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Summary:

Time Warner Cable’s plan to reduce customer departures by offering smaller bundles of programming that includes only the channels most important to them sounds like a good idea. But more flexible packages could undermine the entire cable business by enticing viewers to choose only must-have stations.

cable cut

As cable subscribers flee by the hundreds of thousands, some cable companies are trying to find new ways to retain their customers. For Time Warner Cable, the solution might be to offer subscribers smaller bundles of programming with only the channels that are most important to them. The problem is that smaller and more flexible packages could undermine the entire cable business by enticing viewers to choose only the must-have stations.

On yesterday’s Time Warner Cable earnings call, CEO Glenn Britt said the cable provider was negotiating with its content partners in a move that could spell the beginning of the end for the big-time cable package.

In the more value- and budget-oriented segments, we’ve heard loud and clear that customers would like more flexibility in video packaging, particularly in the availability of smaller packages. I want to tease you a bit here because we’re not quite ready to make the announcement, but you can expect to see us introduce a video offering that is targeted at more value and budget-oriented segments in the very near future.

In other words, Time Warner Cable could soon be offering a tier of programming that falls below what we currently think of as “basic cable.” Let’s think of this as “really basic cable.”

Of course, the devil is in the details. The problem with most cable packages today is that subscribers increasingly believe there’s not enough value for the amount of money they spend on a month-to-month basis. It’s easy to see why; after all, TV programming hasn’t improved dramatically over the last several years, but prices continue to rise.

Many subscribers currently leaving their cable plans are doing so because the economy is bad, and Time Warner believes that by offering more flexibility, or by enabling subscribers to choose cheaper, smaller packages of content, it might be able to retain those customers. As Britt said on the call, “[T]here is certainly a segment of our economy and our population that is under economic duress and we think it’s important for this broader industry, meaning programmers and distributors, to be responsive to that.”

While smaller or more flexible programming packages might be good for cable providers, consumers and even for a few big broadcasters, it would be bad news for the industry as a whole. The potential impact would depend heavily on what Time Warner Cable is offering as part of this new “really basic cable” package, but it’s easy to imagine that it would look like. The package would probably contain some combination of the top four major broadcasters (ABC, CBS, NBC and Fox), some highly popular channels like ESPN and TBS, and maybe a movie channel or two.

There will be a number of programmers that will be left out of these “really basic cable” packages. Networks with a niche audience or those that operate within a certain vertical — like the Food Network, HGTV and possibly even Discovery — could see their audiences shrink if subscribers downgrade their service rather than cut the cord.

As audiences shrink, so too, do per-sub fees that cable networks collect from their distributors, as well as advertising revenue that runs against their programming. And as revenues shrink, networks cut back on the amount they can spend on programming. All of which means that the golden era of original cable programming that has given way to hit series like Mad Men and Burn Notice could soon be over. Britt alluded to this, too, on the call, saying, “in the programming business, their costs tend to be somewhat fixed so if they’re facing smaller audiences and/or a smaller subscription, that’s a big problem for them. So it’s natural for those companies to resist.”

This is the whole reason a la carte cable has never taken off — because left to their own devices, consumers would only pick a handful of networks, and the rest would be left to rot. As a result, the whole premise behind the cable package could be undone.

Photo courtesy of Akarsh Simha.

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  1. I’ll be impressed when Google opens up their search and ad api’s to show they are really about “openness”. Until then, it’s all PR BS.

  2. About time, this way they can pay Fox or other content providers only for those subscribers who want the content and not for all subscribers.

    This will save them a fortune and will probably help keep subscribers longer as people will no longer have to pay for 490 out 0f 500 channels that they do not watch.

  3. I don’t necessarily agree with the premise that networks which aren’t adopted by large portions of the viewing population via an a la carte model would be “left to rot”. Why wouldn’t those niche networks just charge the premium for their content needed to support its production and expected quality. People who really want to consume this content would have to pay for it just as if it were any other niche or luxury item.

  4. Sean McMenemy Friday, November 5, 2010

    Maybe those channels that don’t get picked should rot. Why should the cable company or the viewer pay for anything they don’t want to watch? This will be the ONLY way to see what a networks true value should be.

  5. There’s something wrong when a $100 ATV the size of my wallet gets me Netflix for $9/month plus movie and tv rentals and streams content from my computer – all using a slick GUI. And it’s quiet, and doesn’t put out much heat. And the picture quality is great. And everything is on-demand.

    IT’s now become so plainly obvious how old the current cable model is.

    Look at ESPN3 on the 360 too. It could easily be on an ATV or Roku also. And no one can argue that its interface/format is much better than cable and satellite’s current way of watching ESPN content.

    This is a stellar example of what monopolies or oligopolies do to markets. They stifle innovation.

  6. David H. Deans Sunday, November 7, 2010

    Ryan, you said “the devil is in the details” — and that may be an understatement in this particular case.

    I’m a TWC customer in Austin, TX. I’ve seen analog basic cable go from $10/month to the current $20/month. Given the included channels in the “basic” tier, it seems that TWC doesn’t want to offer the service, so they intentionally make it unattractive (their franchise agreement with the City probably requires that they “offer” it).

    Therefore, from my point of view as a TWC customer, this notion of “really basic cable” is an oxymoron that defies logic — given the current scenario.

  7. Johnny Griswold Tuesday, November 9, 2010

    Too many channels and not enough good shows. Widdle down the channels, widdle down the lame filler shows and widdle down my damn cable bill. Seriously, do we need a show on cable about a guy who eats bugs in far away lands? Most of these “niche” programs should be downloadable video podcasts or something you could view on Hulu.

  8. Are you kidding? Why does even the most basic of cable require commercials being pumped into your livingrooms? I paid for programming not commercials! I am being charged for “programming” and also charged to listen to commercials. NO WAY!
    I have $126 two year lockdown price for basic cable – no DVR, no movie channels, every program is poorly created video with child actors, rotten in other words! Just plain rotten! And then A La Carte will cost me extra on top of 126? BUll! Television is crap anyway – I am dumping my TV and cable too!

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