 6:40am

    Re:

    On most tvs at least ten years old you can remove channels by programming your tv correctly. You won't see them anymore...but you will still be paying for them.

     

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  43.  
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    Pete Walter, Feb 25th, 2008 @ 9:06am

    A la carte cable

    Regarding a la carte cable, for many, this subject is about subscription cost. To me, it is about VOTING WITH YOUR DOLLAR. As time passes, the number of channels I watch continues to decrease. The number of channels that I would refuse to reward in any way increases.
    This is as much about channels I REFUSE to pay for, as is channels I wish to purchase.

     

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  44.  
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    Jay, Jan 9th, 2010 @ 8:27am

    Yep! That's why I use MyHomeDVR!

    http://www.myhomedvr.com You don't need a cable subscription or a DVR box!

     

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