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Summary:

The cable industry is pulling an about-face on the issue of a la carte programming, due to expensive content rights and a weakening economy making bundles of network programming unaffordable. As a result, they’re trying to create smaller and more affordable bundles of programming.

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The cable industry is pulling an about-face on the issue of a la carte programming, due to increasingly expensive content rights and a weakening economy making bundles of network programming less affordable for the average consumer. That’s the word from Reuters, which reports that cable executives are negotiating with content providers and seeking regulatory relief in an effort to create smaller and more affordable bundles of programming.

Cable companies have historically fought against the idea of a la carte, arguing that allowing customers to choose channels on an individual basis would tear apart the value of the bundle. Since typical cable viewers only watch a handful of networks each, such a choice would mean that many niche networks with lower ratings wouldn’t survive if viewers didn’t choose to pay for them.

But cable companies have become stuck between a rock and a hard place: On one hand, media companies are demanding ever-higher carriage fees for their programming; on the other, consumers are being squeezed by a weak economy that threatens to make cable service unaffordable.

Programming costs have risen six to 10 percent a year over the last decade, Reuters reports. In part, the increase comes from broadcast networks demanding retransmission fees for channels that cable companies used to provide free. It also comes from media companies negotiating larger bundles of networks together, each of which generally comes with a higher price.

Those price increases are generally passed on to subscribers, but given the general economic environment, consumers are less able to pay than ever. In a research report issued earlier this month, Bernstein Research Senior Analyst Craig Moffett wrote that a large number of consumers have little discretionary income to spend on luxuries like cable:

After the necessities of food, shelter, transportation and healthcare each month, the bottom 40% of U.S. households have already exhausted all of their disposable income. There is nothing left for clothing… for debt service… for cable… or for phone.

The solution for cable companies may be to find ways to lower the cost of cable. As a result, they will likely need to offer lower-priced bundles of content, or to make some networks — like ESPN — available on an a la carte basis. Under the current model, all cable subscribers pay for each network, even if they don’t watch that content.

  1. The key phrase here is “negotiating with content providers”.

    Bundling has always come from the content providers not the MSOs. If an MSO wants ESPN they are also forced to take ESPN 2, ESPN classic, Disney Kids and whatever other ad supported network Disney wants to throw in so that the network has enough reach to sell ads for a decent rate.

    The same it true for viacom and universal, TW, and Discovery.

    You want Discovery channel? you take Military Channel, TLC, Animal Planet, Discovery Health Channel, BBC America and BBC World News too.

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  2. “Since typical cable viewers only watch a handful of networks each, such a choice would mean that many niche networks with lower ratings wouldn’t survive if viewers didn’t choose to pay for them.”

    This has always been the argument, but only recently did I realize: So effing what? Is there some great need for 500 channels mostly full of things people don’t want to watch? What are these fabulous niches that we’re going to lose out on? Is less TV really a problem for anyone except people who work in the TV industry?

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    1. Yes. Besides, what’s to stop the orphaned channels from going directly to the internet. Leo Laporte (TWIT) for example, couldn’t stick on regular TV, but now he’s more successful than ever going direct to his audience via the web. Any cable channel that can’t make that work, deserves to fade away.

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    2. That line jumped out at me as well. If they wouldn’t survive because not enough people are interested in them, why are people being forced to pay for them? Why should cable subscribers need to subsidize programming in which they have no interest?

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      1. The answer to your last question is: so that someone can make money even though no one watches that programming.

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    3. Good article and insightful comments here. I picture the ideal for the consumer is a channel guide on with a check box on every channel “SUBSCRIBE/UNSUBSCRIBE”. Cable TV operators would hate that but I create my own custom bundle of the 6 channels I really watch.

      http://www.cordcutterguide.com/

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  3. I don’t want a more affordable bundle, I want to pay for the handful of channels I actually watch. The cartel that controls the media from creation to distribution cries out for anti-trust action. Every provider offers exactly the same bundle of crap.

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    1. Yes, but your bill isn’t going to go down much. People think if they have 1/10 of the channels, their bill will be 1/10 as much, and it isn’t going to happen that way. The cable company is still going to cover their operating expenses up front. Your bill might go down by a few dollars, but that’s it.

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      1. No, antitrust action directed at content providers. We need viable alternatives to local cable franchises.

