I’m a Millennial, and a Digital Native. I also tend to DVR the vast majority of the shows I watch or download them via iTunes – currently, the only show that I watch live is Boardwalk Empire, other than the odd English Premier League match. Despite that, and all of the industry hubbub about a la carte suddenly becoming en vogue, I’m going to keep my cable subscription for as long as it is available (and not just because my wife pays that particular bill).
When a la carte first sprung onto the scene as an idea last fall, we did some research one week in the back end of the TV Dailies study that I manage. What we found out was that most people expected to pay $1 per network on an ad hoc basis, most likely using the reasoning that they get 200 or so channels for $90 a month, so really they amount to ¢45 each. This is clearly flawed logic, even when you ignore the carriage fees that networks charge, as it assumes that all networks cost the same.
The reality is that the current cable bundle is an economy of scale for customers. To give an example, it is like an insurance syndicate. You may not watch every channel (our research constantly tells us that people watch an average of 9 – 10 networks a week), but based on the inherent costs, you pay a fair rate for what you do. Based on the above snippet, that would amount to around $10 per network.
The idea therefore that buying the networks individually would be much lower is quite preposterous. Consider that the typical cost of buying a TV show on a per episode basis is $2.99 on iTunes. Even if you watched only one show on a network in a month, that would come to at least $11.96 a month. The deal that CBS announced recently at $5.99 a month is a steal comparatively, but when you note that it doesn’t include the content they don’t own digital rights to – content which happens to be some of their most popular shows – and will also include advertising, it is not a great deal for the consumer, unless you really, really love NCIS and don’t want to watch it anyplace else.
As a note, the CBS deal also illustrates just how much money networks stand to make by going it alone. When CBS and Time Warner Cable got into an unseemly dispute in the summer of 2013 regarding CBS’s wish to raise their carriage fees, Time Warner Cable pulled the plug on CBS and Showtime, until the negotiations were settled. When you consider that CBS was looking to increase the costs from “between 75 cents and $1 a subscriber per month” to “about $1.20 to $1.25 a subscriber per month”, that amounts to a 379% increase, assuming the highest $1.25 cost. Even if, noted the WSJ at the time, the carriage fees were to increase to $2 a month by 2016, that would still be an increase of 199.5% for CBS.
Now yes, the CBS fee will also cover the costs that they don’t have to worry about now. They will need an infrastructure to process payments, store subscription information and advertise the service. But that still does not cover the massive price hike consumers will pay for a la carte.
And that’s just CBS. Imagine what FX, for example, with their extremely strong line-up of cable dramas, will charge. As noted in a great article published earlier this month in the WSJ, “A future where television viewers subscribe to each channel individually could be cheaper for young people who only watch two or three channels, industry executives said. But analysts say that for households filled with people of differing tastes or fans of many channels, this future could make the average cable TV bill—which hovers at around $90—seem like a bargain.”
You also have to consider what this will mean for specialty networks. With fewer people watching them to begin with, in a free TV network marketplace, they would have to charge higher fees to cover their costs, or go extinct. The irony is that the higher fees they charge, the less likely people are to subscribe to them. This may lead to bundles being offered, for example, Viacom may offer a complete set of Viacom networks for $20 a month, as opposed to Comedy Central individually for $5.
So for me, I’m keeping cable. I have choice at my fingertips, and the ability to try new shows on networks I may not usually watch. I can watch in comfort on my TV, safe in the knowledge that if the cable feed breaks, the wifi will also most likely be down, but not having to worry about someone streaming in another room and destroying the download speed. As I live in a multi-person household, I can watch different channels to my wife without having to worry about buying another package – incidentally, a la carte may work for people who live alone, but for the majority, it won’t make economic sense unless everyone in the household is homogenous and only watches the same shows. I can also call a cable repairman if something goes wrong – something you can’t do when streaming a show, as people watching Game of Thrones and True Detective found out earlier this year.
Cable really is great value, and I am not just saying that because I work in the field of TV. A la carte makes sense if you watch 4 networks and that’s it, but thinking you are going to get the steal of the century by switching to that model is foolish at best. TV networks have shareholders who want to make money. They aren’t going to do that by creating philanthropic pricing structures for cord cutters and undermining their profit makers.
So go and celebrate the amazing value cable does provide, and the diversity of content that is available to us all. Because if a la carte does take over, we won’t have this much choice again.
(and Netflix won’t have as much content to stream, and Nielsen won’t be able to have a stronghold over ratings data as the individual networks would hold the viewing data themselves and be able to link it to quite specific marketing data, but those are points for another time).