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  4. Its a free market. If no one watches a channel let it die.

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    1. Too simple, too honest, too real! People have a sense of entitlement and the concept of economies of scale it too difficult to understand.

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    2. I spent a few years as the GM of a mid-size cable company and bundling is Hollywood’s rather ingenious/insidious way of creating artificially large flows of cash for themselves.

      It is important to understand that “big studio” not only gets the money for the ten’ish channels you watch, they get the money for all the niche channels you don’t watch but still have to pay for.

      The situation is somewhat analogous to buying a car and the car maker, acting through the dealer, “bundles” a bunch of tiny, less than useless motorized three-wheeled shopping carts with the car you want to justify the over-inflated price of the car.

      If you’ll notice, there is zero Congressional or state level interest in looking into Hollywood’s operations. Why is it that “The Empire Strikes Back” has yet to show a profit despite being one of the largest grossing films of all time?

      Hollywood has Washington DC puckered up and on it’s knees, begging for more – so don’t expect any kind of legislative relief.

      “Big oil” are pikers compared to “big studio” when it comes to ripping off both the public and uncle Sam.

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      1. Interesting insight Tom. What stops Comcast, TWC etc from negotiating. As the mass distribution channel for content couldn’t they say no to the bundle?

        http://www.cordcutterguide.com/

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  5. It all comes down to how this is implemented. Give the way of the corporates, this is going to turn into another netflix. It will start off as “Smaller bundles” to help reduce the cost and then the consumer will quickly realize that for the channels they normally watch they will end up paying far more than the cost of the original bundle. So give a choice “Thanks, no thanks”.

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  6. Sohrob Tahmasebi Tuesday, September 27, 2011

    Both the content providers and cable companies are responsible for their own undoing. Their greed and unwillingness to listen to their subscribers is now coming back to haunt them. I have no sympathy for either party.

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  7. Good points all around. To add, there is the prime time factor paradigm. If content can be offered at different rates depending on how ‘fresh’ it is, and if everyone from the content carriers to the distributors to the cable operators can agree, and if topical & analytical, serious and entertaining content can still be fit in this new division, then it can provide a viable altrnative business model. But there are a lot of ‘ifs’ here.

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  8. They are a day late and a dollar short. I cut the cord in 1993; realized I wasn’t missing much, and I ain’t never going back!

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  9. “such a choice would mean that many niche networks with lower ratings wouldn’t survive if viewers didn’t choose to pay for them.” – Yeah, because folks don’t want those channels- What kind of business model spends money on a product no one wants???

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  10. Its a shame that most people dont realize what a small fraction of the overall cable bill pays for the programming bundle. the vast majority of the monthly bill actually goes to the MSO infrastructure to deliver the signal in the first place. So make it a la carte if you like, but your bill will only go down a few bucks…then we’ll lose a ton of niche programming that in aggregate actually pleases a wide range of people.

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    1. It’s true that cable infrastructure is hyper expensive – however those costs are capitalized/depreciated over many years where content costs are an expense that are paid pretty much in full every month. So the relative impacts of the two on monthly subscription rates is not as straight forward as it might seem.

      In terms of what a subscriber pays in any given month, content costs are more of a major driver of our monthly cable bills than it might seem.

      For example (these numbers are from memory of 2009 costs, so they are close but not precise) if you have 180 channels, the wholesale cost for those channels to the carrier (in 2009) on average was around $36.00 dollars per month.

      Interestingly (to me anyway) the average per channel, per subscriber cost to the carrier then is about $0.20. Note that ESPN is about $4.10/month, FoxSportsNet is about $2.30/month and and the next most expensive channel would probably be TNT at $0.99 or so – and costs drop rapidly down to $0.06 for the “Science Channel” and $0.01 for “Nick Too” for example.

      Again, that $36 is wholesale and cablecos mark it up by varying amounts to you and me. The rest of your bill covers support, infrastructure, and a bunch of government (fed, state, local) mandated services recovery fees, and of course taxes of all sorts.

      So, content is a significant driver of subscription prices and are more variable year over year than infrastructure. Apologies for the length of this comment.

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      1. Yes, here’s the article that laid out all the network’s prices: http://allthingsd.com/20100308/hate-paying-for-cable-heres-the-reason-why

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